Many businesses find it difficult to produce financial statements, whether it’s producing them on a timely basis or producing them within a reasonable cost. The process can be cumbersome, but tracking accurate financial data is essential to running the day-to-day operations of your business. Here are three steps that can help you produce financial statements with ease:
Step 1: Focus on Data Entry
Data entry is the foundation of your accounting system and process; it must be complete, timely, consistent and accurate. You can enter the data yourself, hire an employee to handle it or outsource it — the decision depends entirely on your unique situation and the nature of your business. It may seem simple enough, but making the wrong decision about how the process is handled can create a costly problem that you’ll need to resolve later. This is why good bookkeepers are expensive and hard to find! Here are a few keys to data-entry success.
Completeness: The worst-case scenario is to find a set of accounting records half-completed — the bookkeeper that inherits this situation has to determine which transactions have been entered and which have not. Whether you plan to enter your own data, assign it to an employee or outsource it, it is important to be complete in your data entry.
Timeliness: Entering transactions on a timely basis will lead to more accurate and timely financial statements. As time passes, the recollection of transactions will start to fade and documents may disappear, among other possibilities. Inefficient reporting can use up valuable time and resources down the road, so try to get into the habit of recording transactions on time from the outset.
Consistency: It’s important to be consistent in how your data is entered into the accounting system. Let’s assume you enter all MacBook Air purchases into an expense line item named “office expense.” While these purchases would most likely be considered assets, not expenses, all of them will be categorized under one, consistent expense line item, rather than in multiple different places.
Accuracy: Be accurate — incorrect data entry can be costly and may produce incomplete results. It can take 10 times longer to find and correct errors than the time it takes to enter the data correctly in the first place.
Step 2: Hire a Professional Accountant
Finding a good professional accountant is crucial to tracking and recording meaningful financial data. Your accountant should not solely specialize in preparing tax returns; he or she should also be involved in reviewing your bookkeeper’s work or the work of the person doing the data input. Your accountant should be your partner in analyzing the results.
Finding the right accountant can be complicated; therefore, a good approach is to focus on finding an individual or a firm that is the best fit for your business at that particular time. If your company is just getting off the ground, the best fit may be a person or a firm that can prepare your tax returns at the lowest price possible.
But as your company grows, you may need help with general accounting duties or with developing accounting processes. Perhaps your tax situation becomes more complicated, and you require advanced planning; in this case, a solo accountant that specializes in preparing low-cost tax returns may not be the best fit. If this is the case for your business, you may consider hiring a mid-sized CPA firm with a more specialized staff to better serve all of your accounting needs.
Step 3: Find the Right Software
This step is critical to producing meaningful financial data about your company.
Your accounting software is the tool you will use to process, collect and report business transactions. Today, there are plenty of choices, including cloud-based solutions, which minimize start-up costs, increase availability and outsource that dreaded responsibility of backups and disaster recovery.
This is an important, strategic decision that you should discuss with your CPA.
Too many businesses choose programs like QuickBooks without doing market research or giving the process much thought. When deciding on software, think about the features you want today, and the features you may need two to three years into the future. Your business may change in ways you did not anticipate and the required feature set may change, too. You’d be surprised at how quickly you can outgrow software so be sure to choose wisely.
If you can address these topics, your odds of producing meaningful financial statements will increase dramatically. If you have deficiencies in these areas, it is critical to address them now, as they will only become worse with time. Remember, your financial statements make up the dashboard of your business — with timely, meaningful information, you can help drive it in the right direction.