3/7/2018 0 Comments Losing Money?It’s a commonly used phrase that I did not coin, but I use it all the time. “What gets measured gets managed.”
Over my career, I have worked with for-profit organizations as well as non-profits. No matter the corporate structure, all organizations need to live within their means in order to continue as a going concern. Many organizations I’ve worked with have expressed concerns about a lack of cash. They may say it in different ways – no money for pay raises or new programs, dwindling bank account, not hitting budget, etc. – but the gist is the same. Something seems off. I have found that often it’s due to a lack of awareness of the driving forces of their business or policies and procedures are either not in place or they’re being ignored. This article is a high-level summary of helpful hints if you’re struggling with cash flow. Overall, your company needs to apply a disciplined approach to the organization. What gets measured really does get managed if you are committed! As I see it, the following is a brief list of high level strategies to review, all of which is a separate topic that warrants further discussion:
Each of these matters can and should be further analyzed, and there are likely other best practices to consider. I do know that these best practices work. I’ve seen it multiple times. I’ve had clients look back and wonder what took them so long to implement these best practices. If these topics resonate, and you think you need some help, I would be happy to discuss. I can help with processes, financial reporting and analysis or helping you find the right people. Send me a note with your thoughts. What other topics would be helpful to you?
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2/5/2018 0 Comments Evaluating internal controlsFebruary 5, 2018
I’ve spent 25 years supporting organizations in several capacities. One of the matters that I’ve been routinely asked about is how to evaluate the business office’s internal controls to mitigate the risk of fraud or human error. It can seem overwhelming to balance practicality, due to limited staffing, with implementing an effective set of internal controls. Without being too technical, accounting transaction cycles are generally organized as a.) revenues and receipts, b.) expenses and disbursements and c.) payroll. Others cycles may include accounting for fixed assets and even cash management. The overarching key is to ensure that one person does not have control over the entire cycle – initiation of the transaction, recording of the transaction and review/monitoring. A quick example likely clarifies this concept: On their own, a person should not be able to set up a new vendor, order goods or services from that vendor, receive the invoice from that vendor, pay the invoice by writing/signing the check and mailing it, record the expense and disbursement in the general ledger, and then eventually receiving and reconciling the bank statement to the general ledger. There is too much room for error or worse, theft, with that much oversight in the cycle. Therefore, it’s important to have “multiple sets of eyes” involved with all those steps. It will reduce the risk of error and risk of fraud. This example scenario actually happens all the time (but not with my clients!). When I’ve advised organizations to split up those duties the common response is “Our accountant would never steal corporate money. He/she is too honest! We don’t have any staffing that can help, so why do we need to make the changes?” 100% of people currently on this earth make mistakes, and studies show that a very high percentage of corporations are unknowing victims of some sort of fraud. If your accounting staff do indeed maintain the highest level of integrity, a good set of controls will at least help to protect them from being too quickly blamed as thefts! Best case scenario is that your systems will be a little more mistake proof. With all this in mind, the American Institute of Certified Public Accountants has issued a little-known set of examples that can help an organization evaluate its systems. The organization issued the guidance in its not-for-profit section but it really applies to all businesses. The guidance provides suggestions for how to split up operational duties for an organization that has two, three or four people available, respectively. In order to spur some thought, I’ll give one of the examples. If you have three people available in the business office, the guidance offers the following suggestions:
Seems practical, right? Receipts, disbursements, payroll and cash management are appropriately split up in the best way possible with the limited staffing. Each organization is different, so the guidance can be modified for the applicable situation. I think it is good to periodically evaluate your controls even if you have no concerns. Hopefully these examples can kickstart some questions and ideas. Email me, and I’ll be happy to help if you have questions about your systems. Karl@BakerCFOadvisory.com 1/8/2018 1 Comment What to expect of your CFO?We're all beginning a new year personally, but professionally too. Others may be deep into their fiscal year. No doubt the days are filled with challenges, problems, opportunities and decisions to be made. Is there an effective partnership between the CEO, the CFO, and the senior management team? What should an organization expect from a CFO?
I've identified a few matters: 1. Make complex simple - finance and accounting can be dry, boring and overwhelming to people that are simply trying to do their best in running an organization day in and day out. A CFO should be able to reduce all the noise and help organizational leadership understand financial matters in an easy to digest way. I've mentored a lot of people in my career, and I've always told them to "make the complex simple". Very often if an organization gets into financial trouble, it's because of poor leadership and either intentionally or unintentionally ignoring the financial signs. Your CFO should be a confidant and collaborative resource to help make decisions from a financial perspective. We as CFO's should be great communicators. (If you happen to be a college student reading this, take a public speaking course!) 2. Help organization understand how to achieve it's financial goals - "It's not in the budget." Budgeting is an entirely separate subject, but I have a few very brief thoughts here. Unfortunately, sometimes the budget is seen as a tool to restrict bad behavior. The budget should be supported by an achievable plan, however. The budget is simply the quantification for your operating plan. However, leadership should always be in tune to great business opportunities. For example, a budget may include a planned expenditure. However, opportunities may arise to spend money differently that in the long run will save a company significant dollars. Just because that expenditure is not in the annual budget doesn't mean it shouldn't be evaluated as a good opportunity. 3. Leadership and mentorship - we should always be working to replace ourselves and to help our colleagues be the best they can be and achieve their goals. The CFO should be in tune with their staff, to help them be the best they can be. 4. Effective business operations - A CFO is responsible to oversee business operations in an efficient and effective manner. Financial reporting should be accurate, mistakes kept to a minimum and assets safeguarded. The day to day operations of a CFO is likely more than just "debits and credits" but somebody has to think about these matters! A CFO should ensure that good processes are in place to mitigate the risk of errors, theft, and intentional inaccuracies. I've found that it's simply a matter of establishing specific processes to be followed in accordance with a prescribed timeline. An effective system will almost certainly result in timely and accurate reporting, which will give company leadership the information they need to make quality decisions. This is not a comprehensive list by any means but these items are a good start. Do you see little value in collaborating with your CFO because they aren't helpful or too busy being in the weeds? Do you dread meetings with him or her because they talk in accounting mumbo jumbo? Does the business office not seem to have a voice? Does it seem difficult to obtain accurate financial reports in a timely manner? If you answered yes to these questions, then you probably have some hard decisions to make. My experience is that company leaders that are experiencing these issues struggle with what to do. Congratulations if these are not familiar issues! I say, "life doesn't have to be that hard!" Quality financial leadership can make a pretty big impact almost immediately! |
AuthorKarl spends his time thinking about ways to help organizations with sound financial decisions. Archives
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