Businesses are driven by the thought of changing the world by bridging the gap between an idea and a thriving business to position themselves as a leader in the industry.
However, anxiety, guilt and loneliness are the harsh reality of being a business owner. Many entrepreneurs report “money worries” as the main reason for this increased level of social isolation and anxiety. Understanding the ins and out of the accounting, financial planning, cash flow statements, profit margins and so much more, can make CEO’s feel like their stumbling around half blind. It is essential that a CEO brings a CFO as their right hand to guide them through the financial ups-and-downs of owning a business.
Over the last 16 years, NOW CFO has seen the struggles entrepreneurs and CEO’s face every day. We have learned ways to build up a company’s financial visibility and set them on a path towards better growth and success.
Organization is a Springboard to Success
While there is no one-size-fits-all recipe for success, the number one priority should always be preparation and organization. Benjamin Franklin said, “By failing to prepare, you are preparing to fail. The ability to anticipate and plan for future challenges allows for strategic planning to get the desired results.
Organizing assets, accounting for liabilities, and calculating equity is better done now, rather than later. Mistakes can easily be made throughout the year and preparing early provides piece of mind while also opening the door to future opportunities.
Finding and Fixing Inaccuracies
An accurate account of assets is vital to a company’s understanding of its profits and equity. There are many ways a company can have inaccurate records of liabilities, assets, revenue, and expenses. Companies should clean and correct their records to set down a foundational understanding of their financial wellbeing and encourage growth.
Bank Reconciliation and Cash
Bank reconciliation and accounting for cash is the first and foremost priority for a company looking to increase their financial visibility. Knowing if there are any inconsistencies between the money in the bank and the accounting records helps companies have a better understanding of their current assets and how much cash is available for payments and company growth.
There are several reasons why the company books and bank statements might not match. Payments towards loans, credit cards, and other expenses could have been mislabeled or applied to the wrong department or account. If accounts payable recorded a payment towards a supplier, there could be a time delay in the fund transfer. There is also a chance that a simple data entry error was made.
If an inconsistency arises, check each transaction within bank statements against the records kept by each department to determine what is causing the issue. Uncoordinated records and statements need to be corrected quickly to prevent it from becoming a problem in the following year.
A key factor in good business is properly managing Accounts Receivable. A turnover rate that is too slow can tell investors a lot about the health of a company. It is essential to analyze AR, especially to know if there are collection issues. Without a clear understanding of accounts receivable, writing off severe debt becomes painful, and businesses can lose out on the cash they have earned.
Each business should have an amount of inventory that is perfect for their production rate and expected sales. However, throughout the year inventory in storage shift and end up lost or be returned which can make keeping an accurate count complex. Inventory loss throughout the year will create an increased expense and inflate the cost of goods if not remedied.
Many long-term assets lose value over time, and companies need to calculate depreciation. These assets need to be looked at differently than prepaid and current assets such as inventory because they are useful for longer than a year. Much like when inventory gets used up once a year a portion of a fixed asset is considered “used” and becomes an expense rather than an asset.
Liabilities are a necessary part of business, but if not managed properly they can weigh a company down. left neglected for too long the company’s credit score could be negatively affected. Correct any missed payments on a regular basis, and once again before the end of the year.
Credit Card Reports
It is crucial the businesses ensure any purchases made on company cards are recorded. Banks can apply fees to business credit cards on a whim, so recording payments, and purchases made on the card help companies to know if fees are being applied and prevent the company from missing payments.
If a company has incurred debt throughout the year, it is important to manage cash to make payments and address any issues that come with it. Go through all payments made towards loans and determine if all payments were recorded to reflect essential details.
Changes in Equity
Once a company’s accounts have all been reconciled, companies can calculate any changes in equity. Keeping and creating ownership in a company is driven by equity.
To Plan is to Grow
After all the time spent organizing and preparing a company’s financials, it would be foolish for business owners to stop there. Planning for a business takes time, but the rewards are tremendous. With the knowledge CEO’s gain from cleaning up the books, they are ready to grow their company.
Create an Annual Operating Plan
Annual Operating Plans are an effective way to facilitate growth within a company because they combine yearly goals with monthly budgets. Annual Operating Plans help keep companies accountable.
An AOP can be made at any time during the year, but it is most effective when done before the Fiscal New Year. Companies are to use their plan to take advantage of tax planning strategies and to start the new year off ready for the post-holiday slowdown.
There are several components of an Annual Operating Plan that are important to take into consideration to optimize benefit:
Find Key Performance Indicators
Key Performance Indicators should be a specific measurable goal for each employee and department to achieve. A KPI should hold individuals accountable and allow employees and managers to focus on what is most important.
Analyze Previous Years
Companies can learn a lot from the past. Go through financial statements, Budgets, reports, and any other documents from previous years to lay a foundational understanding of how a company works.
Prepare for Failure
Many great men and women have failed in their lives. It is not the failure that defined them, but how they pulled themselves back up. No matter how exciting or innovative a company is there will be times where it seems they will not make it. Those that are able to pull themselves out of tough times come out stronger and better prepared.
Consider the possible setbacks that could damage a company when creating an AOP.
- What could stop the company from achieving its goals?
- How would the company react in a financial crisis?
- What if an outside force disrupts production?
Maintenance and NOW CFO
The tasks outlined in this document involve preparations for the end of the year, but companies should do them all year round. Once the bulk of the preparation and planning is finished by NOW CFO consultants, maintenance is easy. Companies that periodically perform tasks on a monthly or quarterly basis often have an easier time dealing with the extra tasks that come with sustainable growth.
Over time, making and following plans becomes part of the company culture and accountability is the highest priority for every department. For companies who perform regular maintenance on the records of their assets and liabilities, waste and mistakes become less of a problem. Overall, companies who are organized and prepare for the future become more profitable.
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