Nine Considerations for Small Businesses to Improve Accounting Operations

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Like owning a vehicle, owning and operating a small business requires ongoing maintenance to sustain peak performance. Business owners of today must constantly monitor their core business functions to ensure they’re operating at maximum efficiency. An issue in just one business function can bring the organization to a standstill. To get the best gas mileage and keep their businesses on the road, owners should perform routine and proactive maintenance on each of their core business functions. One of those core functions, accounting and finance, is too often ignored for extended periods of time. While it’s a core function, business owners often maintain the same historical accounting operations and procedures, only performing maintenance when problems arise. As a result of new technologies, accounting operations can significantly contribute to organizational growth and success. As such, business owners should routinely perform a diagnostic check of their accounting operations and “tune up” those operations where appropriate. As a part of that diagnostic check, owners should consider the following:

1. Accounting Objectives

Before purchasing a vehicle, drivers frequently compare their objectives with available vehicles and attempt to select a vehicle that best meets those objectives. Over time, those objectives can change, and a vehicle purchased previously may not meet today’s objectives, e.g., having a sports car versus starting a family. The same is true of accounting systems. The first step in an accounting diagnostic check should be to determine whether an organization’s accounting system best meets its current objectives. Organizational financial reporting and accounting operations should be compared with current accounting system transaction flow and output to determine whether the system is appropriately meeting those objectives. If those objectives aren’t being met, organizations may want to consider “trading in” their accounting systems for a system that more appropriately meets current objectives.

2. System Structure & Settings

New vehicle models often include the capability to memorize driver settings. With this functionality, drivers can now tailor and memorize individual settings, resulting in a customized and comfortable driving experience. Like vehicles, an accounting system’s default settings can be customized to help tailor the operations of that accounting system structure to an organization’s needs. Owners should routinely assess those settings, including the chart of accounts, class, and dimension structures to help ensure those customized settings result in the production of financial information owners require to assess performance. If those settings aren’t achieving their intended result, they can be easily modified and enhanced to result in a much more comfortable experience.

3. Operational Accuracy

While vehicles are routinely equipped with sensors and cameras, drivers are often initially hesitant to fully rely on those sensors, as an error could have negative consequences. Over time, those reservations are often alleviated as drivers test the reliability of those sensors through experience. The reliability of accounting systems and processes also should be tested. As a part of the inspection, financial statements should be analyzed and general ledger transactions should be traced through the system to verify the accuracy of the transaction’s amount and classification. Operational accuracy is critical, and noting inconsistencies can help organizations recalibrate their accounting operations and lead to accurate financial information.

4. Accounting Controls

Parents of young drivers often keep the keys to their vehicles in secure locations so they can provide necessary approval for vehicle use and can control when and where the vehicle is driven. While it’s impossible for business owners to maintain their accounting operations completely by themselves, they should routinely assess their system of control over cash receipts, cash disbursements, sales, and payroll cycles. If there are deficiencies in accounting controls, those deficiencies can often be mitigated through the existing accounting system and application modifications. Addressing these deficiencies and implementing proper controls will provide owners with the additional transparency and control they require.

5. Application Integration

A vehicle is composed of several different systems that operate together. When the integrated systems work together, the vehicle functions effectively and efficiently. Like vehicles, accounting operations comprise many different applications and systems, including the general ledger, accounts payable processing, payroll, employee expense management, and more. For an accounting system to run efficiently, all the various applications need to integrate and work together. As a part of the diagnostic check, owners should assess whether third-party applications are properly integrated with the organization’s core accounting system. A properly integrated accounting system and third-party applications can help improve the quality of financial information, reduce repetition, and keep the accounting team’s batteries charged.

6. Staff Training & Development

Before driving a vehicle, drivers are required to demonstrate their knowledge of vehicle operation and the rules of the road. The same concept applies to accounting and finance department staff. Staff should be well qualified and trained on your accounting system, procedures, and integrated applications. Owners should look for training and development opportunities for their accounting and finance teams. Doing so will only help them perform better and enhance the life of the organization in the process.

7. Reporting Customization

While vehicles come equipped with factory settings, drivers can modify these at any time so their vehicle best meets their individual preferences and needs. Similarly, most accounting systems come equipped with default options and reports. However, those reports often don’t present the appropriate financial metrics owners need to make decisions. Owners should routinely assess the outputs of their accounting system. If the current output doesn’t provide the most relevant information, an organization can improve its process by creating dashboard reports and key performance indicators that are readily available for organizational decision making. This level of customization can often be created directly within an organization’s existing systems and can upgrade the existing report sets to best meet organizational needs.

8. Year-End Readiness

Prior to taking a cross-country road trip, vehicle owners often hire a professional to assess the state of their vehicle to reduce the risk of unexpected issues. Your accounting operations also should be assessed to see how ready your financial records are for preparation of your year-end financial statements and tax returns. A properly maintained accounting system shouldn’t require substantial adjustment at year-end to prepare the records. If your accounting teams need to do more than simply “inflate the tires,” the accounting system may not be properly maintained.

9. Proper Setup

The need for major maintenance and repairs on a vehicle can dramatically be reduced if the system is properly used and maintained from the beginning. For new business owners, the same is true for accounting and finance functions. We encourage owners to read and understand “the manual” as soon as accounting operations are established to help ensure the long-term performance of accounting and finance functions. Without proper care of this critical piece of your business, it doesn’t matter how it looks from the outside; what matters most is “what’s under the hood.”

Relying on historical accounting and finance operations can be detrimental to an organization. A periodic diagnostic check of an organization’s accounting operations is critical to helping the accounting and finance business function run efficiently and contribute to growth. If you haven’t recently performed a diagnostic check of your accounting operations, it may be time for a tune up.

Reach out to a BKD Trusted Advisor or use the Contact Us form below for more information on how we work with our clients to help tune up accounting operations and maintain them on an ongoing basis. You also can check out our outsourced accounting services for more details on how we can help your business succeed.

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