Why is keeping up with finances so complicated – I really don’t get it. It should be more straightforward. Maybe we don’t have the right people; maybe things aren’t organized enough? I constantly struggle to know what’s coming in, what bills to pay, where we stand with the bank. I need to catch up with everything and then stay caught up.
THOUGHTS OF THE DAY: Getting your arms around finance includes sorting out who handles what. Prioritize organization. Reconcile accounts regularly. Decide what reports are needed and how frequently.
Start with key duties.
At the top of the list is properly entering incoming and outgoing information, including invoices to customers, bills from vendors, credit card and other charge receipts, and all loan documents. If you’re not sure how to set things up, hire a bookkeeping training firm, or ask your accounting firm to show you. Write out procedures and insist they be followed.
Hire someone with bookkeeping or accounting training to make entries. Don’t rely on someone who learned “on the job” as they may not fully understand how to correctly enter transactions. Include your accountant when interviewing candidates to help spot competence issues. Consider hiring a bookkeeping firm to come in periodically if you don’t need someone full time.
Make entering data a priority and get things organized.
Have three “in” baskets for invoices that need to be entered, incoming bills from vendors and credit card charges. Add five “out” baskets for invoices to mail, payments to approve, checks to sign, reconciling and filing. Keep your eye on the amount of paper in each basket and don’t let things pile up.
Set up bookkeeping in a private office where papers won’t get disturbed.Lock the door when no one is there. Have a phone that doesn’t ring with incoming calls — the person doing accounting should not be interrupted, but might need to make outgoing calls to check on things. Have a shredder on hand for papers that get tossed.
Next comes verifying that what’s been entered in your accounting system matches what the other party who is charging or paying you has in their books. That’s reconciling. Top of the list are bank, credit card, lease and loan statements and client outstanding balances.
Who reconciles is as important as what gets reconciled.
To protect against theft, it’s important that whoever has access to make entries and changes in the accounting system not be allowed to reconcile. That means your accounting clerk, bookkeeper and controller should not be reconciling bank, credit card and customer statements. Your immediate reaction might be, “but who else knows how to do this stuff?” Reconciling is pretty easy if information is entered correctly and it’s done every month. You can do it, your accounting firm can do it, or a trusted staff person with good clerical skills can be taught how to reconcile.
Set up a monthly protocol to mail statements to all customers with outstanding balances. Include on the statement a name and phone number for the customer to contact if there’s a question. Assign one person in your company the responsibility for calling all clients with balances more than 30 days past due, to find out when the invoices will be paid.
Get a daily cash management report: cash in the bank, upcoming bills to be paid, expected receipts from customers. Review customer aging monthly, focus on collecting oldest balances first. Pay down loans as you build up cash.
Set aside time quarterly to plan and review. Use a budget for expenses, forecast your incoming sales, develop reports that compare what’s actually happening with your plans. Meet with people throughout the organization to discuss how well the business is doing and what changes might be beneficial.
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