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The Importance of a Sound Financial Reporting System

Receiving an accurate and timely Financial Statement each month is based on the reliability of the financial reporting system you have in place when reviewing all your documents related to the monthly Financial Statement.  In addition, a sound financial reporting system ensures proper checks and balances, an audit trail, and the timely and accurate Financial Statements needed to make better business and tax decisions.

The questions below start and guide our conversation; to understand where you are at and options available for putting an accounting reporting system in place to support cash flow and the operations of your business allowing us to understand where to start in customizing a financial reporting system for your business. Let us look at these steps to help you start thinking about your reporting system, reflecting on what you have, looking at the financial information you are currently receiving, what your audit trail currently looks like, and understand how you currently utilize your software, financial information, and how you are using it to effectively make business decisions, prepare and plan for taxes.

The accounting systems EWH has put in place with our initial strategy sessions is our roadmap to implementing that system in your business. Starting here gives us insight into the activity and complexity of how cash comes in and out of your business giving us the information we need to start putting the reporting systems in place, and what goes into your accounting on a monthly basis, and your taxes throughout the year.

Here are some questions to think about:

Does everything get run out of one checking account?

If not, how many accounts do you have and what is the purpose of each of them? In general terms, fewer accounts keep things simple. Sometimes businesses require multiple checking accounts. More checking accounts simply means there is more money to track, adding to the complexity side of things. The main question is, how many accounts do you have, how many do you need, and for what? Is there any way to make it simple?

How do you pay expenses; QuickBooks, online, debit card, manual checks?

The main question here is, how does cash go out of the business to pay bills? This shows up on the bank statement and determines the activity level each month. The more activity – the more to account for. Therefore, debit cards can add to the volume of transactions. Debit cards also have different protections from banks, so be mindful of that.

This also matters when we go online to view our bank balance. Meaning, if most of your payments are made electronically, the payments clear the bank at the end of the month so what you see online is closer to the actual checkbook balance. For example, if we write 10 checks on the last day of the month, all those checks will not have cleared by the end of the month. When we go online to view our balance, we need to remember we wrote ten checks, and our true checkbook balance is that balance online, minus any checks that have not cleared the bank.

 

How do you keep track of your checkbook balance?

Online, keep a check register, do a bank reconciliation? Is the person who writes the bills different from the person doing the bank reconciliation? This simply helps us understand how, and who helps manage and track daily cash needs and balances.

 

Do you generate a sales report each month? Do you match it to deposits? Are all deposits recorded as sales? Is any money deposited not sales, like a loan or investment from the owner?

This allows us to make sure we know what is coming into the bank and that all cash is sales, and if not, what is it? Meaning, nothing gets counted as income that should not be. For example, you would not want a loan from an owner to be included in sales, which could also be subject to sales tax, if applicable, to your business, product, or service, and which would increase your profits and increase your taxes. Simple things like this make sure items are not overlooked. It also allows us to make sure the sales information is stated correctly on the financial statement, and the detail from the sales reports it goes beyond what we might see just from deposits on the bank statement.

Do you have a credit card to pay expenses? A line of credit, notes payable, or other loans?

Other items that will need to be accounted for, like when adding an additional checking account. The more items, the more to account for meaning degrees of complexity and additional transactions. A business with 1 checking account, 1 credit card, and 45 transactions a month, is much different from a business with 3 checking accounts, 4 credit cards, 1 line of credit, and 5 loans.

Do you have Sales Tax? If so, how often? If not, do you still file annually? Do you file Use Tax at the end of the year?

This helps us understand sales tax compliance and reporting for your business, what you’re currently doing, and where to start.

Do you have a way of keeping track of receipts, and mileage?

For purposes of an audit, bank statements and credit card statements are not enough.

If you went to Office Depot they don’t know if you bought something for your home or work. The paper receipt is for purposes to verify it to the bank statement’s financial detail, showing an audit trail from purchase to financial statement.

For mileage, are you tracking it and at the end of each month expensing it and reimbursing yourself? Or, are you running all your gas and car expenses through the business? Make sure to talk to your accountant about the best way to handle this for your business; running all auto expenses through the business is not necessarily the best way to handle that.

How are you handling payroll?

Who is running it? Who prepares and finalizes the hours? How often is payroll, when do you report it, and then when is the pay date? Direct deposit with electronic check stubs or manual checks and with paper check stubs? What is the best way to incorporate the payroll into the accounting and getting the wage information onto the financial statement?

Before you submit your financial information to your Accountant:

Do you review the expenses and account codes on deposits and expenses and double-check them to make sure they get coded to the right bucket? When you review the financial, do you find anything incorrect that might need to be re-coded to a different bucket?

Are you using software for your accounts payable, bookkeeping, and accounting needs?

What are you using it for; Invoicing, writing checks, and/or keeping track of your checkbook balance? Are you recording all deposits, expenses, and payments? For example, what about electronic payments and debit card transactions. Do those get into the checkbook as well?

By looking at how and what you’re using the software for, we can determine how to best support your day-to-day, week-to-week, managerial accounting needs for making deposits, paying bills, creating invoices, entering sales, and managing your cash flow needs.

Do you have a list of all the items you need to gather at the end of each month to easily report and streamline the monthly accounting?

Do you have a system in place to have all reporting items together by the 5th of each month for whoever processes the bank reconciliation and end-of-month process? Do you receive a financial by the second or third week of the month?

Having someone to support the owner in gathering the information helps ensure a good flow of information. In most cases, when a business starts the owner is wearing all the hats. As the business grows, hiring a support person for administrative tasks will help with invoicing, deposits, and payments.

Do you review your Financial Statement every month?

Do you read it and review what you can improve on next month? Review it quarterly for tax-planning conversations, and updates on your quarterly estimated taxes? If you have a budget, do you update it monthly, quarterly, as needed, and re-forecast it? How are you compared to your goals? For this month, this year? Next month, next year?

These steps will help guide you to understanding the first steps to putting a sound financial reporting system in place. Additionally, it also creates a base for understanding your accounting software and how it will interact with your financial accounting reporting system. Determining what you will use it for and where information will come from. Integrating the software into your financial reporting system in a way that will be most advantageous to you.

These are options to determine what is the best way to get a system in place to monitor, track and measure cash coming in and out, making sure it gets accounted for (into the right buckets), and you have a sound financial statement to make decisions from. A system that is streamlined, efficient, and simple to navigate.

If you want to learn more contact EWH at (414) 269-8705 or contact us at info@ewhsba.com for a complimentary consultation to see how we can strategize how to put a sound reporting system in place for your business.

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