For a business in the current environment, healthy financial records are tantamount to its success. Taking the time to put your accounts information in the best possible order can be significantly beneficial for your day-to-day operations, to ensure your financial reports are accurate and to allow for higher-quality auditing.
Whether your sector is juggling supply chain delays, skilled worker shortages or the pressures of rising inflation, the one thing you want to be sure you can rely on is your accounts data. It is crucial for businesses to ensure that their accounts are accurate and financial reporting is generated from clean and up-to-date data.
This includes the ability to ensure payments are made on time, and non-payment on invoices are swiftly followed up with. And it is especially significant for management, and Those Charged With Governance (TCWG) to trust their accounts include accurate information when it comes to forecasting profitability and any future planning for the business.
Luckily, there are simple steps that businesses can follow that may assist them in cleaning up their finances and accounting records.
Top ways to make your accounts as clean as possible
Utilise accounts software
Some of the best ways to clean up your accounts and financial records is through simple changes designed to make your processes easier, such as client onboarding. If your business is still relying on paper-based systems to input employee, client, trading partner or supplier data, you’re more likely to be exposed to human error resulting in inaccurate data.
Paper-based systems also have the adverse impact of appearing amateur as well, which may reduce customer trust or hurt your business reputation. By switching to accounting software, you can make the process of onboarding client data much more efficient and streamline. Accounting software significantly lowers the likelihood of human error resulting in inaccurate data, as these systems are designed to flag any mistakes, and are often completed by the client themselves.
Now is the time to switch to accounting software if you have not already and reduce the chances of inaccurate data in the onboarding process. For example, incorrect phone numbers, ABN or ACN details, and bank account details can put a strain on the operations for accounts payable, and inaccurate information about client financials can limit management’s ability to make inventory or revenue projections. Accounting software can easily assist a business in tracking accounts receivable and accounts payable, illuminating its profitability and being prepared come tax-time.
There are a number of options to choose from, such as Xero or MYOB, which can integrate seamlessly with other financial technologies, such as business reporting tools and even credit monitoring.
Review your balance sheet
Another step that your business may consider adding into its data due diligence processes is reviewing balance sheets at the end of each financial year. This can be undertaken by your internal CFO or Finance Manager. Reviewing your balance sheet can allow the business to ensure each account has supporting workpaper and documentation that is in line with the balance stated. For example, pre-payments are accurate to a calculation workpaper, or property, plant and equipment agrees to the depreciation schedule. You may also use this time to confirm that accruals are accounted for and have been taken up.
By reviewing your balance sheet at year end, you may also be able to identify any balances that have not changed in comparison to the previous financial year. This offers the opportunity to post an adjustment, ensuring that all information is accurate and up-to-date.
Regular reconciliation checklist
It may also be helpful to create a list of high-level, key accounts that require frequent reconciling, such as end-year journals, and doing so on a more regular basis, such as once a month.
Reconciling your accounts allows businesses to identify any discrepancies, errors or even fraud within your books, that may adversely impact your cash flow or the financial health of the business. You’ll be able to ensure consistent processes are performed on a more frequent basis, helping to better protect your bottom line.
Multi-period Profit & Loss reports
Is your business tracking its accounts for unusual monthly fluctuations? It may also be useful to take a more detailed look into the accounts general ledger and consider multi-period Profit & Loss reporting. Multi-period P&L reports illustrate whether a business is making a profit or loss, and for which period these were recorded. This analysis is available in both MYOB and Xero along with other accounting software, so it may be easily accessible to your accounts team.
Let’s say the business pays a $500 monthly subscription for a marketing service, do you know if each month has a $500 expense deducted, or is there one month with no expense, and another with $1,000? A multi-period P&L report could assist you in identifying which periods were incurring additional charges for ongoing expenses, allowing you to identify unusual activity, forward project your cash flow and identify ongoing expenses accurately.
Why is accurate accounting data so important?
Cleaning up financial records and accounts is not just an issue for your CFO or Finance Manager, but one that when managed well, has a beneficial impact for businesses from the top-down. High-quality data allows for greater auditing quality, resulting in easy and effective financial reporting. This is essential for painting a healthy financial picture of a business to markets and potential investors, as well as for any future planning, revenue projections, inventory forecasting and more.
Chasing up incorrect or missing data is a cumbersome task to add to the already busy workloads of staff. By optimising your accounts processes, you’re allowing staff to prioritise crucial operational tasks, as opposed to chasing up missing information from clients, trading partners or suppliers.
It’s worth noting that directors are responsible for financial report quality, so it is in your best interest that clean and accurate information is available for all accounts and auditing services. If a business were to claim insolvency, but its financial reporting did not indicate any decline in financial position, it is likely that company directors will be investigated, alongside the auditor.
Who can assist your business in maintaining accurate data?
In terms of facilitating the above tips, the coordination of accounts data and maintaining healthy financial information can be orchestrated by a few key players in the business:
- Internal CFO/Finance Manager – If you already employ an internal CFO or Finance Manager, they should typically have experience, or the expertise, to perform year-end adjustments and reviews.
- External Accountant – For small businesses, this is not something you need to go at alone. It could be worth seeking account support from an external accountant at least once a month. While this can be costly, it may be worth the expense if it prevents inaccurate data.
- Outsourced services – Other service entities may specialise in year-end accounting and reporting, such as those offering CFO-like services.
Further, these practices, when added to the toolbelt of your accounts data management, may significantly improve the workload and performance of your auditors. Even the smallest mistake or missing piece of information can impact a business’s revenue or see you incur unnecessary, additional costs.
Engaging external accounts services on a regular basis to ensure reporting is accurate throughout the year, not just at year-end after the completion of your annual audit, can be tantamount to the success of the business. Aligning yourself with trusted professionals, such as an external accountant or outsourced CFO service, can significantly decrease your likelihood of incorrect financial information ever again.
Kate Grimson CA
Assistant Audit Manager
