Years ago, we were invited to help rescue a distressed business, whose finances were extremely messy.
Amongst other problems, we discovered that every time they wanted to raise a sales invoice, they had to go through 21 separate steps.
They’d been working this way for years, and it didn’t seem at all strange to them…
…Although it wasn’t just an inconvenience. Because it prevented them from getting paid in a timely manner, it directly impacted their cashflow and contributed to their financial troubles.
While that’s an extreme example, they’re not alone. Many companies handling their accounts in-house have systems and processes which, over the years, have become convoluted, cumbersome, or completely outdated.
These ways of working are holding them back, causing financial issues in their business or putting them at a disadvantage compared to their competition, who handle their cash more smoothly and efficiently.
But if this is the case in your company, you may not realise your accounting function is broken.
It can be difficult to judge whether your accounting team is working to desirable standards if you know very little about accounting and have never run a finance function yourself. Many business owners simply don’t have the financial knowledge or skills to tell, just like I wouldn’t know whether or not the IT department was working in the best way.
But there are always clues. And as business owner, it’s your responsibility to look for them.
You see, ensuring that your finances are properly managed is your most important job. Money is the heartbeat of your business, on which everything else depends. If your finances are a mess, the business will not only be very difficult to run, but it may become unviable.
So even if your accounting feels like a mystery, you have a responsibility to stay on top of it.
Some of the signs that your in-house team is not managing your money well include:
>> Bills, accounts, invoices and so on taking a long time to process. There seems to be a lack of efficiency
>> Visible mistakes. You notice that certain numbers are wrong. Don’t discount your gut feeling, either. As company owner, if your accounts ‘feel’ wrong, this warrants further investigation
>> Lots of paper around the office. This is a sign that financial documents aren’t stored properly and that accounts are being done by hand rather than using a modern platform
>> You only have 1-2 people responsible for your accounts. This doesn’t necessarily mean they’re making mistakes, but sometimes means that the department runs according to their personal preferences rather than best practice. And when one or two people ‘own’ the financial function, it opens you up to fraud and to serious problems should they suddenly resign or fall ill
>> Nothing in the way you manage your finances seems to have changed in the last 5-10 years. This is an area which is constantly modernising. If your accountant is still doing things they way they were in 2013, you’re falling behind.
>> You have had a nasty financial ‘surprise’ like an unexpected tax bill or you feel like you’re constantly fighting financial ‘fires’. Your finances feel chaotic.
>> You have no idea what your financial situation is likely to be in 2-3 months’ time. You’ve never seen a forward-looking cashflow report or monthly management accounts, which well-run financial departments provide as a matter of course.
If any of these ring true, you need a pair of fresh eyes to look at the way your accounting department is set up and determine whether there are practices that don’t make sense, are old-fashioned or downright dangerous.
This is something we regularly do for companies that manage their finances in-house, through our Business and Financial Management Review.
Because we run the finance function for so many businesses, we know exactly what a well-run accounting department should look like, and can zero on immediately on any problems.
Over the years, we’ve identified everything from inefficiencies to processes which are not fit-for-purpose and which could eventually cause financial problems that would wreak havoc on the business. In almost all cases, these were problems which the owners would never have been able to identify themselves, although they often had a deep-seated feeling that “something wasn’t right.”
Crucially, we don’t just bring hidden problems to light but also suggest ways to improve the way you manage your cash, so you have a clear way forward.
And if necessary, we can help you implement the changes or support your internal team. That way, you can continue to manage your finances in-house if desired – with the peace-of-mind that your cash is being managed to the highest possible standards.
Then ‘reply’ to this blog or call us on 01279 647 447 to speak to us about how we can help you.
Warmly,
Garry
