Regardless of whether your bookkeeping is done internally, or if its outsourced, you’ve probably grown to have low expectations from the function. Waiting weeks after the period ends to get a glimpse at a finalized income statement and balance sheet. Inconsistent expense coding, new general accounts and changing financial statement geography, which forces you to relearn your own accounting every month. Financial statements that barely provide a sense of the state of the business once you do get them.
This is happening because the people responsible for this job are looking at the function nearly as a task. Get the data into the accounting system and reconcile the accounts, then move on to the next month. They’re not imagining how their work can positively impact the bottom line of the business. As an analyst, I’ve always looked at the bookkeeping function as an opportunity to streamline and enable financial reporting and analysis. Below are a number of ways that the bookkeeping function can facilitate stronger financial analysis.
Coding of Entries
Often it makes sense to code your revenue and expenses in precise ways in your general ledger. Put deep thought into what truly represents your cost of goods, so you understand your profit margin. Grouping of wages with other employee expenses allows you to get a true sense of your human capital expense, to easily project the true cost of a new hire. Differentiating the different types of software you use between operations, marketing and accounting can uncover potential savings to be gained. Be selective with the number of accounts you use, to properly group expenses, but not make financial statements tedious.
Naming Conventions Between Systems
Very little thought is put into naming conventions. The way you name your customers, vendors, and products can have a dramatic impact on your ability to reconcile and dig deeper. Consistent naming conventions across your different systems will enable you to perform in depth analysis without having to spend considerable time cleaning and marrying data from disparate systems.
Matching Financial Statement Format
What does your monthly financial package contain and in what system do those statements live? A good reporting package should at the very least provide year-over-year variance analysis and a comparison to budget/projects. And both with a monthly and year-to-date version. Both your budget and previous year’s financial statements are fixed in format and the general ledger accounts used. And I prefer for these reports to live in Excel, which facilitates second level analysis. (Excel allows you to “touch” and “play with” the numbers.) By maintaining these reports consistently and being mindful of the impact on new entries to existing reporting, the creation of new general ledger accounts will be done only when necessary, instead of as an easy way to enter an item without much thought.
Automation to Increase Timeliness
With the increased level of integrations between online banking platforms and accountings systems, there is no excuse for delayed financial reporting. Bank and credit accounts sync directly with your accounting software, and rules can easily be established to accelerate the entry of expenses and revenue. Consistent monitoring of these integrations will expedite the reconciliation process, leading to faster completion of the month-end closeout process.
Viewing your bookkeeping function as a simple administrative task is a mistake. Dismissing it as a job anyone can do will lead it to be done in a manner inconsistent with the actual goals of your company. Instead, look at it from the end goal – what do I want to learn from my financials? Build your dream reporting package and work backwards to ensure that your accounting can support the creation of those reports. Turn the bookkeeping function into an extension of your analysis and the function itself will improve dramatically. Schedule a consultation with Titicus today to learn more.
