Monthly financial statements are the operational core of every business. So why do businesses struggle with the timely completion of these reports, which typically include an income and cash-flow statement, corresponding budgets to actual results, and a balance sheet? Business owners and executives need simply to turn to their accountants and bankers who can provide examples of companies that failed at least in part because they neglected to use financial statements as benchmarks and decision-making tools.
Timely financial statements and information are extremely important in the decision-making and budgeting process for businesses of any size. Well-prepared financial statements are also vital with lenders who need to be kept up-to-date with regard to loan draw downs, potential line of credit increases and decreases, and renewals. The following 10 tips help owners and their accounting departments complete monthly financial statements as quickly and efficiently as possible, so that they can be useful in guiding the direction of a company.
1. Total Discipline: Financial statements aren’t a “nice to do if you have the time” or an “if you get to it” task. They must be done by a specific day each month—no ifs, ands, or buts about it. This discipline begins with the smallest and simplest of duties, such as getting out invoices in a timely manner, and ensuring that vendors’ bills are received and entered into the accounting system in the same way. The more disciplined a company with the small tasks, the more disciplined they’ll be with the larger financial statements.
2. Be Organized: This is easier said than done for many people, but it’s a must. Every employee involved in contributing information that will ultimately be reflected in the financial statements needs to not only keep good records, but be able to access them at a moment’s notice. Leverage technology to help you stay organized. There have been great advances in accounting software packages for companies of every size at a variety of price ranges. Most software packages allow for customization, and offer technical support as well. There’s no reason for not automating the financial reporting and data entry for many of the recurring client and vendor invoices sent out and received each month.
3. Create Procedures and Responsibilities: There must be a system or a set of monthly closing procedures and responsibilities in place, and staffers to carry out tasks. Every department must be involved and have their own system for reporting in a timely manner and be held responsible for meeting deadlines. If this hasn’t been done before, start by listing all the information needed to complete the monthly financial statements, and assign a task and a person to each one. This will include people outside the accounting department. And most importantly, establish deadlines for each task.
4. Always Be Closing: With apologies to Alec Baldwin’s “Blake” character from the movie Glengarry Glen Ross, a company should “always be closing” its monthly financial statements, that is, they should be doing the groundwork throughout the month in order to speed up the process in the beginning of the next month. There are many tasks a business owner, the accounting department, and departmental leaders can be performing, such as reviewing online banking statements and reconciling them on a weekly basis. Recurring journal ledger entries can also be set up which allows for monthly expenses to be entered automatically as accruals. When the real figure becomes available, the accrual gets removed and the expense is booked.
5. Eliminate Excuses: Don’t accept excuses, which you may hear from a number of employees. We’ve heard them all, from “The bank statements came in late,” to “This business is cyclical,” or “We weren’t able to bill on time this month.” Even construction firms, whose business can be seasonal, project-oriented, and affected by weather can complete monthly financial statements.
6. Meet Monthly: Business owners and executives should meet at least monthly, and preferably twice-monthly with accounting and back office staff to review management and financial information as well as any issues that might affect the timely completion of the financial statements. Part of this meeting should include an account analysis, which provides details on any items where the sales or costs are substantially above or below the estimated budget. The meeting can include a review of any invoices, vendor bills, or expenses that are missing to date. It will eliminate major surprises at the end of the month. Timely reporting and meetings are vital because they report and address the status of service and product delivery, new business generation, customer issues, accounts receivables, vendor payments, operating financial results, and other issues that affect the all-important cash flow.
7. Hire Right: The largest factor in closing the monthly finance statements in a quick manner is not how it gets done, but rather who does it. If business owners admit that their primary roles are sales and customer service, they need to hire a process-driven, detail-oriented accounting professional to play the role of financial statement drill sergeant. The accounting professional requires the full support of the owner, or else the process will break down easily.
Scott Rutter, CPA, CVA, is a partner in the New York City office of accounting and business consulting firm Citrin Cooperman. He advises business owners and managers of closely held businesses, providing accounting, auditing, tax and strategic consulting services. Scott can be reached at 212-697-1000, or firstname.lastname@example.org.