I work with a number of health care and other types of clients. In the last two years, I’ve been blessed to work with more clients than I can count on my two hands. One thing I continually encounter is a very dry but important subject - chart of accounts (“COA”) structure.
Too many companies know their books do not capture financial information in the way they should but they avoid the challenge of changing their COA. That’s not a very interesting subject but it drives financial reporting so thoroughly, I thought we should talk about it. Very often, the COA was originally developed from a canned package or frankly by somebody that simply didn’t plan well enough. As businesses grow in size or complexity or simply seek to increase their level of sophistication, a change in the COA structure may be warranted. The following is a short list of leading indicators that there may be a need for a change:
If any of these questions trigger further questions, it may be worthwhile to invest in the time necessary to revise the COA. The following is a short list of things to consider:
These are a few thoughts addressing wholesale changes. Maybe the health center does not need a wholesale change; perhaps an effective change would be to simply add some accounts or departments. I’ve seen that approach work very effectively to enhance the reporting. What’s most important is to step back away from details, remove oneself from the resistance to spend the time, and think about the gaps in your data analysis. Improvement in the COA can be necessary to become more data driven, which is usually the difference between an effectively managed health center and one that is struggling financially (as long as there is the will to respond to the data but that is a different topic!).
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Have you ever thought about the fact that for those of us who live in an urban area such as Boston (worst traffic in America, literally per studies) our use of technology often times does not help us? Cars are a wonderful invention, saving us time, and they’re just plain cool to drive usually, unless it’s a Corolla. No offense to anybody out there driving Corollas, and I drive them periodically as rental cars when I travel, but Toyota does not make that car in order to add to the cool factor. Anyway what do I mean when I say that the technology does not help us? In the morning, when I need to get to work, 10 miles away, I could probably get on my horse, which I do not have, and get to my destiny at least as quickly as it takes me driving a cool car. I would probably also be less angry. As I’m sitting on the highway going zero (0!) miles an hour, I imagine myself on my horse, galloping along at least a few miles an hour and arriving at my destination faster than in my car. Ugh.
And so I ask… In your business, is there any underutilized technology that you own but for which you are not making full use? Is there any technology available that could help your staff do their jobs more easily? I have seen several instances in my career, where a company purchases accounting software, for example, along with several add-on modules, and two years later they are still paying for those modules, but never got past the barriers in implementing the features. Now it sits there collecting cyber dust. Additionally, it is quite common for people to delay intentionally or unintentionally tapping into resources available to them. It’s easy for a company to just get used to the way things have always been, and let’s face it, a set of processes that include paper usually works, however inefficient it may be. Examples include use of billing, purchasing, disbursement and payroll modules, HR platforms, and document management to name a few. A CFO could be helping to assess those issues and opportunities. An assessment should include:
Then follow up, to understand what were the barriers and more importantly, what would it take to implement the use of technology? What would be the return on investment? Would it make people‘s lives easier? Would timing of said processes be different? Would we need as many staff as we currently have? After an assessment is complete and if there are opportunities identified it will be important for somebody to take the lead and put a plan in place for execution. A routine review of these matters will likely pay off in many ways. Don’t buy a horse to avoid traffic. You likely can find a pretty cool way to get to work! Said no business owner, ever. Though it may be a popular method of ordering by adventurous customers at restaurants, no business owner wants to be surprised by financial matters that are within our control to avoid such surprises.
In the nature of the work we do at Baker CFO Advisory, LLC, we evaluate company processes, internal controls, and financial reporting. Sometimes it may take a while, but unfortunately, we find matters within pre-existing systems, processes and controls that may surprise our business owner clients, and then we put plans in place to help mitigate that risk of future problems. Often times it answers the questions the owner had about challenges that they couldn’t quite figure out. Do any of the following challenges sound familiar to you:
I could go on. With the proper expertise, planning, systems, and implementation of technology, it is possible to avoid these surprises. There are enough challenges in running a business, that adding stability and expertise in the business office will eliminate at least one challenge. The above list can be mitigated with proper best practices. Revenues and Collections: You should be evaluating the recording of revenues and outstanding charges in accordance with cash collections, contracts and sales agreements to ensure your books reflect the economic realities of your sales and collections. Cash flow: Additionally, regular cash flow projections should be set up to help anticipate cash flow challenges, helping to plan for seasonality of sales, debt payments, payroll, etc. If cash is particularly tight, daily cash management may be necessary, but it’s unlikely that anything less frequent than weekly cash projections will suffice, looking out 60-90 days. Expense management and other accruals: You should be evaluating your system to assess whether all liabilities, including trade payables, customer credits, or other accrual risks are properly recorded. Depending on the nature of your business, it’s quite possible that significant estimates are necessary. We have worked with companies that had very significant IBNR (incurred but not reported) liability risks with such a material impact on the overall finances of the organizations, that it made the difference between overall profitability and near-bankruptcy mitigation. Imagine the surprise at these companies if they had poor systems in place to properly calculate those liabilities. Staffing: Is workflow as efficient as possible? Is the company making proper use of technology to make work life as efficient as possible? Budgeting: It is important to have a financial plan that is always looking forward, evaluating the basics, such as ongoing operations, but also such things as “same store” sales and profitability, service line finances, return on investment in growth ventures, research and development, etc. Back to surprises… they’re great in gift giving and celebrations, but can be the downfall of a business when it comes to managing its finances. If you’ve recently been surprised due to accounting and reporting issues, we would welcome the opportunity to help. The moment you buy a new big screen television, it’s obsolete due to new products constantly coming on the market. The moment you buy a new laptop computer it’s also instantly obsolete. Why? Technology resources are advancing at an incredibly fast pace, getting better seemingly every week. What else is getting better? Fraudsters. They’re constantly trying to trick their victims.
I’ve seen multiple instances of fraudulent checks presented to banks for payment. Somehow, these criminals will prepare a very authentic-looking check from the company, with full and complete bank account information that is written to themselves and will even have an authentic looking signature from and authorized signer on the bank account! If you take only one thing from this brief article, it’s this: talk to your banker about whether you’re taking advantage of the right tools for your business to protect yourself. One available resource has been available to business customers for many years, but I’ve been surprised to find the number of clients that do not take advantage of the resource. That tip is to sign up for positive pay with your bank. Some of my readers may ask, “Who writes checks with the number of electronic resources available?” It’s a reality that many companies are still using paper checks to pay their bills. Until our society transitions to a fully paperless society, it’s still a valid mode of paying vendors. Without positive pay, a company (payor) sends out checks and each payee presents their check to their bank, which eventually passes through the payor’s bank. Assuming there are no obvious errors, the bank honors the check and passes the cash to the payee. Positive pay is a service available from banks in which the company (payor) after issuing a check batch, will submit a list of the checks issued to their bank. The bank will store the information in their systems, and as checks are presented to the bank for payment, the check is compared to their list. If discrepancies are noticed, they present those discrepancies to the payor for research or to confirm payment denial. If a fraudulent check comes through, the check will be denied and the payor’s cash is preserved. Somebody may say, “Well, if that happens to me, since it’s not my error, my bank will just cover it for me, since they allowed the check to be processed.” Not so fast. Very possibly the bank has given you an opportunity to sign up for positive pay with the disclaimer that should you choose to decline the available service, any fraudulent checks that don’t get caught will not be covered by the bank. I’ve seen instances where they will stand by that disclaimer when the inevitable check is paid. Additionally, it’s very likely your insurance carrier will deny a claim. This type of fraud is happening regularly and you may lose thousands and thousands and thousands of dollars. I’ve talked to enough people to know that not everybody is using this resource. There may be other ideas your banker has for you that is specific to your unique circumstances, but my tip is to start that conversation. It will save you some headaches. . Ahhhhhh, fall is in the air in New England. The air suddenly turned crisp, leaves are turning and even falling, baseball playoffs have started, football season is in full swing, basketball and hockey preseason has started, and in the name of “it seems to start earlier every year”, stores have put out Valentine’s day merchandise! Ok, probably not on the latter.
For many of you, it’s also budget prep season – perfunctory sigh. Yes that time of year, where the accounting department, realizing it’s running behind, dusts off last year’s spreadsheets and knocks out a budget in time for an upcoming board meeting. Upon approval, they hand it to department managers and say “Here, follow this.” Sound familiar? With that scenario, I ask, “How is the reputation of the accounting department?” Probably not so good. Maybe it’s not that overtly mechanical. Instead of rolling last year’s budget forward or converting projected annual results to be next year’s budget, maybe there’s a quick manager meeting. Perhaps there’s a more meaningful way. If you want to improve the accounting department’s reputation as “bean counters”, have improved collaboration, and more importantly, more than likely have a better budget, I suggest engaging the departments that are responsible to carryout the budget to be involved. The time could be well spent to think about strategy, investment needs, capital projects, refreshed view of the business, and overall open the lines of communication between the accounting department and other departments. I’m a big believer in having the accounting department leadership facilitating regular meetings with other departments to accomplish a current objective but also to establish rapport. Those monthly calls with department managers asking them to hurry up and approve those invoices so they can be paid will go much more smoothly. Those meetings really help to establish relationships and open lines of communication. I suggest a plan such as the following:
Developing the budget will never be as fun as October baseball but with proper planning, and staff engagement, it can be an effective tool that fosters improved relationships, an improved sense of ownership, improved morale, and will likely spark some ideas that can contribute to more success. |