How to Set and Achieve Financial Management Goals?

The year 2020 has been quite challenging across industries and businesses globally. Stock markets saw a bearish trend for several months. Rise in unemployment rates, increase in product costs, and a decline in profits are only some of the many crises triggered by COVID-19. The pandemic forced lockdowns and brought the world to a standstill. Nevertheless, we all learned to navigate a brand new normal.

Throughout everything, the most valuable lesson the pandemic taught us is the value of strategic planning. Strategic planning is crucial to challenge uncertainties, bear unavoidable losses and manage unforeseen hurdles with a brave face and a stern attitude. In businesses, strategic planning dictates the need for proper goals of financial management to be set up in advance to upkeep the financial health of the organization. Having financial management goals ensures that next time a pandemic tries to shake up your business, you have a proper plan in place that is able to mitigate its avalanche.

What are the Goals of Financial Management? 

Every business needs to manage its finances adequately. Without proper goals of financial management, it is improbable for a business to ripe good profits and survive in the long term. These goals, in a nutshell, are milestones that an organization sets for itself to indoctrinate direction and clarity in its strategy. They guide the expenditure of the organization as well as hold an immense impact on the revenue. The main goal of financial management is to increase the shareholder wealth (increase shareholder’s value) and maximize profits. Most of the companies in the world set SMART goals to ensure timely realization and precise execution of these core financial management goals.

Why Is Setting Up Financial Management Goals So Important? 

Goals of financial management are utilized stringently for the longevity and survival of any business and there are many benefits of them: 

  • Aids in funds allocation and acquisition 
  • Helps in making critical financial decisions 
  • Leads financial planning 
  • Helps in noting the future potential of the company 
  • Provides a realistic and clear view of the financial objectives of the organization 

Components of Financial Management 

As the main goal of financial management is to increase the shareholder wealth, there are some key components that help to properly establish it.

These include: 

1. Financial Plan 

For any business, it is highly imperative to prepare a financial plan. Such a plan includes financial objectives, timed targets, and strategies to achieve these targets. It analyses the values of assets available and assigns monetary resources to match the goals. It is important to note down each financial goal with their proper deadlines, such as a 5-year financial goal, and they should also include a contingency plan in case things do not progress as smoothly as planned.

2. Contingency Financial Plan 

Contingency financial plan is inclusive of emergency funds and savings. It is necessary to have contingency plans, as its importance was one of the major observations business owners made during the rising situation of the pandemic. A contingency plan can be a part of your financial management goals as it includes reserves and monetary funds. The amount for contingency funds depends on the risks the business is willing to take, the general probability of uncertainty, and potential losses of the organization.

3. Business Budget 

A business budget is a rough budget for the costs and revenue of running the business, and it can either be on a cash-basis or accrual-basis. Business budgets are usually prepared monthly, quarterly or annually. These budgets help in the execution of business processes as well as help to manage their operating finances.

Documents to Consider While Setting Up Financial Management Goals: 

  • P&L Statements: measure the running profit and loss of the company after analyzing the tax, interest, depreciation, amortization. 
  • Balance Sheet: assesses the financial wealth of the organization. It is also an indication of the financial potential of the business. 
  • Cash Flow Statements: focuses on the in-flow and out-flow of cash.  

See Also: How to read a P&L statement, and how it stacks up against balance sheet, and cash flow statements.

Extra Points to Remember While Setting Up Financial Management Goals: 

  • Solvency State of The Business: There are debts in every business. It is crucial to understand the long-term and short-term debt position of your business, and accordingly establish its solvency state. This will help greatly to set long-term goals. 
  • Deferred Payments: There are many deferred payments as well in a business – payments that are rolled out after a certain date. It is important to take deferred payments (and income) into account as well. 

Role of Bookkeeping in Setting Up Financial Management Goals: 

Financial Management is no piece of cake. It requires you having to collect, edit, analyze, and compare a lot of files and documents on a daily basis and update them in your books. If there are any entries missing within the books, then your financial analysis will be at risk to falter.

Even a mistake of a single number can amount to huge losses and erroneous goals of financial management. It is only through the vast amounts of transactional information available in the books that a company is able to understand its financial status clearly. Thus, bookkeeping contributes an excellent value towards financial management.

However, most of the time it gets quite hectic for a company to manage bookkeeping alongside all the other functional areas of the company. Therefore, many companies prefer to outsource bookkeeping to online services to ensure proper and hassle-free financial management.

Some prominent benefits of outsourcing include: 

  • Reduced burden on the company 
  • Extra set of hands-on work 
  • Double-checking of the information on the books 
  • Customized features and personalized financial advice (provided by some bookkeeping services) 
  • A smooth system for the flow of financial statements 

It is a lot easier to achieve and manage your financial management goals with a reliable bookkeeping services. Services such as Monily are self-regulating and enhance the productivity flow by providing you customized services that you choose specifically based on the needs of your business. 

So, to ardently pursue your financial management goals, it greatly helps if you outsource to a reliable bookkeeping service. This will not merely equip you with timely and accurate financial planning, budgeting and analysis, but it will also enable you to make informed strategic decisions for business growth.

CFO vs. Controller: What’s the Difference?

The controller versus CFO debate is a relatively new yet puzzling one. Some companies choose to have both a CFO and a controller in their workplace, while some prefer only having one. Although both roles are responsible for overseeing a company’s financial aspects, the difference in their day-to-day obligations isn’t very clear. 

If you are a business owner and have been pondering over this question of CFO vs controller for quite some time, it either means that your venture has become relatively established or you’re in a crunch and need to know a more convenient option to get proper financial management done for your business. So, let’s dissect both the roles in detail and see what characteristics set them apart. 

Who is a CFO? 

A CFO, or a Chief Financial Officer, is a senior executive who is responsible for the management of the accounting and financial operations in a company. They review all the work done by the finance and accounts departments and prepare projections to plan strategically for the company’s future.  

Being part of the executive management team, the CFO must constantly keep in touch with numerous different company members, both at higher and lower levels. Usually, a CFO’s position is the third highest in an organization; therefore, they play an essential role in the strategic endeavors that dictate the growth and development of a company. 

See: What Benefits Do You Get From Outsourced CFO Services?

Roles and Responsibilities: 

To dive deeper into the debate of CFO vs controller, let’s have a look at the responsibilities of a CFO: 

• Monitors the financial performance of the company based on reports given by the controller. 

• Prepares the budget for the company or reviews the budget prepared by the controller. 

• Makes strategic future plans by generating projections. 

• Presents financial-related information and analyses to the top management of the company and to the board. 

• Makes decisions that will lead to improvement in the management of finances. 

• Identifies problem areas related to financial operations and suggests solutions / takes responsibility for reviewing the implementation of the solutions. 

• Helps in the process of raising funds by interacting with investors and lenders.  

• Manages the entire finance and accounts team and ensure that the work is being done effectively. 

• Helps the CEO with preparing strategies related to finances. 

Who is a Controller? 

A Controller, on the other hand, is a key member of the finance department who reports to the CFO. Also referred to as the financial controller, they are responsible for managing the accounting and finance processes, ensuring it is done as per norms.  

The controller is usually the primary person responsible for preparing the budget for the company, and they also prepare reports that inform important financial decisions. In many organizations, controllers are given a seat at the directorial table for deciding on which technologies and practices the company should introduce within the finance department. 

Roles and Responsibilities: 

Let’s have a look at the responsibilities of a Controller to further study the difference between a controller and a CFO: 

• Works as a subordinate to the CFO and provides reports necessary to make decisions. 

• Assists in preparing the budget. 

• Ensures day-to-day accounting work is being carried out correctly. 

• Ensures all the financial statements are prepared on time. 

• Reviews the collective work of accounts and finance teams. 

• Ensures that tax filing is done as per schedule. 

• Ensures internal controls are in place.  

• Approves all day-to-day transactions related to accounts and finances. 

• Coordinates with external auditors and ensures internal audit is being conducted by the audit function. 

• Ensures that your ledgers are accurately reflecting the money moving in and out of your business. 

Controller versus CFO: The Key Differences 

These differences between a controller and a CFO might seem like an overlap between the responsibilities of these two positions. That is primarily the reason why many small businesses are unable to distinguish between the two and choose to employ either a CFO or a controller, not both. Let’s take a deeper dive and understand the differences between these two authorities: 

• The CFO reports directly to the CEO or the MD of the company, while the controller reports to the CFO. 

• The CFO is responsible for overall planning and strategy, while the controller handles day-to-day operations. 

• The CFO makes decisions related to strategies. Based on these strategies, the controller devises tactics and ensures they are implemented at operational level. 

• The CFO carries out analyses of finances while the controller provides reports and information needed for the said analyses. 

What Does Your Company Need? 

You will need a CFO as opposed to a controller for your company under the following circumstances: 

• If your company needs guidance to frame strategies for financial success. 

• If you want to establish key metrics to keep track of your finances. 

• In case you need to raise funds for your venture. If this is the case, then the CFO can help you create a pitch to convince your investors regarding your financial plans. 

• When you are planning an IPO, you will need the CFO’s help to ensure you are ready to go ahead and be listed in the financial market. 

• If you want forecasts and projections for the future, a CFO can do it the most effectively. 

• In case your business is going through a major transition like a merger, acquisition, or takeover, you will need the expert guidance of a CFO. 

On the other hand, you will need a controller as opposed to a CFO for your company under these circumstances: 

• When your financial operations are not properly developed, and you need internal controls in place. This is when you need the help of a controller the most. 

• If you are not confident that areas like revenue recognition or COGS categorization are appropriately managed, a controller’s expertise can add value to it. 

• If you need to maintain records as per GAAP or need audit assistance, you will need a controller. 

• If you are worried about fraud or the accuracy of your records, then you may need a controller to put things in place. 

While knowing the differences between a controller a CFO is helpful, it’s also necessary to know whether your business is in a position to afford one. In case you have a small business, hiring a CFO or an in-house controller can be a very tricky gamble, as the salaries of these employees go up to six figures and even higher.  

See: Monily’s Controller Services For Informed Decision-Making

If you are not able to afford them as full-time employees, then going to the route of outsourcing to a fractional service such as Monily is a much better method of getting both the work of a CFO and controller done efficiently. Through this option, you will benefit from the expertise as of a full-time hire but you will only be paying for the services that your business needs instead of signing up for the whole package. This allows you to indirectly keep your budget under control. 

How Much Do Bookkeepers Charge?

A bookkeeper helps a company maintain its financial documents and records. They uphold a stern responsibility of ensuring that every single aspect of your books and accounts is in order. Every company, small or big, needs bookkeeping.  If you run a business, you have three options to hire a bookkeeper and their subsequent bookkeeping services fees. 

The first is to hire a bookkeeper to work for you full-time. The second is to use a traditional bookkeeping firm’s services, and the third to work with an online bookkeeping service provider. Details of all three options, including their bookkeeping services fees, are given below to help you decide which is best for you. 

Bookkeeping Services Fees of An Individual Bookkeeper 

If you want to handle your bookkeeping work in-house, then you can hire a full-time bookkeeper to take care of that for you. If you are a small business, you may not find it viable to hire a bookkeeper to work full-time. However, if your operations are sizeable, then you may find it smarter to have someone work full-time. When you hire a bookkeeper, you would have to go through the process of actively looking for someone who is actually qualified and bears considerable experience in doing bookkeeping. 

For starters, you should go for someone who has a certified bookkeeper qualification from AIPB (American Institute of Professional Bookkeepers) or from the NACPB (National Association of Certified Public Bookkeepers). Look for a candidate who has experience in your line of work, as this will ensure that all your work is being done effectively.  

Hiring a bookkeeper full-time entails paying a large salary. Bookkeepers are skilled and you need to be prepared to pay them according to their expertise. To help you understand, the following is data about the average pay of bookkeepers: 

The lowest pay is offered in the state of South Dakota, where the average pay is $16 per hour, which makes the monthly salary to be around $33,970. The highest paid bookkeepers work in Alaska, where the hourly pay is $23.39, and the monthly bookkeeping services fees go up to $48,640. 

The monthly pay in California is $47,750, in Florida, $40,220 and in New York, $45,590. Having an idea of how much bookkeepers from different states charge would help before employing the services of one full-time. On an average, you would need to pay $3,000 to $4,500 bookkeeping services fees per month with other perks and benefits. 

You can also consider hiring a bookkeeper on a part-time basis, and if your workload is not so heavy, you can consider hiring one to work for a few hours each day. You may need to pay around $20 per hour or monthly bookkeeping services fees of $400 to $800 with perks and benefits for the part-time work. 

Working with A Traditional Bookkeeping Firm 

Contacting the services of a bookkeeping firm is another popular method of getting bookkeeping done for you. Here, the bookkeeping services rates are counted by the hour. The firm would understand your nature of work and give you a price quote indicating how many hours of work is needed and the pay per hour. 

To make sure you don’t end up paying extra bookkeeping services fees to a firm, you can first get quotes from both the bookkeeping firm and the individual bookkeeper. Then compare the prices they offer with the costs needed to have someone work for you full-time. After comparing, you can decide whether it’s beneficial to outsource or not.  

There are no standard bookkeeping services fees because the prices charged depend entirely on the complexity of your business. You must also note that once they start working, it is possible they might find your work to be more complex than they thought. In such a case, the bill may be higher. On average, their bookkeeper rates vary from $500 to $2,500 per month, but it can be even higher depending on your work and the state you operate in. 

Outsourcing to Online Service Providers 

Thanks to the rapid growth of the internet, there are many bookkeepers who provide online services. People who manage bookkeeping firms usually consist of professionals bearing both experience and expertise. These firms have worked with many clients and offer a multitude of services. You need not worry about mistakes or delays since you can always expect quality work from them. 

The advantage of working with them is that you don’t have to wait for them to come to your office. They would have well-defined processes for you to send your data and documents to them. They then would complete their work online on your company’s behalf and send the results or reports back to you. This is convenient since there is no geographical limitation. So much so that you can get a New York firm to work for you while operating in Tennessee, and the bookkeeping services rates charged would be precisely the same. 

Another benefit of employing online services is that it works out to be more cost-effective since their employees don’t need to travel. You can thus get very competitive prices from them. If you are a small business, it is advisable to outsource your work to them to avoid high costs, and you will only need to pay bookkeeping services fees according to your needs. You may not even require their services for the entire month; that’s why for such a situation, it is better to use the services of a bookkeeping firm, as you get proper scalability and choice of preference on how you want your bookkeeping to be done. 

So, What Type of Bookkeeping Does Your Business Needs? 

There are some really exemplary differences between the three above-mentioned bookkeeping solutions and how uniquely they can help your business. Ultimately, it all boils down to your preferences.  

If you believe you need to always have a bookkeeper present in your company who’s actively looking after your books and needs to be paid huge bookkeeping services fees, then option 1 is what you should go for. If you’re interested in having an outside firm of professionals taking care of your books while costing pretty much the same, then you should go for option 2. But, if you believe your bookkeeping is not something that you have to pay so much attention to, and want it to be done in the most convenient, affordable and professional method, then outsourcing to an online service such as Monily can be just what you need. 

Whatever option you end up going with, it is recommended that you verify the credentials of the service, firm or individual you go for before you sign up with them, as you need to understand how competent and experienced they are. Also, make sure to have a look at their clients’ list to get a better idea of whom they have worked with. You can even ask for references and check out reviews of the firm.  

See Also: 5 Ways a Bookkeeper Can Save You Money

Once you are convinced about their credentials and believe their services are just what your business needs to progress and develop more efficiently, you can request quotes from them or visit the pricing section on their website to know more about their bookkeeping services fees. 

How to Read A P&L Statement and What Is It Used For?

The P&L (Profit and Loss) statement is a financial statement/tool that displays the revenue earned and expenses incurred by a business in a specific period. It is often referred to as an Income Statement, as it also shows the profits generated by the business. Understanding how to read a P&L statement thoroughly allows companies to plan and devise profitable strategies for the future. 

A P&L statement is also one of the major three financial reports that a public company has to openly publish and show to the shareholders – the other two reports being the Balance Sheet, and the Cash Flow Statement. These records dictate the current financial position as well as predicted future growth for any business. Before learning how to read a P&L (profit and loss) statement, let’s first compare it with its counterparts to know the difference between them clearly. 

P&L Statement vs A Balance Sheet 

The P&L statement and balance sheet are amongst the two primary financial records of every organization. Both of these statements contain crucial information regarding the financial health of a business and how it’s performing in the industry. The balance sheet includes assets and liabilities that show the worth of the organization, and the P&L statement includes revenues and expenses that show the net income of the organization. Whereas the balance sheet is more focused on the ownership of the business and its long-term prospects, the P&L statement is focused entirely on one primal point: the profitability of the business.  

See Also: How to Read and Understand the Balance Sheet

P&L Statement vs A Cash Flow Statement 

As per its name, the cash flow statement highlights the in-and-out flow of cash of a business. Many transactions are noted in the cash flow statement but not in the P&L statement, including the purchases of new assets and investment securities. A P&L Statement focuses more on the realized profits or losses for a business, whereas the cash flow statement displays the exact current cash holdings. Nevertheless, it is vital that you know how to read your P&L statement and your cash flow statement before making any future payments or purchases for your business. 

How to read a P&L (Profit and Loss) Statement 

A P&L statement includes all the components that help to run the business effectively on a daily basis and surprisingly, it is not very complicated to understand. If you analyze it section-wise, you can quickly identify the importance of every individual component. So, let’s dive deep and learn how to read a P&L statement. 

The P&L statement is divided into the following six major sections: 

  • Income/Revenue 
  • COGS 
  • Gross Profit
  • Expenses 
  • Net Operating Income 
  • Net Profit 

Income/Revenue 

The first step of understanding a P&L statement is through the income and revenue section, which dictates the money earned by a business through sales of products/services. It includes both the income earned, the direct cost of services, as well as the gross profit. Different sources of revenue are listed separately for clarification, such as tangibles, non-tangibles, etc. 

COGS 

The direct cost, also known as Cost of Goods Sold (COGS), is the cost undertaken to manufacture the products and manage the services. These costs are paid by the organization and are important to be noted. COGS also include direct material and labor expenses that are required for the manufacturing of each product or service that is sold. 

Gross Profit 

The Gross Profit is simply the Total Revenue minus Direct Costs (Revenue – COGS). It shows the gross income earned by the organization for the products and services for a particular period. 

Expenses 

Understanding expenses is one of the most significant aspects of reading a P&L statement. Every organization has operating expenses; money required on a day-to-day basis. These expenses are divided into several categories and sub-categories, depending upon the nature of your organization. Such expenses can sometimes mean cash directly out of the pocket; therefore, it is crucial that you note them. Some examples of these expenses include: 

• Administrative costs 

• IT costs 

• Maintenance costs 

• Employee payroll and benefits 

• Sales and marketing expenses 

• Facilities/storage cost 

• Research and development cost 

Other Expenses 

There are also other miscellaneous expenses that are not included in the expenses section. These include:  

Taxes: includes all the money you have paid or are expected to pay to a government body. 

Depreciation: the decline in the value of a tangible asset over time. This decrease in value is noted in monetary terms. 

Amortizationsimilar to depreciation but for intangible assets. 

Interestpayments made on any outstanding loans taken by your company. 

Net Operating Income 

Net Operating Income is a very significant step in reading the P&L Statement. It is calculated by subtracting operating expenses from the gross profit (Gross Profit – Operating Expenses). It is also known as EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization). The net operating income indicates whether the business is heading towards profit or loss. If the calculated amount is positive, then the business is handling the revenues well and is running on profits. If the calculated amount is negative, then there is a need for substantial shake-ups as the business is heading towards a loss.  

Net Profit 

Understanding Net Profit is the final step of reading a P&L statement. Net profit is the prime figure that dictates the profitability of your business after all the other expenses are incurred. It is calculated by subtracting the other expenses from the Net Operating Income (Net Operating – Interest, Taxes, Depreciation, Amortization). The amount that remains after calculating all the expenses is the true profitability of a business. It can either be shown as a positive number (profit) or a negative number (losses). 

Helpful Tip 

Although it is quite simple, if you are having any sort of problems in understanding how to read a P&L statement, then you should focus generally on the Net Profit, as it is ultimately the main number to be noted. It dictates the profit-position as well as helps you to understand the financial potential of your business. 

See: 9 Reasons Business Owners Should Consider Outsourcing Accounting

The Four Basic Financial Statements And Their Purposes

If you are a business owner, you will probably be aware that there are four financial statements you need to prepare for your company. These four financial statements provide you complete information regarding your business activities and can aid you, your investors, or other stakeholders in understanding the financial health of your business.

What Are The Four Basic Financial Statements?

The four basic financial statements that you need to prepare for your business are:

  • Income Statement: It is considered by many as the most important out of the four financial statements. It shows the revenues earned, expenses incurred, and profits or losses for the reporting period (the duration for which the statement is prepared).
  • Balance Sheet: It is a statement that shows all your assets and liabilities, along with details of the owner’s and shareholder’s equity.
  • Cash Flow Statement: This statement shows the inflow and outflow of cash in the business. It helps provides basic information on whether the business is earning more or spending more.
  • Statement of Retained Earnings: Also referred to as the statement of owner’s equity, it helps to track changes in equity during the period. It tells you about the retained earnings or profits that you can use.

1. The Income Statement

The first of the four basic financial statements is the income statement. It is also referred to as a profit and loss (P&L) statement. The statement details the revenue earned during a specific period and the expenses. It also shows whether there is a profit earned or loss incurred. It is an important tool that you can use for your financial planning. The income statement would show sales, operating expenses, and non-operating expenses.

See Also: Why Is Proactive Financial Management So Important for Businesses?

If an investor wants to know more about your revenue earning and profitability, this is the statement they will refer to. While it shows whether you are making profits or losses, ultimately the revenues matter more, as there are many businesses that continually make losses but are still valued high. The income statement also helps you in forecasting risks and making informed financial decisions since you have all the required data on hand.

2. Balance Sheet

The balance sheet is highly important amongst the four financial statements. Many business owners give so much importance to the income statement that they tend to ignore this statement. The balance sheet is used by external entities like investors and creditors to understand the financial health of your business. If you want a bank loan, then this is a mandatory statement that you must produce. It lists out the assets of your business, like cash, property, inventory, etc. In the list, the liabilities of your accounts payable, taxes payable, mortgages, etc. are listed as short-term and long-term liabilities simultaneously.

The key aspect of the balance sheet is the equation: equity + liabilities = assets. The report is structured in such a way that the total assets equal all the liabilities and the equity. The balance sheet gives you a snapshot of your financial position, hence it is highly instrumental in budgeting as well. Apart from your present financial health, the balance sheet can also give you an idea of your future financial health. It can help you in understanding if the pricing strategy you are currently implementing is effective and also helps you find out if there are any spikes in the spending of your business.

3. Cash Flow Statement

As proper cash flow is the lifeline for any business, a cash flow statement aids you in keeping track of where your cash is going. This statement is very important in helping businesses understand how the inflows and outflows of their cash are happening. The inflows and outflows can be organized in the report in categories like operating activities, investing activities, financing activities, and other information. While the income statement tells you the profit or loss, it does not explain the flow of cash.

You may have money shown as revenue in your income statement, but it may not be reflected in your cash flow. These are discrepancies that can be problems for a business if they are not taken care of.  It is required by investors or lenders as it helps them to understand if your company is financially viable to be conducting any business with.

4. Statement of Retained Earnings

This statement explains changes in equity during the period for which the statement is made. Information in this statement includes the sale of shares, repurchase of shares, payment of dividends, etc. Ultimately, it helps you understand changes in the owner’s equity. It shows your retained earnings, which is the profit that you can use to clear your liabilities to invest. The retained earnings are the net income left after you have paid out dividends. A business may choose to reinvest the earnings, thereby increasing the value of the business.

See Also: 9 Reasons Business Owners Should Consider Outsourcing Accounting

However, anyone who lends to you may want to examine this statement to understand more about your profitability. This is because an investor would like to know how you are making use of profits. They would need to know this to understand whether the money they invest will fetch them reasonable returns. A creditor will view with concern if your statement shows very low retained earnings. In such situations, they may either refuse to offer credit or charge a much higher interest rate.

The Importance of the Four Financial Statements

Whether it is the board of directors of a company, investors, shareholders, or lenders, financial statements offer valuable information to all of them. All the four financial statements can give a clear indicator of the financial health of a business. Therefore, you need to ensure that these statements are prepared accurately.

The Importance of Bank Reconciliation and How to Automate It

Long term financial stability is paramount for every business, and every CEO looking to keep their business thriving for the long run will be aware of the importance of automated bank reconciliation.

What Is Bank Reconciliation?

Bank reconciliation is the process of matching the balance in the bank’s monthly statement with the balance in the cash account in the general ledger so that the correct amount is reflected. Such matching helps to detect unusual financial transactions as well as identify errors and discrepancies so that they can be fixed. Only when the two balances match can the books be considered as having been reconciled. Before we dive into the question of how to do bank reconciliation and identify its do’s and don’ts, it’s helpful if we first understand its importance.

So, Why Is Bank Reconciliation Important?

The process of bank reconciliation is ultimately done to protect the business from losses. Its various benefits are as follows:

Management of Cash

Solvency is important to any business, and errors in financial transactions can negatively impact business solvency. While you may be able to identify many small errors within your cash transactions at present, if these errors continuously stack up without being corrected, you will suffer from cases of bounced checks and overdraft fees. Doing proper bank reconciliation allows you to ensure you are not losing cash in error or due to neglect and enables you to address the causes early on

Financial Management

Effective financial management requires accountants to have transparency in all financial transactions of the business. The cash flow statements, income statements and balance sheets are dependent on the reconciliation of both the bank and book balances. That’s why it would be impossible for you as a business owner to make any decisions or projections without having access to accurate data made available through bank reconciliation. It gives you access to all the transactions made or received by a customer for the month and makes it a lot easier to accurately perform other tasks such as managing income invoices, putting payments into categories, and accounting for any outstanding bills. You can trust that you’ll be making more sound business decisions once you know how to do bank reconciliation correctly.

See Also: Why Is Proactive Financial Management So Important for Businesses?

Prevention Of Fraud

Going through your statements to detect any fraudulent activity is necessary for the survival and growth of your business. You could find unauthorized checks, missing deposits, unexpected transfers, and even amended checks when you review your statements. By actively reviewing whether your bank balance matches your cash balance, you will be able to detect errors and fraudulent activities  more easily. This makes the process of bank reconciliation all the more critical and an essential business activity.

Optimization Of Internal Processes

If your internal processes aren’t operating efficiently, wouldn’t you like to be alerted about it? Knowing how to do bank reconciliation correctly, you will be able to identify any errors and weaknesses in internal processes so that you don’t lose sight of important business transactions. It could be errors relating to the recording of invoices or even incoming payments, that can transform into even trickier issues come tax period.

Noticing such repeated errors in your business operations will demand you to take effective action to make sure the process of your bookkeeping is improved. This ultimately translates to more efficiency in business operations and sequentially, more productivity and stable revenue generation.

The Problem With Manual Bank Reconciliation

As you may have guessed already, the process of bank reconciliation can be quite tedious if done manually. Especially with businesses using payment services and having several bank accounts. Matching every bank statement transaction to every cash account transaction takes up precious time.

The massive amount of time that manual bank reconciliation requires also increases the likelihood of human error. Human blunders are extremely difficult to avoid and can significantly impact the accuracy of the entire process. In such cases, correcting discrepancies that arise also becomes a huge challenge. So, how do you do effective & efficient bank reconciliation for your business?

Through Automated Bank Reconciliation

To overcome the inherent errors of manual bank reconciliation processes, automated bank reconciliation through virtual services such as Monily has become increasingly popular. Outsourcing your bank reconciliation significantly speeds up the process, reduces the number of errors possible, and steers your business towards better financial management. 

That’s Great, But How Do You Setup Automated Bank Reconciliation?

Choose an automated bank reconciliation service. When you sign up for the service, you will be required to give the credentials. You can set up the information using bank feeds or enter it manually. You can even import bank statements and spreadsheets so that the process happens even more smoothly.

Several intuitive automated bank reconciliation services allow for multiple bank accounts to be added, which makes it all the easier to relax with a peace of mind knowing a professional service is taking care of and streamlining your business accounts.

The automated service will integrate all the financial transactions carried out for the month and compare them to the balance in the bank statement so that it reflects the correct balance. Any purchases you make towards the end of the month that don’t show up in your bank statements until the next month will also be corrected. The same will again happen for the following month so that your balances reconcile seamlessly. Happy days! This frees your time to focus on revenue generating activities & growing your business. That’s a win win!

5 Tips on Managing Bookkeeping Effectively

Effective bookkeeping can be very time-consuming and complicated due to the many loopholes lying around in its process. Many business owners end up diverting their focus from other important tasks and dedicate it to bookkeeping, which should not be the case. If you are one of those business owners for whom managing their bookkeeping has become a nightmare, then you are not alone, and it doesn’t have to be. Streamlining this process by making some impactful adjustments can save you a considerable amount of time and lay a solid foundation for your business’ progression. The goal is to have a simple process that keeps track of all your business’s financial matters, and to achieve that, here are five tips for efficient bookkeeping.

Set Aside A Specific Time for Bookkeeping

Many business owners have a lot of tasks to attend to, which leaves them with little or no time for productive bookkeeping. You need to consider bookkeeping just as crucial a task as any other business aspect and give it the due attention it requires. Failure to do so only will only lead to the accumulation of tasks in the pipeline, which can have negative impacts on your business.

Set aside a specific time for bookkeeping and make sure you are consistent. You can set aside a day each week or even more than a day, depending on your finances’ complexity. Updating your books helps you to analyze your cash flow and take the required actions, such as reaching out to clients who owe you and making payments to suppliers. Postponing this process to a later time can also lead to cash flow problems and loss of important documents such as receipts, bills, and invoices.

Separate Your Business Account from Your Personal Account

It’s common for people to start a business using their savings from personal accounts. You might be tempted to continue using this account even as your business progresses, which is very problematic. Having separate accounts comes with many benefits. You will not only save time when filing taxes, but you will also be making accurate returns.

Opening a separate account for your business is also advisable since you will be able to monitor your business finances precisely and make sound decisions. Also, you will be in a better position to qualify for financial aid like loans and investor funding.

On top of that, having an account solely for your business displays a high level of professionalism, which can make it easier for clients and suppliers to develop trust in your brand.

Use A Bookkeeping Software

Practical bookkeeping software programs helps in recording and processing transactions that take place in a business. Recording all the transactions on paper can be a very tedious process and result in many inaccuracies. Using an efficient bookkeeping software will save you sufficient time since most of the processes can now be automated. The software will track your accounts receivable, accounts payable, sales, and bank transactions with much greater ease than before. You can also print invoices or send them digitally to clients, which also saves a significant amount of time.

Bookkeeping software programs also make it possible to retrieve information fast, especially during tax filing or audits. When using papers, you will have to look for files with the required information, which can be very time-consuming. These files can also get stolen or damaged., which is not possible with software programs since you can use a password to avoid unauthorized access to your business information.

Keep Track of Records and Business Information

It is crucial to record every transaction that takes place in a business as it provides a vast number of benefits. If your business is to be audited in the future, you’ll be required to produce all the business transaction documents. If they are all available, the auditor will take less time in auditing your business than when you have to look for every document that they ask for.

Staying informed about your business helps in making informed decisions as you will be able to analyze trends with greater ease and highlight the areas you need to improve on, to achieve both long-term and short-term goals. Also, do not forget to double-check your accounts frequently since it helps in spotting discrepancies.

Even if you are not responsible for bookkeeping, staying informed about your business finances can help you make informed decisions. Study your financial data thoroughly, and you can also get the assistance of an accountant to interpret the information for you.

Outsource It to Online Accounting Services

If you feel like keeping up with the mentioned tips is unachievable, all is not lost. You can always outsource your bookkeeping to efficient bookkeeping services such as Monily, who will take the burden off your shoulder to let you focus on other aspects of your business while making sure everything is in tip-top order. Outsourcing comes with several benefits. You will save a lot of time that you can dedicate to your business tasks. You will also have a proper work-life balance since you won’t be handling and monitoring everything in your business.

Additionally, you will get accurate information if you don’t have a background in finance. Managing streamlined bookkeeping without the necessary knowledge can cause inaccuracies, which is not suitable for a business. A professional bookkeeper usually has great expertise in the field and will always deliver accurate results.

See Also: 5 Ways a Bookkeeper Can Save You Money

Outsourcing to competent bookkeeping services also helps you save money. Some business owners have the notion that it would cost them a lot of money to outsource services, which is not true. Outsourcing to the professionals ensures that you are not making any mistakes that can cost you money and that all your payments are made on time to avoid fines and penalties.

Final Words

Managing efficient bookkeeping is not an easy task. It requires a lot of dedication and accuracy since a simple mistake can significantly impact your business. The good thing is that if you follow all the right steps, you will streamline the process and manage your finances effectively and increase revenue. Don’t ignore proper bookkeeping with the excuse that you don’t know how to do it or don’t have time for it, as it can cause problems. If you are not in a position to handle it, you can always seek the help of a professional bookkeeper who will maintain accurate records for you.

What Is A CFO And What Benefits Do You Get From Outsourced CFO Services?

Knowing how to run your business is one thing. But knowing whether your business is actually making you money is a completely different topic. Business owners are usually so encumbered in the weed of things and trying to make it through each day that they don’t take the time to oversee their operations from a distance and answer important questions like: whether their business is performing to its highest capacity, whether they should hire extra staff or not, or whether they are getting the proper return from the investments they’re making. To answer these questions and introduce scalability in an organization, outsourced CFO services are sought out.

So, What Is A Chief Financial Officer (CFO)?

A Chief Financial Officer (CFO) is responsible for evaluating the financial metrics that drive the success of a business. They act as a sort-of advisor on what matters the most to your business and provide valuable strategies to increase scalability and efficiency in your operations. They also assist your accounting team in keeping your books up-to-date and ensuring you are accurately meeting your tax liabilities.

If your business does not have a Chief Financial Officer (CFO), don’t worry – you aren’t alone. Most small businesses do not have in-house CFOs, and it’s something of a rarity even in medium-sized businesses. However, the work of a CFO and its effect on a business’s revenue cannot be understated. It’s crucial for the financial well-being of a company because a CFO is responsible for supervising all its financial operations. But if CFOs are so influential, why don’t most small and medium scale businesses hire them?

The Problem With In-House CFOs

The problem with In-House CFOs lies with the money required to hire a full-time CFO, which is often expensive for businesses that are yet to become big. A full-time CFO can cost you up to $300,000 yearly, and for startups that are very constricted on their budget, it’s a challenging investment to make. So, if you’re a business owner reading this, what do you do? Do you continue without a CFO, or do you outsource CFO services? In this post, we’re going to tell you why it’s in the best interests of your business to go down the outsourcing route. So, read on!

What An Outsourced CFO Brings To The Table:

1. Qualified Experts, Always

CFO firms have thoroughly qualified professionals working for them, and when you outsource, you get expert advice at every turn. A CFO has six main responsibilities: 

. Maintaining your budget 

. Making decisions related to the capital acquisition

. Forecasting and managing cash flow

. Controlling your inventory

. Reviewing and analyzing your KPIs

. Innovating measures to control costs

When you outsource CFO services from a reputed firm such as Monily, you can rest assured knowing that all six responsibilities will be taken care of efficiently, effectively, and in strict compliance with regulatory standards. Your outsourced CFO will act as a virtual business affiliate and also aid in the procurement of ample funds from investors and lenders.

2. Saves Money and Time

Outsourcing a CFO means that the services you hire to perform the CFO duties work only when your business needs the services. Meaning that you won’t be charged a single dollar extra that is not being spent towards your business’ needs. On the other hand, with an in-house CFO, you’ll have to pay them a fixed salary irrespective of how much work they put in, i.e., the in-house CFO has to be paid even if they didn’t have much work to do for a particular period. Having an in-house CFO also means that you need to devote time and money towards the recruitment process, which is bound to increase your business’s operating costs. The only defining difference between a virtual and an in-house CFO lies in the “virtual” part, actually, and you’ll be getting the exact same services with a virtual CFO that you get with an in-house hire.

3. Provides Fresh Perspective

In-house CFOs may not want to stir up any sort of trouble with business owners. After all, it’s the owners who hired them and are paying them. As a result, the perspectives and opinions they provide regarding businesses’ financial health may not always be honest. But this is not a problem with outsourced CFOs, who are likely to give you a transparent perspective about how your business is doing financially. They will judge your statistics objectively and take assertive steps towards ensuring the long-term financial stability of your business.

4. Helps You Stay One Step Ahead

A CFO will develop a rigid oversight routine to ensure proper check and balance in the financial and accounting operations of your company. They will help establish extensive accounting controls, provide comprehensive financial reporting and guide you continually on how to run your business more efficiently. CFOs also generate cash flow forecasts and financial statements projecting up to 12-months, so you have the ability to plan a coherent financial roadmap for your business and allocate budget and resources accordingly to meet your financial goals for each year. These cash flow statements can include net income, stockholders’ equity, and projected expenses and can actually help you stave off potential losses even before they happen. Companies who rely heavily on automation in their business models benefit the most from such financial reporting of CFOs; however, CFOs are mainly sought out for businesses that are in the early stages of their development. 

See Also: Cash Flow Forecast: Understanding Your Numbers

Final Words

An outsourced CFO’s ability to provide informed analysis helps a company achieve both short-term and long terms goals more efficiently. A business owner may not always possess the financial aptitude required to fulfill a CFOs duty. An outsourced CFO bears this expertise, which comes from years of experience working with a variety of different businesses. Their financial knowledge gives the CEO actionable insights to help them make strategic investment decisions and expand their business more robustly. So, instead of hiring an in-house CFO, outsource one, and you’re sure to benefit from the points mentioned above.