While your company’s financials aren’t something to worry about every day (unlike customer growth, retention and money in the bank – oh my!), business owners should keep their key performance metrics (KPIs) visible in more places than just their CRM. To achieve this you need stellar accounting and to achieve that you need a stellar accountant. But how can a busy business owner know if their accountant is top notch or sub par? Ask these questions to gain some comfort about the ability and thoroughness of your financial statement preparer.
“Can I see my most recent cash reconciliation?”
Every time your books are closed, a cash reconciliation should be performed (often along with any lines of credit and credit cards). This reconciliation takes the “carved in stone” cash balance on your bank statement and shows whether your balance sheet does or does not match. If they don’t, it’s usually due to outstanding checks (recorded in your financials, but not cashed on the receiving end), and outstanding funds (marked an invoice as paid but haven’t deposited it at the bank, or the transaction has not posted yet.)
It’s important to ensure that these outstanding items are indeed valid, and that they are all recent (i.e. no invoices marked as paid 10 months ago that somehow have not posted in your bank yet). If there are old and lagging items, it could be a sign that your checks were lost in transit, so always follow up with the recipients to remind them to cash them. Additionally, it could mean you have duplicate or incorrect invoices, which is imperative to clear up so that you don’t overstate and pay taxes on revenue that doesn’t exist.
“Will these financials easily update my budget forecast?”
In addition to keeping the pulse on your financial reporting every month, you should also constantly compare your historical financials to your budget forecast to measure how your actuals line up with your goals. While one set of numbers lives in the past (financials) and one lives in the future (forecast), make sure you can easily compare these two sources of truth. This process is called a budget variance analysis. Depending on your organization’s size, this could be as simple as building an Excel model to easily drop in your forecasted budget and your actual performance (from your accounting financials) and measure the differences. To keep this comparison as simple as possible, make sure your chart of accounts is the same, or similar, to your budget forecast. Keeping the two sources of financial data aligned will ensure that updates are not a labor intensive process. [For a more indepth review of building a budget variance analysis, click here]
“How much year-end work will my tax accountant have to do?”
If your bookkeeper, accountant, tax filer, and advisor are different people (as they often are), you need to be very aware of what each is doing. Otherwise, you may end up paying your tax accountant for work you’re already paying your bookkeeper to do! Make sure these two financial professionals talk to each other. Management financial statements and tax financial statements are almost always different, but keeping your financials clean and reconciled will help cut down on the total bill your high hourly rate tax accountant may charge.
“What are the balances of our Suspense and Undeposited Funds accounts?”
The Undeposited Funds and Suspense accounts are a popular “catch-all” spot to categorize items or to hide odd items that a bookkeeper or accountant may not know how to deal with (without your input). Undeposited Funds occurs when you have been paid by a customer, but it has not posted in your bank account yet. For example, you received two checks from customers and haven’t used your bank’s Mobile Deposit feature, or taken them to a bank location to deposit them yet. The Suspense account is a “catch all” or temporary account where bookkeepers may put items until they know how to categorize them. While both accounts have appropriate times for use, you must check monthly that the amounts are all valid, reflect the truth, and items do not grow stale after sitting in there for several months.
“How did my business perform this period versus last period?”
While your financials may not reflect the same output as your CRM does, they should display the overall trends of your business in terms of financial health and be comparable period over period (i.e. monthly, quarterly, annually). Your bookkeeper shouldn’t constantly be creating brand new items in your chart of accounts, and if they do make new ones, they should be reclassifying items from earlier in the year (or previous years, as long as there are no tax consequences). Your monthly financials should be used to keep a pulse on your business, not just for tax purposes.
Keeping updated monthly financials for your business is vital to judging company performance and making proactive business decisions. The foundation of your financials begins with a good bookkeeper, and likely an accountant to oversee his / her work. Always stay privy to the decisions they’re making and ensure they’re not placing bandaids on items just to get a deliverable to you.