The Financial Reporting Manual

Accounting accuracy is required for every business as it measures the organization's financial health. You likely have accounting processes and procedures you are comfortable with.

But are they the best they can be? Let's discuss how that data process works and why it is essential.

The accounting cycle is the process of opening and closing the books over a specific period, typically monthly.

The eight-step process starts with recording all financial transactions and reporting the results for the designated cycle time frame. Your accounting software can automate some processes, giving your management team consistent monthly, quarterly, and yearly reports.

The 8 Steps in the Accounting Cycle

1. Identify Transactions
2. Record Transactions in a Journal Entry
3. Post Transactions in a General Ledger
4. Calculate Trial Balance
5. Analyze Entries
6. Make Adjusting Journal Entries
7. Generate Financial Statements
8. Close the Books

As you know, financial data (and how it is collected and processed) is critical. As your business grows, there is a point when you should review your processes by looking at ways to generate efficiencies and streamline workflows. Over time it is easy to become comfortable with functions, leading to stagnant procedures and disconnected data.

An outside advisor with experience in financial reporting can review your business’s systems and processes. After an extensive review, your advisor will outline efficiencies and opportunities and work with you to determine the next steps.

An Internal Accounting Procedure Analysis Reviews

• Accounting Procedures
• Internal Controls
• Staff Responsibilities
• Software Functionality
• Management Review Process

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Are you confident your month-end closing process is the best it can be? A timely process gives you the best opportunity for visibility into your company's financial health, allowing you to make informed business decisions.

Take a walk through this checklist and see how your current monthly closing process rates.

Financial Reporting Checklist

How long does it take to close at month-end?

• 4 to 5 days is the goal for closing books each month

How much time do you spend reconciling transactions and making adjustments?

• Do you spend significant time in this part of the process? Is it because your staff is making entry errors, they don't have the information they need upfront, or do your approval processes need improvement?

How hard is it to run reports?

• Do you have automated reporting or spend significant time each month running reports?
• Do you have quarterly reports established for tracking goals?
• Is it easy to access the reports your auditors need at year-end?

What financial reports do you have easy access to? Here are nine you might need:

Are you using spreadsheets to track data for manual entry into your financial system?

• It might be time to look for new financial reporting software that can integrate with your other business systems to eliminate the need for manual spreadsheets.

Are you spending more time reviewing financial statements for accuracy than using them as a strategic planning tool?

• Your time should be focused on what the financials are telling you and how you can use that information to make the strategic decisions needed to meet your business goals. Assurance that your financial reports are accurate and timely will allow you to focus on what's ahead rather than looking back at data accuracy.

Do you have the optimal financial reporting system in place?

• Are you using a financial system because that's what you are used to, or because it's the best option for your business? Is the cost or fear of updating a new system holding you back?

There is a lot that happens behind the scenes with your financial data. Is it time you consider upgrading your system or outsourcing your accounting functions? There are many benefits to outsourcing that you may not have considered.

Take a critical look at this list and talk with an advisor about your unique situation. The insights and options they provide will be worth your time.

(Download Video Transcript)

The monthly closing process may seem routine, but it is essential to your business. The information is used to generate financial statements needed to run every business.

Tips to Help You Manage the Monthly Closing Routine

Educate Your Non-Financial Peers

The accuracy of the information used in the monthly closing process is often driven by employees who are not in the finance department. Sharing the importance that the information they provide be accurate and timely will help everyone understand their role in the process.

Building relationships with your peers beyond the regular financially-related discussions will help you educate them and make conversations easier when an issue arises that you need to resolve.

Have a 10-Day Rule

Many CPAs recommend a 10-day rule for the closing process. Setting expectations will guide everyone in staying on track with their part of the process. Don’t rush the closing process. While it is essential to remain within the designated time frame, rushing tasks often leads to accuracy errors, which take longer to fix at a later time.

Manage Your Time

Efficiency is key. Set individual goals for the day and week of closing. Don’t leave the office that day until you have met those goals, or tomorrow you will start behind in your tasks. Use your electronic calendar to set monthly tasks and communicate timelines and deliverables so everyone understands the goals.

Maximize Technology

Keep an eye on new ways to do recurring tasks. A simple change in automating a process in account reconciliations, routine calculations, and department allocations can save time. Technology is constantly changing, so be proactive in looking for training, articles, and websites for the latest information.

Review Your Monthly Closing Checklist

A monthly closing checklist will help guide you through the closing process. Start with the checklist included in this eGuide and customize it for your company.

Talk to Your Advisor

If your business uses an outside CPA advisor, talk with them about your processes. They offer expertise in internal controls, financial statements, and monthly financial reconciliation and may be able to assist you with streamlining your monthly closing procedures.

Monthly Closing Checklist

Having a monthly closing checklist will reduce the risk of errors and missed deadlines. Assign each task the appropriate time and person accountable. This will help break down a large process into manageable steps.

Pull out your current checklist and compare it to this one. Create your own checklist that is customized to your business’s needs.

Familiarity and fear of the upgrade are primary reasons business owners continue using an outdated accounting system. That's normal. You are used to what you have and dread having to choose a new software, train staff, set up new reporting, etc.

However, let's look past that momentary dread and discuss why you should upgrade. Consider the following questions to determine if it's the right time to move your financials to a more robust solution.

Six Questions to Ask About Your Reporting Processes

1. Do you have all the functionality and control you need?
2. Does your team spend significant time outside your financial reporting software, using paper or Excel spreadsheets?
3. Could your finance staff save time by eliminating repetitive manual processing?
4. Can your team work remotely and access your financials to perform common tasks (such as purchasing approvals) from anywhere?
5. How are you handling backup and recovery?
6. What would data loss cost your business?

After you review and think through how your accounting system is working for you, it's likely you aren't getting everything you need timely and efficiently. That's a sure sign it is time to consult with someone who understands your needs and the software options available.

Financial reporting can be status quo. You’ve always done it that way, so why not keep on that path? You have software, so why change now? But with constant time crunches, wouldn’t you be better off looking at what you need and how you are getting that data?

How many spreadsheets do you use to analyze data outside your accounting software? Do you have the right software for your needs? Less manual interaction should be your financial reporting goal this year.

Now is the time to assess how to streamline your accounting software so you can make better business decisions in real time. Choosing a new accounting software system should not be taken lightly. Accounting software is essential for running a financially healthy business.

1. Three Considerations When Comparing Different Software Products

Flexibility

Most people tend to think about their current pain points, but accounting software is an investment of time and money. It’s essential to think about not only your current needs but also the future needs of the organization as well.

Create a wish list and prioritize by importance. Also, document each time you prepare a report or create something outside your accounting system. Accounting software aims to automate as many processes as possible to eliminate human error so this step will assist with your evaluation of various accounting systems.

User Security

A lot of entry-level programs say they offer security, but given a deeper look into the system, there may only be security available on a viewer and user setting.

Some systems offer security settings within each module that determines what they are able to do and not able to do. So decide how granular you need to get with your user security when evaluating potential accounting software.

Cloud Accounting

Determine whether you want a cloud-based or desktop system. There are a lot of software systems going to cloud-based, but there are some that are still desktop. Some systems are desktop that can be hosted by an ASP (application service provider). In this situation, a server in someone else’s location is storing your data, so you really want to understand if it’s a true cloud-based system or a desktop system that’s remotely hosted.

The beauty of either system is that you can transact from any computer. A true cloud-based system will allow you to transact only with an internet browser. With one of the other systems, you will still need the program on your computer because you’re accessing the data through your computer.

The benefit of a cloud-based system is it will give you the ability to see all your data in real time – the minute something is posted, it’s updated. Also, a cloud-based system does not require backup or restoring of files. Make sure that whatever system you choose, it has a solid data recovery plan.

2. Review Software Reporting Options

When considering new accounting software or keeping your existing system, you need to evaluate its reporting capabilities.

Typically, those who use accounting software are familiar with using general ledger accounts to record transactions, but do you also have the ability to dissect your company into smaller segments (i.e., by location if you have multiple locations or by individual departments)?

It's helpful to have these dimensions/classes to report on specific areas of your business. It's imperative to evaluate your accounting software's ability to give you the financial reporting for your financial statements. How easily can you create a custom financial statement that will provide you with information in a format that's most important to you?

Many accounting software programs out on the market don't have the ability to customize financial statements. The nice thing about a program such as Intacct is that it's very customizable and you can create the financial statements you need to report on in the most meaningful way. It can provide you with metrics and goals to help incentivize and make your managers accountable for their divisions.

3. Does the Software Allow You to Customize?

What kind of options do you have for customization? There are a lot of places within accounting software, other than financial statements, where you can customize things. In Intacct, for example, there is the ability to create custom fields within any input screen.

You can also customize forms so you can look at what’s important to you. For example, suppose you have somebody entering information in a form and there are a lot of fields they don’t need. In that case, it’s easy to customize a form to eliminate the unnecessary fields or even change the terminology of the fields within the form. These are just two examples to consider when choosing software that will work for your company.

4. Dashboards Make Reporting Efficient

Dashboards are a data visualization tool that provides at-a-glance views of key performance indicators (KPIs) relevant to a particular objective or business process.

One thing to consider is whether the accounting software you’re using has the ability to provide you with a dashboard report. Is this something you have created outside of the system because your accounting software doesn’t have this capability?

Dashboard reporting tools provide several valuable benefits, such as:

• Delivering at-a-glance visibility
• Saving time and resources
• Improving decision making
• Easy performance checks and balances
• Up-to-date progress evaluation

Dashboards are an easy way to see the status of your business’s overall financial health as well as how it is trending or areas that need improvement.

5. Special Features You May Want or Need

Some accounting software programs have unique features that can improve the reporting for your business.

Statistical Journal Entries

These are entries that can be based on nonfinancial information, but then there is the ability to link them to financial data.

Recurring Entries

Rather than every month having to remember to record expenses, the system can automatically record all recurring information.

Import/Export Capabilities

A nice feature of some systems is the ability to import CSV files rather than having to manually enter transactions individually. This capability also provides visibility into import errors so the files can be quickly modified and fixed.

Auto Allocations

Account allocations let you automatically distribute amounts across multiple dimensions such as departments, locations, projects, or classes.

A robust accounting software system provides your business efficiencies so you can access better data and make smarter business decisions.

Start by talking with your accountant, as they are in the best position to advise on what you need. Finding the right accounting software will depend on your industry and the complexity of your business. The software you choose should be appropriate now and allow for future growth.

Business-Software.com ranked Intuit QuickBooks best for small businesses and Sage Intacct best for medium businesses. Let’s talk more about each of these options.

Comparing Intuit QuickBooks and Sage Intacct

Intuit QuickBooks and Sage Intacct are two of the most popular financial reporting software programs for small to midsize businesses. Here are some quick comparisions of these two programs:

Sage Intacct

Sage Intacct is a cloud-based program that specializes in business management. It offers a variety of billing tools to help businesses manage their finances more efficiently. The software is designed to be scalable so that it can grow with your business.

Features:

• Advanced Financial Reporting
• Multi-Entity Support
• Built-In Workflow and Automation
• Integrated Payments Processing

Intuit QuickBooks Online

QuickBooks Online is an accounting system that is best suited for keeping track of small business finances and bookkeeping. The software is easy to use and offers a variety of features to help small businesses manage their finances more efficiently.

Features:

• Easily Track Expenses
• Generate Invoices
• Track Payments
• Manage Bills

Comparison Checklist for QuickBooks Online and Sage Intacct

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Once you have your financial reporting processes streamlined with the appropriate financial reporting software, it is time to look at your financial statements. Financial statements come in three types: cash flow statements, income statements, and balance sheets.

Cash Flow Statements

A cash flow statement shows how your company earns and spends money and how it runs. These statements are usually over a full fiscal year. A business will have four types: cash flow from operations, cash flow from investments, cash flow from financing, and total cash flow.

The cash flow statement works for future opportunities by showing when you tend to be high or low on cash, making it easier to plan for growth and avoid risk. These statements include cash-ins, when you raise capital, and cash-outs (i.e., when your dividends are paid), with the total showing the cash flow for the entire period.

Income Statements

Also known as profit and loss statements, income statements show how your company's finances perform over a particular period. They track information such as expenses, revenue, gains, and losses. Here are some terms you'll need to understand:

Gross Profit:

This is what's left once you've deducted the cost of goods sold (COGS) from the revenue you've earned. It includes direct labor, direct or raw materials, and manufacturing overhead, but not indirect expenses.

Net Profit:

This is income after deducting all costs and expenses from revenue. Another way to look at it is gross profit minus debt, taxes, and other business expenses. It's also known as net income.

These calculations determine your company's net income, showing your income plus gains minus your expenses plus losses. You'll start by listing revenue, expenses, gains, and losses to calculate your company's net income.

Balance Sheets

A balance sheet shows prospective shareholders your company's net worth by illustrating its financial position. It contains three accounts from the general ledger: assets, liabilities, and equity.

Let's define these terms:

Assets

Liquid assets are cash or assets that can be easily converted into cash (i.e., accounts receivable, inventory, and cash equivalents). Non-liquid assets can't be converted to cash quickly (i.e., equipment, buildings, real estate, intangible assets, patents, and franchise agreements).

Liabilities

Your liabilities are what you owe. Current liabilities (i.e., accounts payable, interest, sales tax, utilities, wages, and rent) are due within a year. Long-term liabilities are due over one year such as deferred taxes, pension fund liabilities, and long-term debt including principal and interest on bonds.

Equity

After liabilities are deducted from assets, shareholder equity is what remains. This can be distributed or kept in the business as retained earnings.

Create a balance sheet with your company name, the phrase "Balance Sheet," and the calculated date. You'll enter your assets in the upper left, listing all current assets with their total value, followed by fixed assets and their total, and then calculating total assets at the bottom left of that section.

Liabilities are listed similarly with all current liabilities and a total, followed by long-term liabilities and their total, and then adding the two totals together for your total liabilities.

Once these sections are totaled, you'll list equity. When added to your liabilities, it should equal your assets.

Financial statements help you with both organization and opportunities. They provide crucial information on your company's financial status as they are written records of your business activities.

Three Primary Uses of Financial Statements

1. Investments

   Financial statements are used by external investors so they can see how you've allocated money and if your company is worth investing in.

2. Loans

   Financial statements show how your business handles money for financial institutions to decide whether to extend credit.

3. Taxes

   Financial statements make it easier to file and pay taxes by having information in a standardized form.

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Financial analysis includes generating a set of ratios and comparing those ratios over time to determine areas that are working well or where improvements may be needed. Your benchmark ratios should be chosen based on your industry and specific business needs.

Ratios are the scorecard for your business. With consistent review, it is easy to identify ratios that are out of the normal range and make timely modifications and adjustments. Do you know what information you need to monitor your business operations effectively? Do you know how often you need that information to make educated and timely decisions?

Ratios are quick indicators of the health of your business. They are an easy way to measure your company against your peers and industry standards. Setting up the ratios your business will consistently measure against allows you to compare them over time. This trend analysis will enable you to make decisions based on history and give your company the time to make adjustments as needed. More importantly, they help you look into the future and see the potential that lies ahead.

Financial ratios are used to secure funding and guide strategic decisions to meet your business goals. They show broad trends in the business's economic outlook. Once you set up the reporting structure, you can run these ratios for quick comparisons and thus quick decision-making.

Your scorecard needs to be tailored to your business model to become an effective tool in successfully managing your organization. As you review your key ratios, develop a strategy for using each ratio and the best time to review them. Some should be reviewed daily, while others should be monitored weekly or monthly.

Common Financial Ratios

Work with your accounting advisor to determine the ratios you should benchmark against. They can provide industry comparisons and guide you through using those ratios to meet your business goals.

(Download Video Transcript)

To develop and measure your growth plans, you need reports that are consistently generated at specific times of the year. These might be used monthly, quarterly, semi-annually, or yearly, depending on your business. There are many opportunities to generate reports for your use, but here are a few we recommend starting with.

Cash Flow Planning

Forecasting your cash flow will help you understand where there may be cash shortages in the future. This will help you plan ahead and ensure you have enough cash to keep things running smoothly.

• Start with historical sales data to calculate anticipated sales by month. Be sure to account for seasonal fluctuations.
• Estimate future payments and predict when you will receive payments based on due dates.
• Approximate your fixed and variable costs, being sure to account for fluctuations in variable expenses based on anticipated sales.

Sales Forecasting

A sales forecast predicts future sales and should be projected out three to five years. Set your spreadsheet up by month, quarter, and year. The report should show price, unit sales, calculated sales, and unit costs.

There are different types of sales forecasting models. You can use past performance but be aware that past sales don't necessarily ensure future sales at the same level. You can use opportunity stage forecasting with your sales team which creates your sales forecast based on leads in the pipeline and their expected close rate.

This reporting is very dependent on your business model. Work with your CPA to help you develop a sales forecast model that best suits your needs.

(Download Video Transcript)

Expense Budgeting

The expense budget indicates how much it will cost to make the sales you projected in your sales forecast. You will list fixed costs (i.e., rent, payroll, and utilities) and variable costs (i.e., costs for production and marketing).

Combining the sales forecast with the expense budget will provide an expected net revenue for the period you are projecting.

Break-Even Analysis: A 4-Step Process

A break-even analysis shows how much you need to sell to cover your expenses and eventually profit. Here are a few simple calculations to help you determine your break-even points.

• Break-Even Point (Units) = Fixed Costs /(Revenue Per Unit – Variable Cost Per Unit)
• Break-Even Point (Sales Dollars) = Fixed Costs / Contribution Margin
• Contribution Margin = Price of the Product – Variable Costs

1. Determine Your Direct, Variable, and Fixed Costs

    

   Direct Costs are the costs tied directly to your product or service. For example:

   • Inventory - If you sell a product
   • Employees - If you provide a service

    

   Variable Costs are the costs that change as the quantity or service changes. For example:

   • Utilities and Raw Materials - If you are a manufacturer
   • Credit Card Transaction Fees - If you sell and ship products

    

   Fixed (or Overhead) Costs are costs that remain constant regardless of sales levels. For example:

   • Rent
   • Advertising
   • Staffing

2. Determine Your Products or Services by Profit Centers

   Profit centers are the units or divisions in your company that can be separated by revenue and expenses, allowing you to see if each generates income or losses.

   For example, if you offer a product, a service, and a subscription base, each would be separated for your analysis.

3. Calculate Your Average Per-Unit Sale Price

   The average per-unit sale price can be calculated for both products and services. For example:

   • Chiropractors can use the average adjustment fee.
   • Attorneys and accountants can use the average per hour fee.
   • Product sales can be calculated using the average price for each product line.

4. Put It All Together

   • Using the data collected, you can determine if your prices are too low compared to the marketplace. Maybe your cost of materials/labor is too high. Can you make adjustments with your supply chain or equipment to bring expenses more in line?
   • Analyze your best sellers to determine if you can reduce costs, create new markets, or invest in more advertising.
   • Maybe you will discover a product or service with a low-cost basis that you can put more effort toward to increase sales.

(Download Video Transcript)

Use Financial Reporting to Make Smart Decisions

Your financial reports are used for tax purposes, but the real value is how you use them for decision-making. Accurate reporting is critical for you to make informed decisions to maintain or grow your profitability. By identifying trends and patterns, you can make adjustments in real time.

Using dashboard reports to review your financial ratios helps keep you on track with current goals and will help you predict trends for the rest of the year. Use the reports to keep stakeholders and your management team informed to help realign strategies where needed.

(Download Video Transcript)

Do you regularly feel like you are crunched for time? Are you looking for ways to grow your business and increase your bottom line? If so, outsourcing your accounting operations is the easiest decision to support you. There are many reasons to outsource beyond the time savings you’ll gain.

(Download Video Transcript)

Five Reasons to Outsource Your Accounting

1. Save Time and Money

   Outsourcing your business’s accounting department could save you time and frustration. Your company may benefit from reductions to overhead costs such as recruiting, employee benefits, training, hardware, accounting software, supplies, and office space. Additionally, you won’t be responsible for managing the process and will have plans when your staff is unavailable to work (i.e., vacation, family leave, etc.).

   Training and system upgrades, which occur regularly, will no longer be a worry. According to The Outsourcing Institute, “Businesses choose to outsource to improve their core business focus, to avoid risk and costs of hiring more employees, and to gain access to outside expertise that they could not afford otherwise.” All good reasons to research outsourcing options.

2. Reduce Risk and Improve Internal Controls

   Outsourced accounting ensures you have effective internal controls by providing a system of checks and balances to help you reduce internal fraud opportunities, as well as verify accuracy of your financials. Failure to include these checkpoints can result in consequences and financial mistakes that could negatively impact your business.

   For smaller businesses, it can be cost-prohibitive to have enough staff to segregate duties. You currently might have the same person writing checks, balancing receivables, setting up new vendors, and processing your payroll. This creates a high-risk environment for potential fraud. By outsourcing, you can be assured that policies and procedures will provide an appropriate level of internal controls.

3. Receive Expert Support and Collaboration

   One of the most significant benefits of outsourcing is access to accounting experts who understand your business. Outsourced accounting teams make it a priority to keep up to date on accounting standards. You can be assured that you are following guidelines, know the current standards, and are in compliance with any reporting required for your industry.

   Choosing an accounting firm that has in-depth knowledge of your industry will provide the most significant benefits and most effortless transition. When researching options, ask what collaborative efforts will be provided for your leadership team. Often an outside perspective will uncover new ideas, discussion points, and potential cost savings. Creating a collaborative framework will give you the best results in your outsourcing plan.

4. Scalability to Grow Your Business

   Focus on your business and grow! Outsourcing allows you to expand and grow your business without the additional time and expense of adding resources. As your business grows, your outsourced team will continue to provide the back-office support you need without requiring you to invest in additional office staff to manage the financial side of the business.

   

   Because your outsourced accounting team understands your financial picture, they can often provide you with ideas that will help you grow. Choose an outsourcing option that includes business consulting, either as part of the monthly services or as an add-on service when needed. Outsourcing provides you flexibility and another perspective on your financial picture.

5. Improve Process Efficiencies

   Outsourced accounting teams use best practices to get the work done efficiently and effectively. Often companies who outsource have found they can reduce the average time it takes to close the books each month, which provides better cash flow visibility.

   Reports can be designed to give you precisely what you need weekly, monthly, and yearly. You gain the benefit of years of experience in financial reporting to provide you with the best reporting options customized for you.

When Should a Company Consider Outsourcing Their Accounting?

Anytime! Outsourcing is an excellent option for businesses at all stages, from start-up to growth, and of any size. You can get the benefits previously discussed and set yourself up for success.

• If you have a key staff member who recently left the company, consider outsourcing before rehiring the position.
• It's another month-end and you don't have access to reports you need to accurately review your cash flow, revenue, and income streams. You have limited visibility into your profit margins. Outsourcing might be the best option to get the timely reports you need.
• It's year-end and you are struggling to show your leadership team, board, or fellow owners the financial overview of your business. Look into outsourcing.

What are the Top Questions You Should Ask When Interviewing Outside Accounting Options?

• What are the baseline costs and processes?
• What are the additional consulting options available?
• What is the monthly reporting timeline?
• What software does the outsourced provider support and how will it integrate with your current business technology?

There is a lot that goes into your financial reporting process. This eGuide highlights some areas for you to consider, review, and act on. While many of the standard financial reporting functions are the same, each business is unique.

The financial statement is a detailed and organized report about your company’s financial activities and overall position. Proper design and preparation of the financial statement are essential.

SVA can help design, review, and analyze your financial statement, making it a meaningful and timely tool to guide your decisions. Part of the analysis process compares actuals to goals and previous years as well as benchmarking to your peers.

Understanding and reviewing your financial position provides the framework to plan for seasonality or uncertain revenue fluctuations. Accurate and timely financial statements are a valuable part of understanding the financial strength of your business.

We can help you with everything financial including software selection, reporting analysis, cash flow, budgeting, forecasting, and outsourced accounting solutions.