Outsourced Accounting or Accounting as a Service (AaaS) providers can be the catalyst to take your organization to the next level. For some SMBs, accounting is not looked at as a strategic function of the organization, but it should be. It also shouldn’t take focus away from growing your core business. Lots of SMBs don’t consider Outsourcing. Here are 5 main reasons why.
1) They think it is too expensive
By using Accounting as a Service, you have access to shared service center. Providers have put a lot of investment, thought, and execution into their model and have staffed accordingly. With an AaaS provider you now have access to a full accounting department that often is less expensive than one full-time FTE. This doesn’t even figure in technology costs that come with the service.
2) It is the same as bookkeeping services
Bookkeepers are responsible for recording daily financial transactions. Controllers are responsible for financial reporting, internal financial audit and internal controls. Outsourced CFOs are responsible for financial planning, financial data analysis and strategic planning. By relying only upon a bookkeeper you are stuck looking in the past and cannot see into the future to effectively make critical decisions for your business. AaaS providers ensure daily transactions are done correctly but also greatly reduce risks and provide necessary forward-thinking strategy to help growth your business.
3) We can just do the same in-house
For most SMBs it is hard to justify the expense of having a bookkeeper, controller, VP of finance and CFO. All positions have importance. You don’t want to pay a senior level person to do daily transactions and you definitely don’t want to ask an entry level person to manage financial risks.
4) We cannot have any finance staff in-house
Often AaaS providers work with internal staff to fill voids. Yes, providers can function as the entire finance department but often work with existing staff to help maximize their production.
5) We have more control and stability by utilizing in-house staff
Employees turnover and training are always on the minds of companies. If you don’t have a defined professional develop plan for each employee, you are at risk of losing your top talent to other opportunities. By using an AaaS provider you eliminate the risk of employee turnover. You also will not miss a beat when people people are out sick, on vacation, or on leave.
Small and mid-sized businesses (SMB) often have budget and staffing constraints – making it even more important to have accurate forecasts and budgets. Yet, SMBs tend to make small mistakes that often result in a financial loss – or worse – closing up for good. To create an accurate and solid budget that you can rely on; avoid the following three common budgeting mistakes.
1. Overestimate sales projections
Sales projections should be based on data and research; however, many SMBs pick a figure out of thin air. Instead, look at past sales, the conditions of the macro-economy and competitors to create a forecast that is realistic and relevant to your business.
2. Spreadsheet errors
As discussed in our blog post Can Excel Be Bad For Your Business?, there are plenty of companies that have suffered financial losses from Excel blunders. With as many as 90% of Excel spreadsheets being prone to errors, the easiest way to avoid mistakes is to move to the cloud. Software as a service (SaaS) systems offer remote access and the ability to collaborate among employees, which has many benefits. Not only can employees access the data from anywhere, anytime and from any device; but, employees can also collaborate and work on the document simultaneously without the risk of having multiple versions of the data.
3. Ignoring the budget
Creating a budget is of course important, but if you’re not following the budget it is not doing you any favors. It is important to continuously follow up with the budget to make sure you stay on track with your projections. The use of visual dashboardshas made this much easier for finance leaders, as you can easily track expenses and compare with the set budget.
Budgeting mistakes can be detrimental for your business. Make sure you know what the common mistakes are and how to avoid them.
The short answer is ‘yes’. The longer answer is ‘absolutely yes’.
Seriously, there are multiple reasons why smaller businesses need to forecast and implement a FP&A (Financial Planning and Analysis) framework. First, cash is generally the most delicate asset of any small business, especially those under $20 million in sales. Cash (and the corresponding line of credit) has to use forecasting regularly so that potential shortfalls can be addressed as quickly as possible.
The second reason is not as readily apparent. Businesses who plan revenues, margins, and operating income regularly and compare actual results to these plans will do significantly better than those who do not. The former will seek answers to why plans fall short or are even exceeded. In such cases, strategies and action plans are the result of plans which are not met. Conversely, those businesses doing little to no planning are typically ‘winging it’ or flying by the seat of their pants.
A FP&A Checklist for Small Businesses
Daily treasury management is a must. That means reconciling cash every day and drawing or paying down on the LOC each morning. Other daily processes need to be adhered to in the areas of billing, collections, purchases, and cash disbursement. No shortcuts allowed.
Cash should be projected 8 to 13 weeks each week on a rolling basis, and this is not the job of the accountant or just the CEO. This should be done by everyone in the business who has an impact on cash (whether producing or consuming it).
A few key metrics should be maintained and monitored weekly, but only a few which can lead to actionable change.
Financials MUST be completed on a monthly basis within a reasonable time frame after month-end. There are no excuses to not making this happen.
And finally, ensure your actual results are a part of your FP&A tool. What went right last month or quarter? What did not go according to plan, and why? Running a causal analysis is an incredibly powerful tool to use when answering these questions. At this time, re-forecast the P&L and relevant balance sheet items over the next 12 months.
Cash flow often doesn’t get the attention it deserves until there is a problem. By then, it might be too late.That is why it is so important for all businesses, especially small and medium sized businesses, to embrace accounting practices that maximize cash flow. With that in mind, here are just a few of the most important accounting best practices for businesses to embrace.
1. Upgrade to Better Accounting Software Solutions
Advances in technology have transformed the way businesses are run. Managing cash flow with Excel is time-consuming, inefficient and inaccurate. Instead, companies should embrace more sophisticated cash solutions that make these processes simpler, faster and more accurate. And it gets even better! Many of the more advanced cloud based accounting software solutions can be accessed remotely or with mobile devices, providing real time visibility into the company’s cash flow at any time and from anywhere. Real time access to this data allows business owners to react proactively to cash flow challenges that could cause big problems down the road.
Too many businesses continue to experience a significant lag in their invoice process, negatively affecting cash flow. Automating the invoice process with advanced accounting software eliminates this delay, beefing up the cash receipts that fuel new work. It also helps to make sure one person is in charge of the invoice process. A company should dedicate an employee to the invoice process or save personnel expenses by outsourcing the work to an accounting service.
3. Make it Easy for Customers to Pay You!
The easier it is for clients to pay you, the faster they will send you the money they owe. Use accounting software that allows you to accept online payments whenever possible, an option preferred by most customers. Additionally, make sure the accounting software you chose optimizes revenue recognition and automates collections. Doing this allows transparency and control over the receivables process to ultimately maximize cash flow.
4. Maintain a Steady and Healthy Cash Flow
Finally, it is critical for managers looking to maintain a steady, healthy cash flow to plan for the future. Planning ahead is a trait shared by successful businesses, and those companies that operate on a month-by-month basis will inevitably run into problems such as meeting payroll. Consider utilizing accounting software that provides you with the data and analytics that you need to evaluate where you are and use that real time information to plan where you are going.
What are some steps you are taking to maximize your company’s cash flow? Have you had any success with any of the options above?
