Broker Check

How to Evaluate Your Accounting Practices

Managing the books well and maintaining accurate, organized records can help you keep your business in tip-top financial shape. On the other hand, less-than-stellar accounting practices can cause an otherwise sound business to falter. It can hinder cash flow, sour relationships with vendors and customers, open the door to fraud, and create tax problems. Here are some key areas to assess to determine the efficacy of your company’s accounting systems and controls:

Accounts Receivable. Are your daily receivables within industry averages? To get a true picture, chart monthly figures to reveal abnormalities or negative trends. Have you benchmarked your bad debt ratio? Is there a process in place for management to review write-offs and refunds? Do you have processes and controls in place to ensure all payments received are promptly deposited in the bank?

Accounts Payable. Are controls in place to avoid double payment when a vendor sends both invoices and statements? Do you have clear policies that determine valid company expenses, and what documentation is required prior to reimbursing employees or contractors? Are responsibilities delegated so that the person who approves invoices is not the same person who issues and/or ultimately signs the check? Is your company’s cycle time fast enough to take advantage of prompt pay discounts?

Accounting Systems. Many companies have dual-entry accounting systems, but not all take advantage of their systems’ functionality. Are there enough accounts to obtain a clear understanding of the business’s cash flow? Do your employees perform a lot of “off-the-books” accounting on spreadsheets? While spreadsheets are great for planning and analysis, they often lack the all-important audit trail.

Corrections and Revisions. Some corrections or revisions are expected, but if they are becoming the rule rather than the exception, it is time to look at the overall integrity of your accounting system.

Time to Close. How long does it take to close the books each month? Is it within the typical range for a company of your size? Lengthy closing times may indicate inefficient accounting processes, making it impossible to assess the financial state of the business in a timely manner.

Reports. Are you aware of the variety of reports available from your accounting software? Do your monthly reports provide the information you need to run the business? Are data in the reports reliable?

As you fine-tune your practices, choose systems that are appropriate for your business needs. Take the time now to ensure that your accounting practices are up to snuff. It can pay off in the long run.

Copyright © 2014 Liberty Publishing, Inc. All Rights Reserved.