When is the last time you did an annual checkup on your company’s accounting software, systems, and policies? No matter how large a business is, and whether it sells a service or a product, there’s no excuse to overlook a yearly review of this vital function. Long referred to as the language of business, accountancy and its dozens of critical processes are at the heart of what every for-profit and non-profit organization does. What’s the best way for solo owners, startups, micro-firms, medium-sized companies, and large entities to perform an accounting system check?
Fortunately, it’s not necessary to hire a professional CPA (certified public accountant) firm to do the work unless your business is very large. However, for the vast majority of organizations, the chore can be done in-house. In addition to having consistent methods for reporting financial activity, it’s crucial to match expenses with related revenues, track vehicle fleet data, be conservative when making estimates, avoid mixing personal and business capital, identify sources of inventory loss, use software products that are suited to company needs, and know when to outsource various tasks. The following are a few of the most significant concepts involved in a yearly accounting checkup.
Tracking Fleet Data in Transport Companies
Transport firms that use fleet management solutions are already on the right track for doing an internal analysis. That’s because software systems for truck fleets are adept at matching expenses and related department income, a core principle of accountancy. Most of the better fleet software packages offer managers a clear view of overall efficiency. The systems can collect vast amounts of relevant data that reveals essential components of daily operations. Metrics like truck maintenance appointments, safety check-points, compliance with HOS (hours of service) guidelines, truck location via GPS devices, and others inform fleet managers about the specifics of expense categories like fuel usage, mileage, per mile operational costs, and driver hours. All the data eventually makes its way to financial statements in the form of matched expenses and revenues. Software solutions for fleets serve as co-workers alongside busy managers to minimize expenses, create efficient work patterns, and maximize automation of routine tasks.
Using Consistent Reporting Methods
Accountants have the word consistency emblazoned on their brains, and for a good reason. If there’s one overriding principle of financial reporting, it is that methods and techniques must remain the same from period to period. Otherwise, it’s impossible to accurately compare one month’s or year’s statements to others. Large companies seldom have a problem in this area, but medium-sized and smaller organizations do. More than a few startup founders prefer to use the old-fashioned cash method, which is adequate for very small enterprises of fewer than 10 people. But with growth comes a change to accrual recording, and all those old books have to be recast to match the newer ones. Software products exist that do a pretty good job of recasting for sole proprietors who began their commercial ventures as cash recording entrepreneurs.
Not Mixing Personal and Company Funds
Comingling, a legal term that describes the act of mixing personal with business funds, can cause problems with financial reporting, at the very least, and invite legal troubles in extreme cases. The problem with this kind of monetary mixing is that it causes the official financial statements to become almost irrelevant. If it’s impossible to see where personal money ends and company profits begin, auditors and tax authorities can’t decipher even the most uncomplicated balance sheets or income statements. The only way to bring your books back into synch if there’s been comingling is to remove all personal funds from the corporate bank accounts and reset the statements as they should appear. In situations arising from mixed funding, it’s best to get the advice of either a CPA or a lawyer to help sort things out.
Making Conservative Estimates
The principle of conservatism dictates that income estimates be made as low as possible, and that expense estimates be made according to a best guess, and realized as soon as possible. The concept is a more formal version of the old saying about not counting chickens before they hatch. When employees in the finance department make projections, they should be careful to wait until income is earned before recording it. Likewise, it’s best to record an expense as soon as it’s known to exist, even if it hasn’t yet been incurred. Of course, conservatism only applies to creating forward-looking financial statements, not current or historical ones. Most financial software uses this type of estimation, so it’s essential to update parameters and instructions for programs that produce pro forma financial statements.
Finding and Minimizing Shrinkage
New AI-based software products are good at finding evidence of shrinkage, the legal name for inventory and for-sale goods that go missing. Using the newest inventory tracking products, particularly those with AI (artificial intelligence) capability, it’s possible for managers to pinpoint the location, if not always the cause of shrinkage.