The Balancing Act of Account Reconciliation and Online Banking Convenience Doesn’t Make Up for Inaccuracy
We are continuing our financial literacy discussion with something we all know about … or do we? We’re talking about online banking and its effect on our reconciliation habits (or lack thereof). In our daily routines, with our phones and computers easily assisting us with deposits, automated payments, and Zelle transfers, do we ever think about good old bank account statements and the ever-important task of regular bank account reconciliations? My guess for many is no.
Most of us happily “live” online. Our online lives provide convenience and speed like we’ve never known before. Simply, they provide what we all crave – instant gratification. As a society, we have become accustomed to having all of the information we need with the click of our mouse or a swipe on our smartphone. Dare I say, we tend to get a little lazy, not to mention, annoyed, when we don’t have instantaneous satisfaction. Everything from groceries to dinner delivery to setting appointments to virtual doctor’s appointments to online banking just helps make our lives easier. And we’re all for it.
With regard to online banking, being able to find out your balance, arrange for a payment, and make a deposit all from the palm of our hand is wonderful … in certain situations. However, in many instances, people are becoming far too reliant on this online information and forgetting about some of the basics, such as bank account reconciliation.
In the Days Before Online Banking
Once upon a time, long before online banking became a regular part of our lives, the standard practice for both personal and business checking accounts was to reconcile a check register to a monthly bank statement. You remember those days (or you should) – when you received your bank statement in the mail (yes, the actual mailbox, not email) and then you’d open your checkbook and go through line-by-line check-marking away to make sure each transaction was accounted for? Well, there was a reason for that. You need to know which transactions have cleared and which haven’t, so you can accurately determine how much is in your account (which, in reality, is not always what the number on the statement says).
Yet, when accounting professionals adopted online banking into their processes, organizations tended to forgo the discipline of maintaining a check register as part of their reconciliation processes. In the interest of increasing efficiencies, and feeling as if the ends no longer justified the means, reconciliation became an “obsolete” practice. But should it have? Absolutely not.
A Common Conversation
The following is a typical conversation I’ve had when consulting with clients on accounting process improvements:
Accounting professional (with a bundle of unsigned checks): “This is our process for obtaining check signatures.”
Me:“How do you know you have enough money in the account to cover these checks? What is your procedure?”
Accounting professional:“I checked the balance online this morning.”
Me:“Where is the reconciliation to the check register? How do you know that all of the uncashed checks will not deplete the entire balance?”
Accounting professional:“I know there are not that many outstanding checks.”
Me:“When is the last time you reconciled the account?”
Accounting professional: Answers range from “a year ago” to “I do not remember” (not good) to “yesterday” or “a month ago” (which is good).
Finding the Right Balance
I am not saying there aren’t times when viewing online balances without going through the reconciliation process is appropriate, but it’s not the final reconciliation resource. It’s okay to use online banking as an effective tool to manage your daily cash flow, but it requires the extra effort of being connected to a cash reconciliation process that is properly maintained and reviewed periodically. Without accurate and consistent reconciliations, your organization is at risk of fraud, unauthorized withdrawals, or bank errors. If left unchecked, these issues can quickly lead to cash flow issues that will hurt business operations and stifle growth.
Let’s avoid those situations with an experiment: If you are a CEO, President of a company, or a Finance Chair of a non-profit, ask the accounting department for the latest bank/cash reconciliation of the operating account. Ask specifically for these documents:
The bank reconciliation
A copy of the bank document to which it was reconciled
The Balance Sheet balance to which it was reconciled
(Note: Publicly traded companies, financial institutions, insurance companies and other regulated industries have to maintain reconciliation procedures, so if you are in charge of one of those, regulation will take care of this.)
If you are bold enough to move forward with this call to action, my experience tells me about 50% of you will get a reconciliation completed in the last 45 days. If you get one and do not know how to review it, schedule time with me for a free, no-obligation checklist that will guide you through a high-level review.
If you do not get a reconciliation, and, in fact, get a blank stare from your accounting person, contact me to complete a review of your cash procedures and processes. You may have plenty of cash flow today, but how do you really know without a current reconciliation? Don’t risk finding yourself in a position where you cannot meet your basic financial obligations. “Cash is king” is a cliché’ for a reason – it’s true!
How to Avoid Driving Down the Interstate Blindfolded Our Kick-Off to National Financial Literacy Month
April is National Financial Literacy Month, and I personally cannot think of a better time to discuss the importance of understanding financials. You don’t have to be the CEO of a Fortune 500 company to have a healthy grasp on your numbers. In fact, I sincerely hope that many others do. Financial literacy is important whether it’s for yourself and your family, as the owner of a small business, as a non-profit director, or in any capacity where you have some control over money coming in and money going out. This month presents a timely opportunity to review and upgrade not only your financials, but equally as important, your financial knowledge.
First, some history. National Financial Literacy Month had its beginnings over twenty years ago, and has since evolved into a month-long observance. The idea of dedicating a month to this topic has broad support – the House and Senate have issued joint resolutions in support of National Financial Literacy Month, and the U.S. Department of Education promotes its observance.
What is Financial Literacy and How Does it Affect Business?
According to Investopedia.com, “financial literacy” is the “ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” And unless the business you’ve started or are otherwise running is a financial services firm, accounting, budgets, and numbers may not be your strong suit. That’s okay – they’re not a lot of people’s favorite things either (we are a select few)!
Yet, understanding your business’s finances, including cash flow, profit and loss statements, balance sheets, and budgets, is essential to understanding the overall health of your business. In fact, according to a study by U.S. Bank, as reported in Business Insider, 82% of small businesses fail because of cash flow problems. That’s why every for-profit and non-profit organization owner, officer, and director should prioritize financial literacy in their continuing education. And it’s also why we’re going to help you do just that.
For the next few weeks, we are going to observe National Financial Literacy Month in the best way we know how. You can expect our own version of financial tutorials right here in our blog. We will talk about everything from the terms you need to know to common misconceptions to why it’s so important to review some basic concepts, such as EBITDA (Earnings Before Interest Taxes Depreciation and Amortization), Working Capital (Cash and other Current Assets less Current Liabilities), Aged Accounts Receivable, and many more.
Where Do You Stand?
For this week, let’s start with some basics. Take this financial literacy quiz to see if you’re on the right path to financial brilliance, or if maybe you have some brushing up to do.
1. Do you have a financial professional on staff?
Having the expertise of a CPA or internal (or outsourced) CFO can save you time and money in the long run.
2. How often do you forego infrastructure development to save money?
Saving money is, of course, important, but so are efficiencies.
3. Do you have an annual budget?
Navigating the fiscal year without a budget is just like driving down the interstate blindfolded! By reviewing past revenue and expense flows to forecast future income and expenses you can create a budget to see clearly where you are going.
4. If yes, do you monitor actual vs. budget?
The annual budget is a living, breathing document, meant to be part of your monthly financial review process – planned versus actual expenses. It’s okay to make periodic adjustments, a process that helps you know if the company goals are on track.
5. Do you firm grasp on your profit and loss statement and balance sheet?
Both documents are crucial, but each provides its own benefits. A balance sheet provides a snapshot as to how effectively a company’s resources are used. A profit and loss (P&L) statement provides a summary of the company’s revenue and expenses incurred during a specific period of time.
6. Is your G/L infrastructure meeting the need?
If your monthly financial reporting: (a) is either non-existent or (b) is not helping you run your business, consider a review and restructuring of your GL. Make it work for you – not the other way around.
How many “Yeses” did you score on the Financial Brilliance Meter? 0 – 1 – Financial Dunce
2 – 3 – Financial Aptitude
4 or more – You are on the road to Financial Brilliance!
No matter where you scored, we’ve got you covered. Stay tuned for the best ways to increase your financial literacy this month, so that a perfect score is waiting for you the next time you take the quiz. And if you scored perfectly now, congratulations! But, as you know, as a leader, professional, and human being, there is always room for growth.
If you need additional assistance, we’re only a phone call or email away. Barker Associates has extensive experience working with organizations to better understand their financials and help them drive into their future blindfold-free. Use this link to my calendar to choose the best time for your free 30-minute financial analysis consultation.
Leadership: If it’s Lonely at the Top, it’s Time to Make a Change
“It’s lonely at the top!” We’ve heard that phrase circulated amidst leadership conversations for years. But what exactly does it mean? Is the perception different from the reality? And, more importantly, what does it say about our own leadership styles?
Clearly, it’s not a literal statement. As leaders, we are surrounded by other people (often more so than we may like). Rather, it is a statement born out of one’s personality, emotions, and ability to shift perspective. Loneliness in these terms is not referring to physical isolation, but from an inability to make connections at work due to the position itself. Maybe you’re not invited to lunch anymore. Maybe you’re not on the inside track of the office jokes that everyone else seems to get. But that’s okay. Ultimately, you’re not there to make friends.
Some leadership aspects lend themselves to justifying the phrase. Whether you’re the CEO, the CFO, or in another management position, leaders are the ones who bear much of the responsibilities in a constant attempt to balance the ever-increasing demands from both sides – higher management and staff. There are deadlines, operational issues, risk management issues, financials to be filed, and problems to be solved. This is particularly true for women leaders, who often struggle to find support from like-minded women who have the same abilities and the same challenges. It is also particularly true for financial leaders.
Financial leaders often struggle with discovering the right combination of leadership responsibilities and deadline based tactical responsibilities. They find it difficult to stay engaged with the professionals they lead, because, well, some deadline is usually fast-approaching. Yet, they understand that it is no longer possible to focus solely on the tactical aspects of their jobs. If they want to move up to the CFO level, they cannot do it alone. Rather, they must engage with those whom they lead.
Are We Doing Something Wrong?
Despite the reasons, the idea of being lonely as a leader still doesn’t sit right. In fact, John Maxwell has noted, “If you are lonely at the top, then you are doing something wrong.”
Consider this: if you are alone, it could be concluded that no one is following you. And if no one is following you, how can you lead effectively? Our job, as leaders, is to build relationships, build trust, and make those we lead better at what they do, helping them ascend, as we have. Once we fully accept those responsibilities, we understand that in order to achieve our goals, we must connect to those we lead in more impactful ways, including coaching and collaboration (with little time to be lonely).
The most obvious impacts of loneliness as a leader are on those we are leading, who may feel abandoned. However, it may also affect our own ability to do our jobs effectively. For example, good decisions never arise out of negative emotions, including loneliness. As such, decision-making, a crucial component of leadership, could also be affected when we shut ourselves off.
Lonely at the Top No More
While some of the physical circumstance may be unavoidable – you do have a separate office, you’re not privy to some of the same conversations, you may struggle to find support, strategies to stay engaged with your team abound. In their implementation, not only will you be less isolated, you’ll ultimately be leading in more effective ways.
Top Five Tips to Staying Engaged (and to not being lonely):
1. Be Visible. Your team needs to know you are there and accessible. Have an open-door policy and encourage others to use it.
2. Collaborate. No leader operates alone. You don’t have all the answers. None of us do. Increasing collaboration among the team not only increases creativity, it also increases the value placed on relationships and productivity.
3. Coach. Much of your responsibility as a leader rests with the development of others. Embrace that responsibility. Remember that in order for you to move up, others must do so as well.
4. Actively listen. Your team is valuable and so are their voices, whether they are in consensus or have diverse points of view, show them that you care about what they have to say.
5. Accept Change. Understand and accept that relationships will shift based on your leadership position, but those relationships still need cultivation.
Leaders shouldn’t sit in detached isolation at the top of the organizational chart. Rather, we should immerse ourselves into the organization’s culture and people. With bonding comes energy and with energy comes relationships. And only through those relationships can we bring out the best in others. Loneliness dissipates because we are highly engaged with those around us, not sitting alone behind the closed doors of a corner office.
Barker Associates has extensive experience with collaborative management styles, assisting organizations as they achieve increased productivity and efficiency. Use this link to my calendar to choose the best time for your free 30-minute consultation.
Are you wrapped around your pet’s little paw? We are, despite the fact that we recently learned they will lie to us.
Last night, I fed our Maltese and Bichon Frise their dinners and went about my evening activities. Later, my husband, Glenn, came into the kitchen and the little guys acted as if they had missed their dinner. Given the circumstances, he, of course, fed them again.
While our dogs may lie about whether they’ve eaten yet, some things never lie, such as the real data you need to run your business each day. And whether or not you intend to, it’s the same data you need to pitch to investors when seeking funding.
With the right infrastructure in place, you have answers at your fingertips, such as:
What is the seasonal fluctuation of my business so that I can prepare for the ups and downs?
What is the demographic profile of my customers so that I know where, when, and how to reach them?
What is the average cost, price, and profit of a sale? Am I losing money on my best sellers?
These questions and many more can be answered by having the right infrastructure in place and capturing the data as you conduct daily business.
What does the “right infrastructure” look like? The answer is different for each organization based on its size and complexity. At a minimum, an organization should have a list of existing and potential customers and a system to maintain communications with them. The optimal tool is an integrated Customer Relationship Management (CRM) system. An organization also needs to manage money and financial information to project cash flow for the next 12 weeks, have the correct information for tax compliance, and make the appropriate strategic decisions. This may mean you need a separate billing system and/or General Ledger. You also need to properly set up your General Ledger with the right coding segments to be able to report on profit and loss by product, location, customer, and department, among others.
If you feel that you are blindly making decisions about hiring, marketing, warehouse space, or any other issue, remember the numbers don’t lie. Let’s talk one-on-one in a free consultation to get you in the right direction. Check out these times on my calendar and choose the one that is best for you.
When I have guests over for dinner, I empty trash cans, pull out the cloth napkins, and replace the everyday hand towel with a nice guest towel. The morning after the dinner party, I almost always say to myself that we should keep the house this tidy and organized all the time. A decluttered house feels really nice. Working at home during the pandemic has allowed me to have the time to keep the house up better and I have enjoyed it.
Think about getting your house in order and keeping it that way, similar to keeping your books and records audit ready. When business owners and their CFOs go through an audit that requires a lot of up-front preparation to get the information auditable, they generally discover facts about their business of which they were previously unaware. The ability to use financial data to think strategically and make sound decisions about the operations of the business is not a luxury to undervalue.
Auditors estimate their costs for performing your audit based on the books and records being clean and auditable. I have asked some auditors how much more first year audits cost than their original estimate due to the books and records being out of order. They report that the range is 20% to over 10 times the original estimate. This is not a pleasant outcome for anyone.
Here are seven tips on how to keep your books auditable and help reduce your audit costs.
Maintain a checking account balance in checkbook style that one person reconciles to the bank statement and then a second person reviews for accuracy.
Reconcile balance sheet account balances no less than once a quarter, if not every month. The two accounts that are generally audit gremlins are prepaid expense and accrued expenses. If you have not reconciled these accounts in the last year, I can almost guarantee you there will be unexplained numbers in them.
Keep a data room with all of your contracts and loans. With the digital age and the end of the metal filing cabinet, this seems to be something that is rarely maintained appropriately. Read more about the data room in my previous blog Who is Your Betty.
As soon as you decide to engage an auditor, your immediate next step should be to get the list of information they will want. Assign a person and a due date to each item on the list and distribute it to the responsible parties. Set deadlines for delivery of the documents and monitor progress until the tasks are completed (Excel schedule, Asana, or other project management software).
Complete the confirmation information and attorney letters immediately after you receive the list of the items the auditors want to confirm. Make sure the auditors give it to you as soon as you have a year-end trial balance for them to review.
Provide the auditors with a complete trial balance. Every adjustment to the trial balance you provide auditors increases the price of the audit.
Work on the format and disclosures of the audited financial statements for the current year as soon as the previous audit is complete. There is no excuse for digging through loan documents to prepare the financial statement footnotes after the year-end, or to read a new GAAP disclosure to figure out how to do it after year-end.
Barker Associates works with companies to access audit readiness, which is a far better investment than starting an audit with false confidence you are able to get through the audit. Let’s work together to make sure your audit fees are not multiples of the original quoted rate from the auditors. Click here to set up a free consultation.
Those of us who work to manage our cholesterol have received conflicting information about eating eggs. I grew up loving eggs, but then, as an adult, I was told not to eat them due to high cholesterol.
Then the nutrition experts decided you can eat egg whites. Now it is back to eat your eggs – yolk and all – the last time I spoke with a nutritionist. Confusing.
Deciding if you are going to outsource a function within an organization is about as confusing. The trends go back and forth on that issue too. Advances in technology and lower costs of offshore professionals have made the idea of outsourcing more attractive in some cases.
I have some advice, gained over my years as CFO in various organizations, for you to consider while you evaluate the idea of outsourcing financial functions:
Don’t try to fix a broken process by outsourcing it. Do not outsource a recurring, detail-oriented process that is currently broken. Get the best consultant you can afford working to fix the process. Make certain the expert who fixes the process creates a training manual on how the process should run and trains an internal staff person on it. You may discover during this process it is easier for you to keep that process going with your own employees or you may decide you want to outsource the detail part of it to an outside, less costly resource. The bottom line is that if you do not understand your own process, you cannot know if a third party is accurately performing it on your behalf.
Get organized. Organize your data in a way that you can provide it to the outside party prior to engaging them. If you cannot make sense of your data, you can end up paying a third party a lot of money to do it for you.
One of the areas I’ve seen this as an issue is with State Sales Tax. Compliance in this area is about as difficult as hanging upside down from a tall tree branch while flossing your teeth. Companies get frustrated with the complicated process of filing state sales taxes, especially when multiple states, or states with complicated calculations and forms are involved. For example, are you capturing sales revenue based on the billing address or the shipping address? You must have accurate data before outsourcing it for someone else to handle.
My recommendation is to invest in upgrading your IT infrastructure. Regardless of whether you are outsourcing compliance with state sales tax or another process, you must be in a position to produce data in an organized manner that a third party can accept and act on.
When you do decide to outsource a portion of your business, make sure you keep the data and regularly backup the data the outsourced agency is using. Make sure you still know where your information is and how to get to it if the outsourced entity suddenly goes out of business. Perform routine oversight of the work being done by the third party. This is even more important today in this every changing business world.
Just-in Time Experts. Expertise that you need infrequently is a great area to consider outsourcing. Many third parties provide outsourced IT, legal, human resource, or financial expertise to augment internal resources and are less costly than hiring the expertise full time. You may only require specialized expertise for specific projects rather than an on-going need.
Outsourcing these functions is not without its drawbacks. For example, let’s say your obsolete, no-one-has-ever-heard-of information system gets hacked and you have no in-house expert who is familiar with your system. Hiring an expert to support obscure software can be costly and time intensive to get your problem solved.
Or perhaps legal expertise is something you only require occasionally. You decide to download a customer contract from the internet instead of hiring legal expertise to prepare your standard contract. If you get in a nonpayment dispute with one of your major customers and then bring in legal to help you, you may discover that the customer contract you downloaded for free from the internet will not allow you to properly recover the revenue you are due. Now the outside lawyer has to clean up the mess you made by not hiring them on the front end to prepare a sound contract.
My point is that it is essential the right expertise performs the company’s core functions in every business. The laws and regulation in these areas change rapidly and you need someone to help you stay compliant and out of trouble.
Barker Associates provides outsourced Chief Financial Officer services on a fractional or full-time basis in the event of a transition. Fractional services work best during times of fast paced growth, a new system implementation, a merger, or an acquisition. Even with a full time CFO on board, they have a day job and these types of changes require a unique focus and background. Our extensive and diverse background helps guide the organization through the change.
During a transition time, Barker Associates uses their expertise to assist the organization with designing a job description and interviewing candidates for the new position. Once your new CFO, Accountant or other financial professional is onboard, Barker Associates exits until you bring us back for the next big project.
If you are considering outsourcing a financial process within your organization and would like to discuss specific areas of concern, I would love to speak with you. Click here to schedule a 30-minute free consultation to discuss your unique situation.
Companies are going through year-end financial reporting.
Just for fun, at cocktail parties and networking lunches, I ask executives and
investors if they get the year-end results as quickly as they would like to get
them. My unofficial survey says that most stakeholders are not receiving
Proactive organizations have “Day Zero” at the top
of mind at the beginning of the month. If you don’t know what this means in
terms of proactively managing your financial strategy, read on…
The truth is that almost every single employee in an
organization can impact the ability of the accounting department to close
timely, yet the company accountant may not be the best source to drive home
that truth. The message from the top should convey respect for each
professional’s time and support for more efficient month-end and year-end
processes – where everyone focuses on funneling information in a manner to
close the records effectively. The ultimate goal is to provide to the
management team a Flash Report as soon as possible following month-end,
followed by the official month end financials.
Day Zero refers to tasks your accounting and finance
departments can complete prior to the
end of the month to speed up the month end close. Decisions about the company
require timely, accurate data – a smooth and timely month-end is vital.
eyeshade” accountants may balk at the idea that they can shorten the
month-end process; however, the strategic finance professional digs into their
process to find and tackle these tasks, as well as improving their process
Here are some examples of what I mean:
standard monthly entries for amortization of intangibles, and
accruals of expense.
Once you have identified the pre-close tasks, create a Day
Zero checklist with deadlines for each item. The finance manager should
oversee that deadlines are being consistently met and if not, get to the root
of the problem to correct the process. One solution may involve asking other
departments to turn in their information based on a schedule you provide in
Refining your month-end close process is an iterative
process if you continually raise the bar to identify better ways to execute.
Automating reconciliation and other process improvements contribute to
shortening the cycle.
Document your processes with Standard Operating Procedures
so that all team members have steps to follow should any one team member need
backup. Keep your SOPs up-to-date through periodic review.
Spend time in the middle of the month following the month-end
process to complete your review of the entire process. Engage your finance team
and uncover those Day Zero tasks you can incorporate into your process.
Everyone in the organization will benefit when leaders have more timely and
accurate information with which to make decisions.
If you are disciplined and implement Day Zero and other
month-end processes, you can provide a Flash Report of results to management as
soon as Day 1 after month-end.
can facilitate a review of month-end processes with your team to ensure you
have uncovered all the possible streamlining opportunities. Provide the best
customer service to your management team possible – provide financial
information and think strategically and become part of positive initiatives to
move the entity forward and not the green-eyeshade accounting department about
which everyone complains.
When Business Leaders
Confess That They Don’t Know What They Don’t Know
I have avoided yoga class for a few months because I was intimidated by the fact that most of the participants twist and turn like the performers in Cirque du Soleil®. This morning I decided I would break through my barrier of feeling intimidated and attend the class. As I drove to class, I realized one of the reasons I was willing to step outside of my comfort zone TODAY was because I had attended previous classes with this specific teacher. Alyson Foreacre is the owner of Yoga Den, where I attend. She is an amazing teacher who I trusted to lead me through my own practice of yoga. If all I did was stay in one yoga pose and breath, she would probably encourage me to do more in a very respectful and empathetic way.
My journey with yoga can be compared to how business leaders
feel about financial information. In my years of practice, I have learned that
they are intimidated by financial reports. They are fearful of asking questions,
they don’t want to sound ignorant. Feeling intimidated by yoga class and by
financial information is similar, as in both cases we are keeping ourselves
from something that can be helpful in our overall lives.
My feelings of intimidation with yoga were primarily tied to fear of not keeping up with the class and not knowing how to do all the moves. I didn’t know what I didn’t know about how yoga class is a practice, not a directive. I was so right when I told myself “I got this” with Alyson’s assistance. She is an encouraging teacher who provides alternatives if she knows you need them. She also lovingly encourages you when you need a little guidance. Today she even laid on the floor beside me to show me how to do a certain move. She validated my confidence in her ability to get me through the difficult moves.
I often meet with entrepreneurial business owners, nonprofit
leaders or business professionals in corporations to discuss their pain points.
The most frequent statement I hear during those discussions are “I don’t know
what I don’t know.” I have to admit that,
it wasn’t until I was attacked by the anxiety of doing the right kind of
Downward-Facing Dog and other yoga moves, that I truly have the proper level of
empathy for this statement. I also realized that I should feel honored that my
clients trust in me to share their own fears of financial information.
Being responsible for an entire organization, or even just a section of one, without understanding the financial implications can be frightening. It takes a lot of courage to push through your uncomfortable zone, to accept some uncomfortable space for some time until you understand. Just like my sore muscles right now are telling me it will take a few times before that class feels good. But I know that if I dare to go again and I struggle, Alyson will be there for me.
Is it possible that you don’t know what you don’t know? If you struggle with the following internal dialog, the answer is probably “Yes”:
I do not receive financial statements each month
timely and I do not understand why.
Cash is very tight, and I am not sure we have
enough money to pay the bills and make payroll for the next month or two. I am not sure how to address this.
The new revenue recognition guidance is
required, and I do not know where to begin with implementation.
The organization needs to raise capital and I do
not know what the right type of investor is for our organization.
The corporation needs to divest of a subsidiary
or a line of business and I am not sure how to make that work. What are the
I know we need better systems and process to
improve the customer experience but I do not know where to begin or have the
time to ask various vendors what their system does, or even understand the full
capabilities of our current system.
Barker Associates can help you work through these anxieties and guide you through the process. We are direct communicators who will share with you the reality of the situation, even it is not what you want to hear. Recalling my sore yoga muscles, I will be empathetic to your journey of not knowing what you do not know. Give me a chance to let my experience work for you. https://mindybarkerassociates.com/contact/
It is the first month of the calendar year and for many, the start of the fiscal year as well. The first month for you to start measuring the results you assuredly planned and documented in a budget for the year.
Each of you has a different relationship with your budget. Each of the components of this relationship can lead to great results or negative ones, depending on how you react to them. Your reactions can impact your personal career as well as the health of the company you own or work for.
Read more about some of the pitfalls of budgeting and how to enhance your relationship with the budget to achieve the great results for which you planned.
CEOs, Presidents and Executive Directors
If you created the budget while sitting with your accountant, made sure you were comfortable with the revenues and expenses, but have not communicated it to the managers and leaders of the organization, you have just cheated on your budget. My counsel is to get the budget in a presentable format to communicate to those who have a chance to manage day-to-day to help you achieve the results forecasted in the budget.
The message to your managers should include your overall strategy, backed by practical, measurable goals. Your leaders need to believe in your strategy because if they do, your job of leading the organization to positive results will be so much easier.
I repeatedly hear, in large and small organizations, from managers, supervisors and those on the front line, that they have no idea what the monthly budget is for repairs to equipment, printing costs, etc. They are spending money based on one decision at a time without the benefit of the overall strategy. Without involving your managers in the process, you are not benefitting from their knowledge and experience.
Nonprofit Executives and Finance Committee Members
Can you answer these questions? If not, your budget package needs work.
How much does it cost the organization to run each program? Of that total cost, how much is covered by actual funding commitments and how much has to be raised to maintain the program(s)?
How much of your administrative cost – Finance, Accounting, Development, etc., is funded by direct reimbursement and/or the de minimis administration expense reimbursement in grant budgets? How much money has to be raised to cover these costs?
Does the budget package have one column for the Net Change in Assets/Income Statement and no backup schedules to show the Revenues and Expenses by program and grant? If your answer is yes, the budget package is one-dimensional. In other words, it does not provide the fundraisers and the Board the needed information to interact with potential donors and speak intelligently about the real needs that are met through fundraising. Many nonprofits go under when they issue one dimensional budgets to Finance Committees year after year. There is no clear understanding of the true funding requirements. Your fiduciary responsibility should lead you to ask for more transparency regarding where the needed funds for programming and administration costs will come from.
Finance and Accounting Professionals
Did you manage the budget process so that the budget is constructed the same way the detail accounting entries are made month-to-month? Most non-finance professionals hate to deal with anything that has “Budget to Actual Variance” in the description; add to it that you are explaining that the variances are because the budget has one type of accounting and the actual has another, and you are sure to cause irritation that is just not necessary. It is like a spouse putting the toilet paper on the roll backward – it is irritating and just not necessary. It is your job to keep the conversations and analyses about real differences and tie those differences to a real discussion that empowers the team to react and strategically move the direction as planned or make a decision to pivot. Here are some pitfalls to avoid:
Differences Between Finance and Payroll Practices
Large and small organizations find themselves with the ineffective comparison of budget-to-actual salaries, caused by Finance dividing the total annual salary by twelve for the monthly budget. Payroll records the true payroll expense. Month-to-month variances result, as Finance budgeted for a full twenty-eight to thirty-one days and Payroll budgeted for twenty-eight or forty-two days depending on whether it’s a two or three pay period month.
Insurance is typically paid in advance for the quarter or year. If it is material, it should be set up in a Prepaid Account. If insurance bills are expensed as paid, the month variance could be a result of those payments and not an actual expense overage.
Annual payments for subscriptions
These payments should be reviewed to determine materiality; determine if they should be set up in a prepaid account when paid, or if they are immaterial and should be expensed. When you mirror the actual accounting and the anticipated expense pattern in the budget you can avoid unnecessary variances and questions.
A company that is anticipating a large increase in revenue should determine how the increased sales and related cost of goods should be spread throughout the year in the budget. Consider the current pipeline and sales cycle when budgeting sales revenue. If your sales cycle is 120 days and there is $1 million in your pipeline at the end of the year, you will not realize $3 million in sales in the first quarter. A fast-growing entity could possibly reach $12 million in sales for the full year, but it should not be spread evenly to each month. Patterns such as this will frustrate executives and sales staff and make them feel like failures. This would be the equivalent of us expecting our spouse to be Jeff Bezos and to increase our family’s net worth at the same rate.
Make sure you are empowered with the right information to effectively run your department. Do your best to work with accounting to submit invoices and information within their deadlines so they can process the data into information that you can review and use to communicate effectively with the leaders of the organization.
Try to manage potential budget cuts made throughout the year so the troops can stay focused on driving the overall strategy of the business.
Think of it like this great example in the Netflix series House of Cards (spoiler alert if you have not begun your binge watching of the series – sorry).
In this episode, Frank becomes President and wants to take funds from FEMA to fund a jobs program to put people to work. The head of FEMA does not resign and tells his colleague he is not going to resign, as he is the only one who can manage the reduced funds and help those in need if a hurricane does hit after Frank took all the budget money. While the drama is critical for a successful Netflix series, you don’t want a similar drama playing out in your company!
Good luck with your relationship with the budget. Use my advice to help manage your fiduciary responsibility to the organization, as well as your duty to manage your career. Avoid the many aspects of “marital irritation” I have discussed by correctly managing Budget-to-Actual variances.
If you would like to discuss your relationship with your budget directly with me, please sign up for a complimentary 30-minute session through the contact link here.
Placing paper checks in the mail to vendors places your company at risk if you are placing them in the mail without Positive Pay.
Why don’t you just play Russian roulette with a full chamber or ride a motorcycle without a helmet? That may seem a little over the top, but the paper check is a risky way to submit payments to vendors.
What Can Happen?
A client contacted me recently to help unravel the mystery of the missing payment to one of his vendors. By researching his automated AP system and conferring with his third-party print vendor, we confirmed that the check had been produced and picked up by the post office for delivery. The check was eventually presented to a bank in Chicago for payment. The vendor was in North Carolina.
The bank in Chicago eventually released a photo to the FBI (yes, they had to get involved) of the person trying to cash the check. We had the chance to view the photo to confirm the person was not an employee of my client’s company. Thanks to using Positive Pay, they did not lose out on the amount of the check.
The incidents of check fraud are so frequent that law enforcement officials such as the FBI aren’t that interested in pursuing the “little guys;” they want to go after the big fish. Even though the check my client had cut was over $20,000 – big to him – it wasn’t worth pursuing just that instance to the FBI.
Seventy-five percent of organizations that were victims of fraud attempts/attacks in 2016 experienced check fraud, a 4% increase over 2015.
Positive pay continues to be the method most often used by organizations to guard against check fraud, used by 74 percent of organizations. Other methods include:
Segregation of accounts (cited by 69 percent of respondents)
Daily reconciliations and other internal processes (64 percent)
Payee positive pay (41 percent)
Lack of positive pay (cited by 23 percent of respondents) and clerical errors (18 percent) were two primary reasons for financial loss due to check fraud.
As the statistics show, checks continue to be the payment method most frequently targeted by those committing or attempting to commit fraud. One method companies use to fight check fraud is converting to electronic payments. In addition to the fraud prevention benefits, ePayments provide benefits such as:
Ability to quickly process last-minute bill and payroll payments.
Take advantage of early payment discounts, while paying closer to the due date.
Improved client-vendor relationships due to rapid, more efficient payments.
Eliminate the cost of printing and mailing paper checks, which can be as much as $9 per check.
Often implemented as an add-on to your existing financial system, the selection of vendors offering B2B ePayment solutions is huge. Barker Associates has seen the “deer-in-the-headlights” look that clients get when trying to sort through the options to choose the best solution for their company.