Creating Better Financial Control – Discipline #5 for Managing Your Company Finances 

Financial Management

Did you know that some 95 percent of business leaders are less than impressed with the cost-to-service value of their accountant’s financial management services?   

We have a great deal of respect for accountants and value their position both to us as a company and within the mechanics of a business. However, this consistent area of irritation isn’t with the accountant as a person, it is with the dynamic of the relationship. 

In this article, we will provide both a clear description of what activities all small to midsize businesses need to be doing, and how they can remain financially strong. Additionally, we will take a closer look at why you, like most business leaders, might be feeling you are not getting receiving the best value for money from your accounting services.

Before we begin, a quick reminder of the five core disciplines all business leaders need to ensure are well implemented and maintained to have a strong and adaptable business.

The five disciplines are:

  • #1 – The Discipline of Practical Company Planning
  • #2 – The Discipline of Using a Business Accountability Chart
  • #3 – The Discipline of Effective Management Meetings
  • #4 – The Discipline of Monitoring a Simple Company Scorecard
  • #5 – The Discipline of Better Financial Control

Let’s be honest, working on financial management activities for most entrepreneurs is up there with watching paint dry for levels of excitement. However, when you start gaining a greater understanding of your financial mechanics, not only does it give you far greater insight into your business’s vital statistics, it can also become an interesting exercise in observing the long-term affects of small adjustments.

With over 90 percent of businesses shutting down within the first six years [1], gaining better financial control is the most important single step you can take in your business success. The key issue is that as companies grow the financial parameters get bigger, and a lack of clear and accurate monetary forecasting information creates a deadly blindspot for leaders.

In tackling this problem for companies well over 100 times now, I have recognised two major flaws most business owners have in the area of financial management.  

Issue #1: Your company’s financial management isn’t clearly defined 

What we don’t see, we don’t manage – which leads to money problems.

If you are unsure how this might apply to your financial management, consider this: There are nine essential activities every business needs to do consistently to remain financially strong. Most business leaders think of Invoicing, Accounts Payable, Payroll, and Tax and Compliance which covers less than half of what is required.

We won’t go into all nine activities in this article, but you can download a helpful infographic on all nine areas here. Rather, we will focus on one of the nine activities – Management Accounting – which addresses the reason why most business leaders are underwhelmed by their current accounting services.

Though I’m not suggesting you need to enrol in accounting night school, gaining an overarching awareness of these nine areas and their necessity to your improved financial management will help you gain clarity in all areas of business.

Issue #2:  The financial management accounting activity is not being completed each month

When your Management Accounting activity is done correctly each month, your books are fully reconciled and the financial reports 100 percent accurate. When the activities or disciplines are not in place the numbers are often mostly accurate but there are discrepancies and ‘guesstimations’ for any inaccuracies. This in turn results in subsequent problems which often snowball, resulting in inaccurate data, fines and cashflow challenges. Below are a few examples:

  • Bank accounts are not reconciled or cross-checked with bank statements due to auto-feeds directly from the bank into the accounting software.
  • Fixed assets, depreciation and loans are typically not accounted for until the end of the Fiscal Year by the Tax Accountant and suddenly, you have an unexpected large depreciation expense and a new financial liability.  
  • Accounting activities are limited to data entry and not performed consistently or thoroughly. When required entries involving employee entitlement provisions, stock takes, prepaid expenses or revenue received in advance occur, it is often entered only partially or incorrectly. As one specific example, good accounting practices would amortise the entry over the correct term, creating smoother results month to month and avoiding irregular profits.

The reason this is a problem in most small-to-midsize businesses is because:

  1. The company’s bookkeeper doesn’t have the experience or skills to identify and resolve the problems that arise with transaction details.  
  2. The business leader often doesn’t even know this is a required activity each month (highlighting Issue #1) so they don’t set an expectation within their team.
  3. The accountant often could perform this task but they have set up a relationship with the business owner that focuses on what they do most often in their business, which is Tax and Compliance work. This accountant issue is why you may well be dissatisfied with the level of support you are receiving from you accountant.

As with Issue #1, it is not your responsibility to fulfil these activities yourself, but it is necessary for you to be aware of them, to understand their necessity and to manage your financial officer or accountant to ensure they are fulfilled each and every month without fail.

You can’t manage something you don’t even know exists, so by building your awareness, you are providing yourself with the knowledge to better manage your team.

Issue #3: Your accountant is not focused on helping you run your business

This is a significant disconnect between business leaders and accountants. Accountants are primarily focused on appeasing with the Tax Office. The challenge is that Tax and Compliance activities don’t help you run your business or deal with planning for future cashflow requirements and profitability. 

Of course, this is a vital and unavoidable part of your accountant’s duties, but this is retro-active accounting, not pro-active. Most accountants aren’t set up to provide you with regular monthly reports and focussed financial management, and some simply aren’t willing to. However, by creating an ongoing dialogue with your accountant, and by encouraging them to focus upon not only your past expenses but also ongoing finances, they will provide you with a short-term crystal ball.

With this rich resource you can then anticipate future fluctuations, account for upcoming expenses and conclude your financial year in a more informed position with much of the work already completed. This reduces your accountant’s tasks and their subsequent bill, as well as optimising returns and minimising expenses.

Accountants need to accept a portion of responsibility for this misperception. They say they can provide ‘advisory’ services which can include activities that will help produce more clarity around cashflow, profitability and business risks. However, most rarely do. My theory on why this occurs is simply because it is easy to sell services that customers have to buy, such as with tax and compliance work.

This is why you are likely not wildly happy about the value of your current accounting services. You would like them to provide insights on how to better run the financial parts of your business but they are only set up to provide intermittent tax-focused work. 

To add salt to the commonly felt wound, in order to generate an accurate tax return much of the ‘management accounting’ efforts need to be done at the end of the year to clean up the records in order to file accurate numbers. 

This rarely-discussed dynamic is a significant opportunity for business leaders to get far better financial support while not paying more for the overall service. You simply need to find the right kind of accountants who can provide this type of monthly advisory work. 

Again, to be clear on the type of support your company needs, please check out the Nine Required Financial Management Activities. You can take this list of activities and discuss them with your bookkeeper and accountant to gain more clarity on the responsibilities required to better support your financial management needs.

We hope you now feel we’ve delivered on our promise for providing clarity on the key financial management activities you need to be sure your company is consistently doing well. Additionally, we trust we have helped you better understand why you may feel less than impressed with the level of support you receive from your accountant.  

As always, we are here for questions. Best of luck on your business’s financial control journey!

[1] https://yfsmagazine.com/2015/08/20/reddit-kodak-reveal-why-96-of-businesses-fail-within-10-years/