- Lush CPAs
Business Owners and Accounting: What Should You Be Doing?
We get this question a lot: "If it was your company, what would you want the board treasurer or business owner to be doing on a regular basis?" Our answer?
Understand how revenue comes into the organization or company. How are deposits made? Are there adequate procedures in place to ensure all dollars get to the bank account? How are the revenues recorded? How do you know if they are all being recorded?
Understand how expense are incurred and how they are paid. Is there an approval process? Is that process followed? When and how are payments made? When and how is payroll processed?
It may be important to review these things with the accountant every year or more if needed to verify that nothing has changed. If you don’t like or understand how its working, ask. If you don’t get a good answer ask again or have someone else review the information to get a better understanding of what’s going on.
Monthly or whenever reports are issued:
Start with the Balance Sheet. Understand every number and what it represents. Reports are just pieces of paper until you understand what they mean. If you don’t understand and number, ask. Ask until you understand what it means. Ask for several meetings so you don’t get overwhelmed. Go over a few accounts at a time. If something seems off, ask. If the person presenting you with the report can’t or won’t explain it to you. Run. Fast.
Next go to the income statement. If an account name doesn’t make sense to you, ask. The report needs to make sense to the board/owner. Have discussion about the number of accounts and account names. The accountant may suggest that less accounts make the report more meaningful and detail is available upon request. Its important to think of every reader of the report.
The overall reason to have financial reports is so management can make good decisions for the company/organization. If you need more or less detail, ask for it.
Background: One of the accounts in the income statement is named Exports. There is $250 recorded to it. You ask yourself, “What is that? We don’t export anything. We make computer software”.
A: You think, its only $250. It seems meaningless to ask. Months go by and by the end of the year there is $10,000 in that account. Now it does seem like a lot but it’s been going on all year so you let it go.
Next you notice cash seems to be getting low, but the accountant says its because collections aren’t going well. It seems logical. After all, all expenses are approved by you so there couldn’t be money missing. None of this sits well with you so you have an auditor friend review the books. You discover that AA Office supplies was a fake company and your accountant has been embezzling for years and coding to the account Exports.
B: You ask about the account. The expenses are related to when you export digitally and have to pay for secure the sensitive information. That makes sense to you and the amount in the account it what you remember the invoice to be. You ask if the account name can be changed to Digital Security. Next month you see that change and everything now makes sense.