Symptoms, Containment and Prevention
Blue Collar Advising, LLC
May 2020
Accounting nightmares can keep a business owner awake hours into the night. These nightmares range from consistent late fees to essential vendors and customers refusing to work with a company to even fraud. When an accounting department is not organized with structure and consistent processes it can wreak havoc on a business’s productivity, efficiency, and profits. While there might always be the occasional brush fire an owner or upper management needs to get involved in, they should not be in the weeds on a daily basis. This blog discusses symptoms of accounting nightmares, how to contain them, and ultimately keep them at bay.
There are some obvious symptoms when a business’s accounting department is under duress and barely treading water. Some of these blatant signs include invoicing is always behind, vendors are constantly calling for payment when there is no cash flow problem, penalties and late fees are common when processing payables, corporate credit cards are cut off, or even an entire office’s utilities are turned off. If a company is continuously paying late fees and penalties on routine business transactions such as monthly rent, utility payments, or payroll deposits, there is an accounting department problem. Penalties, late fees, and accrued interest cost small businesses billions in 2018. According to the IRS website, they levied over $5 billion in civil penalties on businesses in 2018. If there are no cash flow issues, payments and routine reporting should be ceaseless in nature. To combat accounting deficiencies it is important to identity the symptoms and formulate a plan of attack.
Once a business identifies the symptoms that an accounting department is not running at its maximum capacity or efficiency it is crucial to generate a clear plan that focuses on the root cause of the issues. Generally, a business owner can assess the situation by talking to the accounting staff. Sometimes a problem is easy to correct such as the data being touched too many times. For delayed invoicing, where does Accounts Receivable get the information to bill? Where does it go from there? Is all of the data kept in one system or stored across multiple pdfs, emails and spreadsheets? Are invoices continuously re-worked because they were billed at incorrect amounts originally? It is important to evaluate an accountant’s work flow and take out unnecessary, superfluous, or redundant steps. Find out how did the work flow even become established?
Many times when a new employee is trained, a more senior employee in the same or similar position teaches them the workflow from how they learned or figured it out on the job. This type of training is similar to the telephone game and processes evolve, steps added in, and details are left out. It is important for the management of an accounting department to take the time to write out clear, concise and effective instruction sheets for crucial tasks within the department. This process of defining roles might seem unnecessary or a waste of time to a senior accountant or departmental controller but when a department has clearly defined reference sheets it takes the ambiguity out of a process.
Once symptoms have been identified and work flow evaluated and reconstructed it is important to continuously monitor and set goals for the department. An owner and management should expect monthly financials by a certain time of the following month. If he/she has not been receiving them, set a goal for the accounting department, ask them for updates, and figure out where the deficiencies still exist if the deadline is not met. When things are running smoother an owner or upper management should routinely check in and find out if there are ways to drum up even more efficient processes.
Accounting nightmares generally have a root cause and can be controlled by identifying the symptoms, formulating a plan, setting goals, and re-evaluating on a continuous basis. Deficiencies in accounting can interrupt cash flow, incur superfluous fees/penalties, and cause unnecessary headaches and stress.
At Blue Collar Advising we can help identify and alleviate accounting nightmares.
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