How to Get Your Accounting In Order

You may have a great business -- but you can’t get financing, your tax reporting is a little iffy, and your bank balance is often an unpleasant surprise. The problem is, cleaning up your accounting seems impossible with the limited time and resources you have. Well I'm here to tell you that you can do it. Here’s where to start.

First stop the bleeding. For the moment, forget what happened last year or even yesterday. Work on what needs to happen today, tomorrow, and from now on so that you get good financial information on a timely basis. Once you identify and eliminate the barriers between you and that objective, you will have drawn your line in the sand. From this point on, you'll be in control and you'll stay in control. Here are some of the common barriers to getting your accounting in order.

Garbage in/garbage out: “What the heck is wrong with accounting? They just can’t seem to get the job done!” Financial folks in the company may just be a part of a big problem. Accounting can only be as timely and correct as the information it receives to record transactions.

As controller for a couple of swashbuckling oil and gas wildcatters, I always found credit card statements an adventure into the unknown. What charges were personal? What charges were marketing? What charges were operations? The accounting expert needs to make sure staff who initiate financial transactions quickly provide sufficient information to accounting so they don’t waste time asking questions and waiting for answers.

Inadequate staff and/or training: This problem won’t go away unless you act. If staff is getting information they need in a timely manner and still can’t get the job done, you might have “hidden” tasks, training needs, or personnel issues.

An example of a hidden task would be an accounts payable clerk handling vendor calls. If you aren’t paying your vendors on time they'll be calling your payables clerk and robbing them of the time they need to do their accounting work. You have to either pay your bills in a more timely manner or accept the additional overhead of handling constant vendor calls.

Proper training in an accounting application can triple productivity. But the cost of not training can be many times greater than the cost of training. You'll see that cost in increased staffing requirements, employee overtime, and late reporting.

Sometimes you just have the wrong person for the job. Perhaps they're not familiar enough with your business or with accounting, or they're too slow at data entry. You need to identify what the problem is so you can better define the job requirements of your replacement. Don’t expect to pay data entry compensation for an accountant-level function. Test candidates for the skill sets you need and give them the training and resources they need to perform. It'll be much cheaper in the long run.

Historical cleanup -- not so difficult: Once you've gotten your current accounting under control, any historical cleanup is a finite task. The good news is you usually can’t change the past, which means you don’t have to agonize over bad news. You can, however, learn some valuable lessons about how to do things better. Often this cleanup task isn't as daunting as it looks because you aren't attempting to get things exactly right, just close enough to move on.

Let’s take an example of bank reconciliations, which are a critical part of managing cash flow. I recently showed a client how to reconcile three years of bank transactions in three short year-end processes. In the accounting software, we marked all transactions recorded on or before the December bank statement date as cleared, unmarked transactions that cleared in the following January statement, and wrote the difference between the bank balance and our cleared book balance to miscellaneous income/expense. Why did we have any discrepancy? Unless it was significant, it wasn't worth worrying about because we couldn't change it. The most important task was to establish the correct cash balance from then on.

Let’s take another example of inventory. We took a physical inventory, adjusted the books to inventory counts, and wrote any gains or losses to an inventory gains/losses account. When necessary, we also adjusted inventory values to market and recorded the net change to inventory gains and losses. If losses or gains were large, we wanted to know why to prevent future theft or errors, but it wouldn't change the current value of inventory.

There's no time like the present to take control of your accounting. Nothing will change until you make it happen. In the words of Albert Einstein, “The definition of insanity is continuing to do the same thing over and over, and then expecting different results."