Common Pitfalls
A financial fitness checkup can help you avoid the following common pitfalls:
Checks and Balances: Necessary Internal Control
At Company X, the receptionist/bookkeeper opens mail, makes deposits, records them, and files all support documents. The owner feels that she can trust this person to reconcile the bank statement to the books without reviewing it because this person does not sign checks and has been a trusted employee for a long time.
This scenario is all too common but is ripe for potential manipulation and abuse. This employee has free access to money as well as accounting records. Consequently, this employee, if unscrupulous, can pocket some cash or check receipts for personal gain and not record them in the books (and delete the sales record) and can reconcile bank statements knowing that no other person will review them for any discrepancies against receipt records.
Billing
Company Y prepares billing for both hourly and fixed fee projects. They have the most difficulty billing fixed fee projects because of their many different billing and contract requirements. They can’t figure out whether they make money on these fixed fee projects because they can’t rely on their job cost reports.
They often miss opportunities to bill all they have earned and they may not even know it! Their accounting system has not been set up correctly to match the basic contact or any subsequent amendments and additional services. Billing is a very stressful time and their invoices are often sent back by clients to correct errors. Consequently, their cash inflow suffers from delayed and incomplete invoicing.
Accounts Receivable (A/R) and Collection
Company Z cannot rely on their A/R aging report and they hesitate to contact past due accounts because they cannot rely on their accounting system. They have not been correctly using the accounting system to update cash receipts and A/R. Also, they have no A/R and Collection policies to help guide them as to when to contact the past due accounts and how to handle collections.
Company Z has difficulty with cash flow and worries about making payroll on a regular basis. This is because they don’t have reliable data to help them understand their cash flow: receipts, A/R, and collection. Instead, they end up using their line of credit when they don’t have to, incurring unnecessary interest charges. Without reliable reports, they have difficulty determining their true available cash balance at any point in time.
Take Action
I have extensive experience in designing systems that will minimize these pitfalls. I can help you identify the problems that may be hindering the success of your business. To schedule a complimentary initial consultation, please contact me at the email address on the left.