The 411 on BOI
Another week, another time to talk about the miscellaneous reporting required of business owners. (Don’t worry; we’ll lay off 1099s…for now.) Today we’re discussing a more impending need: BOI reports are due New Year’s Day, 2025.
You may have heard BOI referenced, but be unsure about what it is, or whether it applies to your business. Beginning this year (in 2024), the U.S. Treasury Financial Crimes Enforcement Network began requiring all companies registered within, or registered to do business in, the United States to report “Beneficial Ownership Information”. Per the Treasury Department, “Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company,” and the reason for this is to, “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.” (Frequently Asked Questions, Beneficial Ownership Information, https://fincen.gov/boi-faqs, U.S Department of Treasury Financial Crimes Enforcement Network, 2023)
The short answer is, a bipartisan law has been passed to help track the flow of money from businesses within the United States and, as a business owner, you are almost definitely required to complete this reporting.
The good news is that this reporting is relatively easy, particularly compared to much of the reporting, forms, and files you may be used to filling out. (Many of us are still traumatized by the deluge of documentation required to benefit from the CARES Act.) All you need is some basic information about the owners of the company. Also, there is no fee for this required filing.
When you are ready to get started, head to https://boiefiling.fincen.gov/. If you have any questions, the FAQ linked above gets into detail on who needs to file, what information you need, etc.
Good luck, and happy reporting!
It's time to have the talk (about 1099s).
The blissfully uninitiated may ask, "What are 1099s?"
1099s are, essentially, a service vendor's version of the W-2s you'd file for an employee. The IRS mandates that you do them a favor by helping report the money you pay individuals and small businesses for services.
"Oh, I don't have any contractors, so I can't stop reading here." PLEASE DON'T.
Does your business pay for rent? Marketing? Legal help? These are all services.
If you spend money on anything that isn't a material good, via any method that isn't a credit card, 1099s need to be on your radar. There are multiple types of 1099 filings, but, in general, the one most people think of is Form 1099-NEC. This covers most of your cash and check payments for services to unincorporated vendors.
If this is a tax season thing, why are we talking about it now, in early October?
Can Your Business Run Without You? (Beta Test)
Perhaps the most cliched goal in the small business world is to structure your business so that it can run without you. It’s something many entrepreneurs run toward, but that few achieve. And, if it is achievable, it’s even harder to test. Sure, you can go on vacation and tell everyone not to bother you unless it’s an “emergency”. Or, if you’re like me, you might go backpacking off-grid for a long weekend. But that’s really not the same as your business running itself without you. After all, how often is a business owner ever in a position where they absolutely cannot, for an extended period, respond to an urgent need within their company?
I recently did get the chance to see how The Bookkeeper operates in my absence. After a concerning checkup in January, I went in for a lung biopsy and was diagnosed with cancer in February, then scheduled for surgery in March. (Spoiler alert: The surgery was successful and I’m going to be fine.)
However, this did mean I was going to be out-of-work for weeks, with some of that period including a 4-day hospitalization, where I could not be accessible for even the tiniest work question. (I’m fairly confident in my accounting skills, but doubt I could T-chart a transaction with a chest tube in.) We had to make some quick, difficult decisions about how my work would be divvyed up and if we could even keep all of the work at TBK.
I also had to have some hard conversations. Telling someone you have cancer isn’t easy but, what became burdensome was having to tell new people over-and-over. However, I wanted to be honest with clients about why I wouldn’t be available. Most people were great. There were some awkward questions, but I wasn’t offended. (“No, I wasn’t a smoker. Yes, you can get lung cancer without smoking.”)
But, overall, things went fine in my time away. I had the benefit of having a co-owner who could pick up the slack and, as mentioned, I had a couple of weeks in which to make decisions and prepare. Perhaps that’s not the exact same as having a unicorn business that can operate perfectly in your absence, but I was proud of how TBK weathered nonetheless.
The hard part was in coming back. My first week I only worked a few hours, but already felt like I was un-needed, or didn’t know my place in the company anymore. As I started feeling better and working more, I came to see this as a blessing in disguise. Suddenly there was time to work on those marketing initiatives I’d been putting off, or work proactively on some new forecasts for clients.
As I’ve been getting back to full-time, the second-hardest aspect has been not slipping into old bad habits. One of the things a lot of people don’t realize about cancer is that it’s rarely considered “cured” right-away. My medical team feels confident the surgery removed all the
cancer, but I won’t actually be considered cured until 5 years of clean scans. I’m currently considered “no evidence of disease” (or “NED”) and will have to have scans for the rest of my life. It’s important to keep the new structure we established while I was out, so my time is not bogged down with things I shouldn’t be doing. It’s also helpful to keep my time flexible so I can assist if an employee needs to be out unexpectedly; I know so well now that anyone could have to be gone from work at any time.
Fixing the Shortage (by Explaining What We Do)
A few weeks ago, we wrote on where all the accountants have gone (largely, to better-paying jobs with better work-life balance and lower education requirements). I posited the idea that we might be able to address this shortage partially by improving the image of accountants, by explaining what we actually do. Spoiler: it’s not meticulous bean-counting and ledger maintenance.
Accounting is a language of numbers, but it’s equally important that modern industry professionals be fluent in technology. Understanding where a transaction hits debit and credits is no longer enough; accountants now often have to also manage tech stacks. For example, one e-commerce customer purchase may hit four different interwoven softwares: a merchant processor, an inventory-tracking system, a sales tax calculation and filing service, as well as all feeding directly into a cloud-based accounting system. If those integrations are not structured correctly, errors can occur that not only affect year-end taxes but inventory showing available for sale, sales tax filings, or even customer fees. An accountant is often the person responsible for not only structuring those system, but for reviewing the data and ensuring accuracy.
If, for example, entries were double-feeding into the sales tax processor how can you tell? How do you fix it? What if the sales tax has already been overpaid?
At this point, people skills become crucial, as the error has to be communicated not only to the client but addressed with departments of revenue to obtain refunds, or file correcting amendments. Of course, people skills aren’t crucial just when there is an issue. Accountants serve roles not just in business, but sometimes in court. Expert witness testimony is used to present forecasts and potential payment plans in bankruptcy court, or to help validate a business valuation in divorce court. In these situations, an accountant doesn’t have to just know what they know and exhibit their own expertise, but also has to present the information in a way that makes sense to those outside of any finance-related profession.
In some ways, what can be even more difficult is interconnection with finance professionals who don't always know accounting in-and-out. This is much of the day-to-day experience for CFOs and accounting managers. (See our article on the difference between the two here.) Beyond quarterly presentations to owners, board members, stockholders, etc., accounting professionals have to “tell the story” of an organization’s financials to lenders, or partner with revenue recognition specialists on structuring systems. These are people on the other side of the equation, who understand money but not perhaps where the debits and credits go. In these situations, it’s not enough to know and understand what you're doing, you have to be able to explain it. There is a quote frequently attributed to Einstein which applies: “If you can't explain it simply, you don't understand it well enough.”
This understanding and explaining has to take place in a format that suits the audience, whether that’s graphics, or slide decks, or a verbal presentation. So, a degree of marketing skills come into play. That’s compounded by a need to understand which information is most relevant, how frequently it should be revised (as in the case of projections), and when priorities shift. (A company looking to scale quickly is very different from an established business looking to sell.) Throughout all of this, there is an innate challenge in communicating information that is equally important and, to most, boring.
But, as we alluded to earlier, this is not what anyone pictures when they think of an accountant. And that perspective has to change, not just so that there’s better appreciation for the work (though that would always be nice), but so that potential new accountants can understand the diversity and appeal of the profession. Until we can move public opinion beyond the stock photo vision of “accountant”, it will be hard to recruit into the industry, and the shortage will worsen.
Where Have All the Accountants Gone?
In a season one episode of the HBO show “Our Flag Means Death”, Blackbeard attends a formal party in disguise as an accountant named Jeff. It’s played for laughs, to show that he is so out-of-touch with high society that he thinks an accountant would be an interesting or, in his words, “fancy”, guest.
It’s hard to think of many positive depictions of accountants in popular media. Not only is a career in accounting entertainment shorthand for “dork”, but they are not frequently portrayed as the kind of quirky, happy nerd cast as a programmer or scientist. Accountants in television and movies aren’t just uncool; they’re miserable.
The accounting shortage has done little to disprove this stereotype. The US Bureau of Labor Statistics is projecting a simultaneous 6% decline in employment for accounting clerk jobs alongside a 184,000 increase in new job openings. (US Bureau of Labor Statistics) And there are not new accounting professionals “in the pipeline”, so to speak. According to Financial Executives International, colleges and universities are reporting a 17% decrease in students enrolling into finance and accounting degree programs. (Why Are Students Leaving Accounting?)
I was curious as to my colleagues’ opinions on why this is happening, so I conducted an informal survey of a local accountants Facebook group. The responses were consistent; most reported feeling overworked and underpaid, with the additional knowledge and requirement of the various COVID-era initiatives (PPP, ERC, etc.) paying a toll. Others discussed the stigma and misinformation around accounting, that it was boring and that it was only used for paying taxes. (This has been a soapbox of mine for a long time.) Many discussed the barriers to entry, particularly the 5 years of college required for a CPA.
One long-term friend and colleague made an especially salient point about accounting professionals leaving for other industries. She wrote about how many accountants have discovered they have skills transferable to professions with better pay and better work/life balance.
These are all thoughts I have had myself, but there is one perspective which I feel like does not get mentioned often enough. So many whom I have seen burn out quickly are those who, in my opinion, got into accounting for the wrong reasons. There is a perception that accounting is a safe career that can result in easy pay in the long-run. While I think it certainly has a great deal of job security and can be very financially rewarding, I think that, in order to reach those benefits, you have to stick it out for a love of the work. The harsh deadlines, busy seasons, and inevitable headaches will not be bearable if you don’t love what you do. My first accounting job was 22 years ago and, if I didn’t love this work, there is no chance I would still be doing it today. I don’t anticipate leaving this industry for a long time, but I’m just one employee.
As for the accounting shortage overall, I do think there are solutions, but I think a radical perspective shift of the industry itself is necessary. There are undoubtedly young people who would make great accountants someday, and would love their jobs, but the image they have of accounting is endless forms and number-crunching. Our next article will be on what, as accounting professionals, we actually do.
Accounting in Space
With the recent (as of this writing) “rapid, unscheduled disassembly” of SpaceX’s Starship, private space travel is back in the news. Though it seems like a unique industry, more the hobby of billionaires flaunting their wealth while simultaneously striving for mass techno-visionary appeal, space travel is a business like any other. And every business, regardless of how frequently its product, quite literally, blows up, needs accounting.
Obviously, companies like Blue Origin need accounting for the basic things, like running payroll, setting up cap tables, or recording expenses. But there are a few things about space travel that make the necessary accounting much more unique.
A spaceship poses an interesting challenge when it comes to fixed asset management. Typically, a multi-use vessel is sent into space with single-use boosters. Of course, despite their limited lifespan, boosters are still massive expenditures which must be capitalized. If doing a cost-segregation study on a building for accelerated depreciation is complicated, how much more so is the accurate recording of disposal of rocket ship components? What even is the depreciable life of a spaceship?
When discussing accrual of activities within the fiscal cycle, you would also think of the subject of unearned revenue. Unlike Southwest, I doubt anyone is buying LunarX tickets same-day. Since space launches can be delayed for any number of reasons, it would make sense that revenue would not be recognized until a successful launch. However, in the event of a multi-day trip, is it recognized as time of launch, or after landing (presumably, with all passengers alive and well)?
How are the flights being paid for? Are foreign currencies accepted? Cryptocurrencies? If so, there would be additional conversions and gain/loss on those conversions to account for.
Of course, one of my favorite accounting topics is sales tax. Though, as of this writing, there is no sales tax on space travel, the idea has been floated by politicians before. The proposed SPACE (“Securing Protections Against Carbon Emissions”) Tax Act would charge passenger taxes and increasing excise taxes for orbital height. This act was proposed in 2021 and appears to have not yet gone any further, however, it is not unreasonable to think others might be forthcoming. If such a tax were to pass, the process by which nexus was determined could be fascinating. Would only the point of launch have nexus, or could states try to establish nexus for commercial space travel going over their airspace?
In addition to operational accounting topics, it stands to reason that these billionaire-founded companies would find ways to get considerable tax considerations, potentially even laws and loopholes (or at least incentives) written solely for their benefit. Fortunately for them, I am sure they have teams of accountants at their disposal, on standby to address every question and concern.
Caught Any Interesting Banking News Lately?
Though banking news typically sparks little interest in the general public, it was hard to avoid finding out about the collapse of Silicon Valley Bank last week. On Friday, March 10th, 2023, it became the second-largest bank failure in US history. The largest was when Washington Mutual Bank collapsed in September 2008, heralding the housing crisis.
Anytime a large institution implodes this spectacularly, there are several questions, which we’re going to attempt to answer, as best as we can, with the knowledge currently available.
The first is…
What happened?
Silicon Valley Bank failed for many of the reasons it initially succeeded. It catered to the startups housed within its namesake, and had a similarly high tolerance for risk (especially compared to other banks). Compared to other banks, SVB overinvested relative to its available cash. Worse, they overinvested in long-term bonds at a time when the interest rates of return were low and, when rates rose, those bonds lost value as no one wanted to purchase a bond at a significantly lower rate of return. Once it became apparent that SVB was saddled with some poor investments, their stock dropped significantly.
Of course, if a bank’s stock experiences a significant drop, the depositors lose confidence, and want to pull their cash out. When that happens, you get a “run on the bank”; this is a downward spiral in which customers rush to withdraw their funds, of which, of course, there is not enough available in cash, creating a further drop in confidence, making more customers want to withdraw more money, etc. In this case, there were even reports of branches closing and police being called on customers refusing to leave. Amidst this, the California Department of Financial Protection and Innovation stepped in to close Silicon Valley Bank and appointed the Federal Deposit Insurance Corporation (FDIC) its “Receiver”.
How did all of this affect small businesses?
According to regulatory filings, as of December 31st 2022, 93% of SVB’s deposits were uninsured. So, for businesses banking with SVB, their deposited funds over $250,000 are not guaranteed to be safe. Furthermore, on Friday, March 10th, customers could not withdraw funds. This didn’t just affect SVB’s banking customers, but also those working with them. For example, Patriot Payroll, which kept their operating funds with Silicon Valley Bank, could not process payroll for any of their clients on the 10th, resulting in thousands of those companies’ employees not receiving a paycheck. Rippling, another payroll company, had to move funds around and delay to paying their clients’ employees over the weekend.
BILL (formerly Bill.com) held funds within SVB, and warned of potential delays, though none ended up being reported. Even Etsy had to delay payments to some sellers, due to funds being tied up at Silicon Valley Bank. So, even if a business never banked with SVB, if they used a payroll company who used them, or used a certain bill-pay service, or sold things on Etsy, they could have been affected.
What should I do?
If you banked with SVB, read this press release from the FDIC. If you have never banked with SVB, this can still be a good reminder to “not put all your eggs in one basket”. First, always be sure you’re using a FDIC-insured bank. Secondly, if you have deposited funds over $250,000, spread it across multiple banks (multiple accounts at one bank are not sufficient).
This can also be a good reminder to gain a close understanding of your cash-flow. This isn’t me just telling you to “spend less”. Understand, in-depth, the ins-and-outs of how your money moves. Know which vendors are on auto-payment from which checking accounts or credit cards. Know where your deposits go, how early before payday your payroll is deducted, etc. If you had to switch banks suddenly, would you know everything that needs to be moved over?
How did all of this affect small businesses?
According to regulatory filings, as of December 31st 2022, 93% of SVB’s deposits were uninsured. So, for businesses banking with SVB, their deposited funds over $250,000 are not guaranteed to be safe. Furthermore, on Friday, March 10th, customers could not withdraw funds. This didn’t just affect SVB’s banking customers, but also those working with them. For example, Patriot Payroll, which kept their operating funds with Silicon Valley Bank, could not process payroll for any of their clients on the 10th, resulting in thousands of those companies’ employees not receiving a paycheck. Rippling, another payroll company, had to move funds around and delay to paying their clients’ employees over the weekend.
BILL (formerly Bill.com) held funds within SVB, and warned of potential delays, though none ended up being reported. Even Etsy had to delay payments to some sellers, due to funds being tied up at Silicon Valley Bank. So, even if a business never banked with SVB, if they used a payroll company who used them, or used a certain bill-pay service, or sold things on Etsy, they could have been affected.
Is It Time For a New Inventory System?
December is the time of year when everyone starts thinking about changes for the upcoming new year. For companies, that often means analyzing their current systems and thinking of what they want to improve.
One area in which we’ve seen a large number of clients update their processes this year is in inventory management. Many companies began selling more online during the pandemic, and quickly found that their old inventory systems couldn’t keep up. Those clients turned to us for guidance on the best solutions for those issues.
As we’ve worked through helping clients select, implement, and troubleshoot new inventory systems, we’ve encountered several questions, and have made a number of observations, which we would like to share.
Question #1: How do I know it’s time for a new system?
Unfortunately, many companies do not feel the need to begin the search for a new inventory software until an error has been identified. In the accounting systems world, errors are like cockroaches: if you see one, you probably have one hundred.
Errors can occur for a number of reasons, but, in essence, will always boil down to a failing of either man, machine, or both. Machine errors occur when outdated systems fail to integrate appropriately, or when data stops populating in a timely manner. Human error is simple mistakes, often due to manual mis-keys, or rushing. But often, it’s some combination of both. One common issue is that an outdated software no longer provides the functionality required, so the people using it create a manual “workaround”, that is subject to human fallibility.
Errors often coincide with another sign that it’s time for a system update: the current system takes too much time. It’s too finicky, not automated enough, and requires too many man-hours. These outdated systems may have a cheaper price tag, but cost too much in lost productivity (or having to pay accountants to fix the problems they cause).
Finally, it’s a clear sign that it’s time to update your inventory system when it is costing you revenue. If you can’t quote a customer because you aren’t sure if you have the job materials, or if you fail to fulfill an order on-time because product is missing, you can be certain your inventory needs to be updated.
Question #2: How do I choose a system?
Clients will sometimes ask us, “Which inventory system do you recommend?” While it’s true that there a few we work with more frequently than others, no one system is best for every company. Even businesses in the same industry can have very different needs and priorities, necessitating different software options.
A good first step is to establish your priorities in selecting an inventory software. It’s not guaranteed that you will get all of the features and functionality you want (especially if you have a limited price range), so it’s good to know what bells-and-whistles are “must-haves” versus “nice-to-haves”. It’s also crucial to ensure that any software you pick accounts for the people who will be using it; a Cadillac ERP is useless if it’s too complex for any of the end users to understand.
You also have to determine whether you are looking for a short-term solution that will build upon your current systems, or something scalable that will replace current systems and be used indefinitely. For example, many companies will purchase highly-modular inventory software packages that can integrate with their accounting software, and have additional features unlocked over time. Other companies may select an all-inclusive program with high start-up costs, but that should suit all of their needs in perpetuity. This is where cost becomes a huge factor.
In analyzing multiple system options, it’s important to calculate the ROI on each one. In making this calculation on a software option, it’s important to not only weigh it against the cost of any systems it might be replacing, but to also consider labor hours saved, potential revenue gained, loss prevention, etc. You might even be able to incorporate functions you had not considered. (For example, a trades inventory software might come with scheduling applications which can save dispatch time, or improve marketing.)
Of course, once a new system is selected, the project is only beginning.
Question #3: How do I get started with a new system?
Implementation is the toughest, most frustrating part of any software project. There are almost always unforeseen challenges, and it is often a highly iterative process of testing different types of transactions, seeing what errors are thrown, and making adjustments, just to test again. However, there are steps you can take from the onset to minimize the pain of systems transition.
Your first step is to establish your transition “team”: this is a mix of the system’s end users, both internal and external, and any consultants or experts who are helping you along the way. It’s good to clarify each team members role and duties early on, to avoid duplication of efforts or tasks being missed.
Once you have pulled your team together, you’ll want to schedule out milestones for your transition project, as well as touchpoint meetings. This will keep everyone focused, and will help prevent you from losing momentum. Too often companies purchase expensive new softwares without a clear implementation deadline in place, and end up letting them sit unused, while everyone continues to work in the old, more familiar software.
In putting together your transition timeline, you’ll also want to consider how long of an overlap window you want with the old system. Overlap windows, where both systems operate concurrently, not only make the transition smoother (because you’re not trying to cut off one system at the same time you begin a new one), but also help provide a data backup in the (nigh inevitable) event the new system needs some troubleshooting once it goes live.
After you’ve been active in the new system for a while, it’s also good to have established check-ins to be sure that everything is remaining accurate, and that there aren’t any “behind the scenes” problems to be addressed. Then, you can work in confidence in your new, updated inventory program.
We’re Not Business Coaches
I’ve written before about the role of a CFO versus an accounting manager, but have found that there is still a good bit of confusion surrounding what an outsourced CFO/accounting consultant does. The major misconception is that we offer business coaching. In order to clarify how that is not what we do, I thought it might be helpful to expound upon the differences.
Focus
Coaching is directed toward an individual, often a company owner or higher-level executive. Financial consulting is based on the needs of the company as an entity. While a business coach might direct an owner to how they might discover their personal passion, and build a company around that, a business consultant would view the areas of profitability for the company, and help devise a plan for focusing toward the best area of ROI, while still serving a diversified client base. Someone struggling to define their personal vision would make a better client for a business coach, than for a consultant.
Methodology
Financial consulting is based in quantitative data. We do work in forecasting, with margin for error, but all analysis of future possibilities comes from what is quantifiably measurable in the present. Business coaching can be based around more nebulous information, and be more aspirational in pursuing goals. Financial consulting can be used to deal with a moving target, as opposed to aiming for a destined endpoint.
Relationship
Though we love our clients and are always willing to lend a sympathetic ear, we recognize that we are not trained therapists. (I do feel like we should at least get an honorary license for talking hundreds of people through PPP applications, however.) We want what’s best for our clients, and sometimes that means having to have difficult conversations. Our role is not to be a cheerleader, but an arbiter of fact-based truth. If a client is dead-set on a given business path regardless of the data, and is seeking encouragement only, they are not a good candidate for our consulting.
In short, via our consulting services, we seek to assist a business owner in improving their company. We do not endeavor to improve the performance of the business owner his or her/self.
The Four Pillars of a Financial System
Every business has, whether by intention or default, a financial system. In a “default” financial system, the movement of money just…happens. Bills might be tracked on a notepad, customer invoices are saved on a spreadsheet, and the accounting is just something the tax preparer does with the bank statements at the end of the year, wholly unaffiliated with anything else going on in the business. The chaos that results from these default systems leads to owners out-of-the-loop on their own companies’ financials, and has caused the shuttering of more than one small business.
Building a solid business financial system requires focus, planning, and four crucial pillars: software, workers, processes, and product.
Software
An accounting software is necessary for a solid financial system, but does not have to be pricey nor extravagant. It is easy for SMBs to rack up hundreds in monthly subscriptions by trying to find a software, or combination of softwares, that will automate every aspect of their business. Though automation has come a long way, it is inevitable that some work will have to be done by a human.
It is most important to find a software that meets the needs of the business while simultaneously producing accurate financial reports. Choosing a software is too long a process to cover here, but there are a few guidelines to keep in mind:
- Does this program meet double-entry accounting standards?
- Does it save me time, or create more effort?
- Will one software cover everything, or will other softwares be needed? Can they be successfully integrated?
- Can everyone working in this program learn to use it accurately and effectively?
- Will everyone working in this program use it?
As you can see, those utilizing the system are as important as the system itself.
Workers
In speaking of workers, I am not referencing general employees but rather all those, internal and external, who are operating in the space of the business’s financial system. This could include the business owner, a W-2 admin, a tax preparer, or an outsourced consultant. In developing the system, practical considerations have to be made regarding the ability and willingness of those expected to work within it. One software might be flashier than another, but too complicated to learn alongside keeping up with other work duties. Or, a business owner might be interested in highly granular data regarding their supplies inventory, but it would be impractical to ask for a daily count of individual nails.
Like other aspects of the system, the workers may shift from time to time. A business who relied on an in-house admin to fulfill bookkeeping tasks may choose to outsource those duties as they grow, or to find a CPA who can better meet their needs as a scaling operation, versus a smaller “mom and pop” shop. Regardless of who currently performs the work, it is important that everyone’s tasks are clearly outlined and delineated. This is where processes come into play.
Processes
Documented processes are vital to any business operation, and financial operations are no exception. It is important to have processes well-recorded not only to ensure that things run smoothly, but also to protect the company’s fiscal assets. A messy financial structure is one that is vulnerable to embezzlement and mismanagement of funds. In developing processes, consider the following:
- What individual is responsible for which tasks? Are duties separated to prevent misbehavior? (For example, requiring a second approval to add a new vendor to the bill-pay system.)
- Which tasks are dependent on each other?
- What are the deadlines for each task, and how do they affect subsequent dependent tasks? (For example, what if reimbursement receipts aren’t submitted prior to the payroll run?)
- How can natural consequences be utilized in order to ensure that tasks are met with accuracy and timeliness? (Ex. If reimbursement receipts are not submitted on-time, they will not be paid out until the next payroll run.)
If the workers are utilizing the software appropriately, and are following processes, you will receive a timely and accurate financial product.
Product
The financial documents resulting from your system’s work are your product. As we’ve previously discussed, this shouldn’t be just your end-of-year Balance Sheet and Profit & Loss Statement for tax filing. You should receive and analyze financials on, at minimum, a monthly balance. Reviewing the financials while they are fresh allows you to make timelier and more relevant business decisions. Beyond the standard financials, developing KPIs, and the appropriate reports with which to track them, is crucial as well. One company facing cash-flow issues might want to examine Average Days to Pay on customers, as well as their monthly Statement of Cash-Flows. Another company might want to review profitability within one division of their organization. Much like the rest of the financial system, this product can also evolve over time.
Developing a financial system can be a daunting task, but help is available. If you would like better structure within your financial system, but aren’t sure where to start, contact us for a free consultation.