Speaking of Business: Financial Matters: Practical Strategies for Today's Businesses

It's the foundation of every business decision, but one of the most challenging areas for businesses to manage well. As businesses scale and the regulatory environment changes, finance teams and leaders continually encounter accounting challenges that impact accuracy, timing and visibility. This article addresses these common issues, the root causes of their occurrence and practical solutions to improve financial reporting and cash flow management while minimizing compliance risk.

Understanding core accounting challenges

I know of many companies that are tripped up by basic — albeit crucial — problems: incomplete records, inconsistent policies, data that’s never current, inadequate internal controls. These obstacles can result in delays to reporting, misstatements and bad decisions. The symptoms are certainly familiar: late closes, unexplained variances and surprise cash shortfalls, to name a few — but the root causes tend to be organizational: lack of clear task ownership (or shared responsibility), manual processes that are error prone and inadequate training.

Accuracy of financial reporting: time span over which results are measured and interpreted as follows:

Financial disclosure continues to be a major sticking point. You can’t issue an accurate statement unless you’re using the same principles for accounting, it’s consistent, and the ledgers tie out and there is visibility on transactions. Another issue is timing: monthly and quarterly closes are time-compressed; there can be a rush to produce results, which may sacrifice quality. Finally, interpretation matters. Financial statements should be a management tool and not just a compliance tool. “No wonder they don’t” respond, Uggen says.“Teams that treat reports as a compliance checkbox miss opportunities to derive insights that drive performance.

To improve financial reporting, begin with a policy standardization and close procedure list. Develop a reconciliation checklist, and designate clear owners for each item. Implement a calendar-based close with time to review and adjust. Promote short narration commentary around the numbers and should be tied to some critical metrics leaders can quickly read and react.

Cash-flow: predictability and discipline

Operation is an organization’s heartbeat and there are many who do not have consistent forecast about cash flow. Some common pitfalls are overly optimistic receivables cycles, hidden seasonality and underestimating working capital requirements. Conservative cash management includes realistic collection schedules, firm credit policies, and the use of “what-if” scenarios.

Develop financial models for cash flows which distinguish between its operating, investing, and financing processes. Keep them current and pressure-test assumptions with a slower collection or unexpected expenditure. Focus on short term wins, like reinforcing credit terms, getting more accurate invoices out the door and getting billing in a shorter period via better communication and incentives. On the expense side, commit to another look at discretionary spending as a part of your routine, and maintain an accessible short-term funding plan for unforeseen gaps.

Internal controls and fraud risk

Even weak internal controls can exacerbate accounting issues. Controls such as separation of duties, hierarchical approvals and review of transactions are crucial to minimize mistakes and deter fraud. Smaller teams tend to have segregation of duties issues because a smaller number of individuals must fulfill more responsibilities, creating risk.

Design practical controls appropriate to the size and complexity of the organization. For small groups, switch jobs periodically and maintain frequent supervision by management. 7.Conduct multi-step approval routines for large transactions, and reconcile key accounts on a monthly basis. Integrity is also supported by the monitoring of abnormal transactions and setting-up of a whistleblower channel.

Automation and process improvement

Inefficiency often stems from manual workflows. Manual works – Data entry, reconciliations and report generation are repetitive processes and takes time. RiskVirtualization Disruptive technology solutions are here to lower risk and relieve staff so they can concentrate on analysis and strategy.

Begin by canvassing the most laborious workflows — and highlight any steps that can be automated. Even relatively simple rule-based automation can cut down on mistakes and accelerate the close. Consolidate the inputs and names of data to minimize reconciliation. In the world of continuous delivery Look beyond automation – enable a culture of forever fresh – ask accounting for feedback, measure cycle times and make small changes one at a time.

Talent and training

Accounting is technical and ever-changing. Staff need to be invested in to keep pace with accounting standards, reporting requirements and best practice. Lacking knowledge creates inconsistencies and missed signals.

Spend the money on frequent training, cross-training and well-documented processes. Train accountants to be analysts, able to move beyond the work of preparing data into value-added interpretation. Promote collaboration between finance and operational staff so that accounting reflects underlying business realities, which decision makers can rely on.

Compliance and regulatory complexity

Compliance – laws are always changing and differ from place to place, which makes meeting these obligations a burden. Keeping up without losing sight of daily operations is no small feat. Failure to comply could result in fines and damage to reputation.

Assign monitoring responsibility for regulations and keep a prioritized list of impending changes. Consider utilization of outside advisors in complex or unfamiliar areas and develop internal methodology for adoption of changes in accounting treatment or disclosures. Easy to Document It’s easy to document on time, and develop clear audit trails for a smoother review and less stress during an audit.

Helpful checklist to Respond To() 13 Mar 20 Practical Checklist in dealing with accounting issues

Ensure compliance with accounting policies and close approach documentation.

Nominate clear owners for the reconciliations and reporting process.

Develop and maintain cash flow projections in different scenarios.

Implement internal controls commensurate with team size.

Streamline workflow and standardize input.

Spend wisely on continuous education and non-siloed communication.

Stay on top of regulations and have your documents audit-ready.

Conclusion

There will inevitably be accounting issues, but these can be dealt with. Through attention to efficient processes, responsible cash-flow management, strong checks and balances, selective automation and ongoing education, teams can convert accounting from an annoying recurring problem into a powerful strategic asset. It’s not a question of perfect accounting, but accurate and timely insight into your finances that gives you confidence in making the right decisions to build and sustain your business.