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 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!

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.

Cash Flow Forecast: Understanding Your Numbers

As a business owner, it is very important that you know how much money you have left, and if it is sufficient to meet your short-term cash needs. Specially, the recent economic downturn due to the pandemic has made it even more crucial that we are able to project the company’s future financial position based on anticipated payments and receivables. To ascertain if you have adequate cash reserves for short-term viability, it is essential that you have an accurate cash flow forecast set up for your business. 

So, What Is A Cash Flow Forecast? 

A cash flow forecast simply helps you project your company’s future financial position based on your income and expenses. Like a weather forecast predicts the weather for the next week, similarly a cash flow forecast tells you how much money will be moving in and out of your business and how much difference it’s going to make to your ROI.

Why Should You Use A Cash Flow Forecast?

Your cash flow forecast can include your projected earnings, your expenses, and it is usually sketched up to cover the next twelve weeks of spending for a business. It is regarded as one of the most crucial tools a businessperson can have to ensure a steady and stable income in their business. Executed well, your cash flow projections will aid you in having a rich understanding of:

  • . Whether your business is generating enough revenue to stay operational in the long term
  • . Whether your business is developing at the rate you want it to
  • . Whether you need to arrange financing/bank loan to meet short term obligations
  • .Whether you should start considering alternative options and abandon ship. 

Forecasting your cash flow can bring a vast amount of clarity about the future of your business and helps you grasp a comprehensive understanding of where and when your business is losing cash by looking at your projected accounts receivables and accounts payables. 

If you are looking to adopt a proactive financial management strategy into your business, then forecasting your cash flow can be a great asset to bring clarity to your numbers.

What Is A Cash Flow Forecast Used For? 

Informs You Where The Cash Is Going

Cash flow forecasting gives you an exact representation of the comparison between how much you are actually earning and how much you’re spending. With these statistics, you can know whether your business is either under-or over-performing or doing better than expected and allows you to adjust your budget accordingly.

Decreases Production Costs 

Every business operates at its own pace. But having a thorough and rigorous cash flow forecast can help you broadly identify what the base-level needs of your business are to function optimally. It is also handy for identifying opportunities where you can cut back on operating costs and increase your overall ROI.

Identify Future Shortcomings 

Cash flow forecasting is much more than just knowing how much you have left in the bank. It can include all your future expenses, including upcoming payments, bills, and when your business can be expected to experience a little turbulence in its profitability. 

Knowing you have enough cash available to manage your needs can bring a peace of mind and eliminates the day-to-day stress of firefighting short-term cash needs. Through proactive cash flow forecasting, you are able to identify and prevent significant cash shortages before they become a problem.

How To Generate A Cash Flow Forecast?

Through Microsoft Excel

If you’re going to the route of manually creating your forecasts, then using old-school (yet still purposeful) programs such as Microsoft Excel can be a way to get up close and personal with your financial data. Just use a pre-installed template available in the software and forecast your cash flow efficiently. 

  • . But a forewarning, if you’re going to be depending upon this method permanently, then it’s best you be cautious every time you put sensitive financial information into it as this method can result in a lot of human errors.

Through An Accounting Software 

There is no shortage of accounting software programs for accounting and bookkeeping available on the Internet, and most of them will provide you with a vast array of useful options to quickly generate your cash flow projections. But while they are generally easy to use, their projections aren’t what we would call the most accurate or reliable. They’re only suitable to be used as last-minute measures and are not recommended for informed business decision-making.

By Outsourcing To A Financial Management Service

Having a clear idea of your business’s financial health is essential for any entrepreneur. If you do not have an in-house accountant to provide the cash flow for you, then outsourcing your forecasting needs to online financial management services such as Monily can also be really helpful. WHY is this better than the other two options? The accountant will work closely with the business owner to design cash management and cash flow projection tool custom-tailored for the business taking into account the industry-specific variables, needs, and nuances. Our accountants not only create tools and graphical representations in an easy-to-understand format but also provide detailed analysis and identify key action items for optimal cash management based on the report.

See Also: How to Read and Understand the Balance Sheet

Some Important Things To Remember

  • . A cash flow forecast will also reflect your estimated operating costs. So, when you are forecasting, it is essential to remember that these are still projections and are vulnerable to any adjustments or unanticipated cash inflow or outflow. The cash flow report will need to be revised if any new information has come up that impacts the payables and receivables.
  • . Your cash flow forecast can also be used to properly plan out your expenses for months where you will be experiencing slow growth and provides you with a clear idea of how much revenue you will have to set aside in order to cover the expenses of these months. 
  • . More often than not, companies create difficulties for themselves by generating cash flow forecasts that are a tad bit too complicated to be understood by the business owners. So, it is necessary to create forecasts that are more user-friendly and can provide extensive financial insights by viewing them at a glance. 

Final Words

In simple terms, cash flow forecasting gives you useful insights you need to make informed financial decisions such as: will you be able to pay your vendors on time? Or will you have to delay somebody’s payment? A cash flow highlights any cash shortages and enables you to proactively address the situation before it becomes a crisis.

9 Reasons Business Owners Should Consider Outsourcing Accounting

There is no doubt that accounting is one of the most time-consuming and complex operations in business management. Not only do you need to record all transactions accurately in the correct ledgers, but even the slightest errors can cost you significantly in terms of time and money when trying to fix it retrospectively. It is widely cited as one of the business processes that are best suited to outsourcing because of the convenience and efficiencies it brings when your business accounting and bookkeeping is managed by experienced professionals at a cost far less than that of trying to do it in-house. Let’s look at a few of the reasons why business owners should definitely consider outsourcing business accounting:

1. Everything in An Instant:

Most outsourced financial management services consist of dedicated teams of accounting and bookkeeping professionals working collectively to ensure that their clients receive the best possible services for their buck. Moreover, if the business owner has any queries regarding their finances, their accounting professional is just a call or email away and can quickly respond to questions or requests for additional information.

Accounting outsourcing allows businesses to:

  • . Make more time for client interaction and customer acquisition
  • . Focus on things that truly matter: strategy, business development, etc.
  • . Work more efficiently
  • . More time and flexibility to ensure compliance, check and balances
  • . Better work-life balance

The difference you’ll notice in the ease of doing business and the peace of mind from knowing your problem areas are in the hands of experts will be enormous.

2. Time to Focus on Your Business:

It’s incredibly essential for a business owner to be aware of the financial standing of his / her business to make decisions to invest, purchase, hire, expand, etc. But this does not mean that you should be devoting all of your time in tracking every single dollar that goes in and out of your business. After all, you did not start your business venture just to get bogged down in number crunching.

With accounting outsourcing, you and your entire work staff will be able to focus on the stuff that matters the most, and that is running your business and ensuring steady financial growth. Businesses that utilize accounting outsourcing services are able to better focus on increasing their revenue and generating positive customer feedback.

3. Better Understanding of Your Cash Flow:

A reliable accountant helps you have a clear picture of where your cash is flowing from and what your expenses are. He / She uses this information to help you make insightful and strategic decisions that can benefit your business in the long term. They will advise you appropriately on where your money can be optimally spent and where you can cut costs effectively.

4. Freedom from In-House Accountants:

Hiring the right candidate to act as an accountant for your business is not a decision to be taken lightly. And these days, the average salary of an experienced in-house accountant goes up to around $55,000 per year. An accounting outsourcing service comparatively costs a lot less and results in considerable savings. Moreover, investing your savings back into your business can bring additional profits and benefits.

5. Eliminate All Chances of Fraud:

Recently, business scams and fraud have seen a meteoric rise. It is easy to fall prey if you are not continuously watchful and follow preventive policies and procedures. However, when you outsource your F&A, it becomes the responsibility of your service provider. That’s another thing off your plate, and you can have complete assurance that your finances are being managed safely and securely and that you are not leaving any loose ends in your financial security.

See Also: 7 Easy Steps To Safeguarding Your Business Against The Fake Invoice Fraud

6. Helps You with Tax Preparation:

Accountants have in-depth knowledge of the technical nuances and are familiar with all the tax codes relevant to the type of business you have. Also, they take the time to understand new tax laws that they can use to maximize your profits after tax. Outsourcing the responsibility also means that you are not stressed due to impending tax filing deadlines. As a result, you have more time to concentrate on and grow your business and make sure that every single one of your customers is satisfied with your services.

7. Timely Recording of Your Financial Transactions:

One of the worst things you can do for your business is delaying the majority of your accounting to be carried out during the year-end tax season. This way, you’re allowing your finances to be grossly mismanaged during the other eleven months of your financial year. We understand it’s hard to keep up with it if you are doing it yourself, it’s time-consuming, and there is always more urgent stuff that needs doing. Which is why it is so much more beneficial to outsource it to highly trained and professional accountants who will be recording your day-to-day financials and keeping your books updated and not lagging behind many months.

8. Consistently Promotes Efficiency:

One of the valuable benefits of accounting outsourcing is that you are only provided with accountants who are experts in their line of work. These professionals are trained to make use of only the most effective and efficient accounting practices best suited for your industry vertical. They will devote time towards studying recent researches and emerging technologies and will adapt these methodologies to your business accounting to bring improve efficiency and integrity of your financial data and improve your access & visibility of it. 

9. No Burden of Mistakes:

Humans are prone to mishaps and slip-ups. If you get your accounting done in-house, you may find yourself spending countless hours firefighting errors or procedural mistakes. By outsourcing your accounting, you will also be outsourcing the stress and hassle of ensuring accuracy and data integrity. You will not have to worry about continually backing up your financial data in fear of any unexpected network server crashes, as your outsourced accountant will be taking care of that as well.

Conclusion:

Outsourcing accounting is an excellent opportunity for businesses who want continuous growth in their scale and productivity without being thwarted by numerous financial hassles. The outsourced service you choose will ultimately augment your accounting processes and transform your workplace into a productive network. At the end of the day, it’s not just about maintaining your accounting but also about establishing a reliable framework to ramp up profits, improve cash flow and grow / expand your business.

Bookkeeping vs Accounting: The Difference Between Bookkeeping and Accounting

Bookkeeping and accounting are normally used interchangeably, but they are quite different. While their processes are much different, they both work to support a business throughout various stages of its financial cycle.

For one, bookkeeping covers the transactional and administrative side of business finances than accounting. Bookkeeping involves recording financial transactions daily and making sure that all the entries are entered accurately in the correct ledgers.

The work of an accountant builds upon the activities carried out by the bookkeeper and extracts financial insights from the data to provide actionable insights to the business owner. Any entrepreneur person will need both accounting and bookkeeping services to track the financial performance of their business, regardless of whether they’re running a startup or a full-fledged, international company. Some people choose to do it themselves, while some hire bookkeepers or accountants to their team while others outsource it to professionals to do it for them.

Throughout this article, we’ll be delving deeper to identify the key differences between the role of an accountant and the role of a bookkeeper and analyzing in detail how the two professions stack up against one another in terms of their practicality and contribution to a business.

What is Bookkeeping?

A bookkeeper is responsible for accurately recording and updating all financial transactions of a business. Their primary responsibilities include making sure that every financial transaction is entered into the company database and recheck it regularly to ensure it is free of any errors or mistakes. By following upon these responsibilities rigidly, a bookkeeper is able to:

  • . Record and calculate incomes and expenses
  • . Make bank transactions
  • . Create and update daybooks
  • . Process and generate sales invoices
  • . Process payrolls
  • . Create analysis reports and debtor reports
  • . Process financial transactions and prepare statements
  • . Manage accounts receivable and accounts payable 

To be effective in their job, bookkeepers are mandated to have professional expertise to understand how to categorize any transaction correctly in the different ledgers. They must have a good head for figures and must be capable of traversing through multifaceted financial data and to make sure there is a concrete balance in the accounts of a business. 

See Also: 5 Ways a Bookkeeper Can Save You Money

They need to be consistent with their records and ensure that there aren’t any vulnerabilities through which an error can slip in and ruin their books. Some other responsibilities of bookkeepers include preparing and filing VAT returns, sales tax, chasing clients for payments, filing and handling documents, processing requests for expenses, and more.

What is Accounting?

Accounting comes with a wider set of obligations and consists primarily of financial reporting. An accountant analyzes the data collected by the bookkeeper and extracts financial insights and business advice from it to present to the business owner. They are required to break down complex information into simple terms and present it to business owners so that they’re able to understand the current financial standing of their business more clearly.

As bookkeeping is largely focused on transactions, accounting focuses on generating reports that help bring important financial indicators together.

Proper, detail-oriented accounting helps the business owner grasp the actual state of their business’s cash flow and how it can be improved so that it results in increased profitability. Some everyday accounting responsibilities include:

  • . Generating financial reports
  • . Conducting audits
  • . Verifying and reviewing information 
  • . Adjusting entries
  • . Forecasting cash flow
  • . Organizing budgets
  • . Analyzing and projecting financial success

Accountants also prepare financial reporting forms such as tax returns, revenue statements, and balance sheets. They provide estimation for forecasts, industry trends, and prospects for future growth and guide the owners on where to take their business next. Unlike a bookkeeper who is only limited to carrying out his role, an accountant can assume the position of a bookkeeper if there isn’t one available. In their need of strategic financial guidance, a business owner will always turn to an accountant.

See Also: Accounting 101 for Small Business Owners

Accounting vs Bookkeeping: What’s the Difference?

The major differences between these two practices lie mostly in the tasks they accomplish and the skills and expertise that are required to do so. Whereas a bookkeeper is in charge of handling where the money is coming from and where it is going out, an accountant takes care of all the remaining aspects of the finances. They take care of the taxes, provide consultation, assess risks and potential hazards, and generate reports to be passed onto the business owner.

A bookkeeper’s job environment is also much more limited than an accountant’s. If you are a bookkeeper, your services will most likely be sought out by small companies, and you’ll be expected only to have a strong background in math and a high school or college diploma. While a degree is not required, most bookkeepers will pursue a certification or a bookkeeping diploma, whereas some may obtain certifications for QuickBooks and other software. Bookkeepers should also be detail-oriented and demonstrate strong skills in use of computers and technology.

On the other hand, if you are an accountant, you will be required to have at least an undergraduate degree or higher, depending on where you apply for a job. You may be able to apply in places like government agencies, tax companies, and other financial organizations.

Overall, both the role of an accountant and bookkeeper are pivotal for a company’s financial success. Both bookkeepers and accountants are responsible for helping the company expand to new horizons and keep track of its growth.

If you couple correctly arranged financial records put together by a bookkeeper with the financial strategies and tax filing efficiencies of an accountant, you can have guaranteed long-term economic success for your business.

 If you feel that managing your in-house bookkeeper or accountant can be a challenge for you, or are mindful of the cost, it can be far more convenient for you to outsource these tasks to an online financial management service. Not only will you be making considerable savings, but you will also be getting services that are explicitly tailored for you based on the requirements of your business.

Finding the Right Bookkeeping and Accounting Service for Your Business

Investing correctly to streamline your business finances is one of the most rewarding things you can do for your business and for your own peace of mind.  Which is why finding the right, reliable, professional bookkeeper and accountant is a very important task that requires significant time and attention. What usually helps is having both of these services availed from one service provider as it creates synergies, eliminates delays in sharing of information, and errors. Monily has a long-standing record of providing customized financial services to our customers. Our accountants and bookkeepers are equipped with all essential expertise and knowledge to deliver the best service and keep you updated with the financial health of your business. By outsourcing your requirements to us, you will be able to benefit from our best-in-class financial management services so you can focus on growing your business.

10 Helpful Tips in Managing Payroll Effectively

Getting the employee’s payrolls processed on time is one of the major responsibilities of any business owner. However, it is also where usually the most mistakes occur. To manage payroll and getting data ready is one area where there is a high potential for errors, and it can take a lot of effort and time to be done accurately. Whereas it can seem like a grueling process to power through, the last thing a business owner wants to see is frustration in their employees due to repeated some small mistake made while organizing their payroll data.

So how does one manage the payroll of their business effectively? With the ever-changing rules and regulations, experts have deduced some useful tips on managing payrolls without causing any major ruckus or any additional costs to the accounting department. Here are 10 of them:

1. Stay Organized

One of the major sources of errors in payroll processing is not having policies and procedures to collect the information accurately and timely. There’s a lot of important information one must keep track of, names, numbers, social security numbers, timecards, overtime, deductions etc., and it’s easy enough for important information to slip through the cracks if you don’t have proper procedures and data management practices.

2. Digitize Everything

The list of steps, checks and double checks required to process payroll accurately can be quite long. At the end of the day we all aim for the simplest, most convenient methods to run things smoothly and cut costs wherever necessary. That’s why it is essential that your company should try to minimize the dependency on paperwork and rely on digitized processes to transfer employee salaries and communicating with them about their pay. 

For example, Timesheet management apps such as TimeSheets, Timeduty, WeBWorK, and Clockify, can be used to easily track your employees’ clocking in and clocking out timings, performance statistics, attendance overview, idle time usage, web surfing history during work hours, and more.

Moreover, you can significantly simplify your payroll process by outsourcing to a cloud-based service such as Monily that specializes in HR solutions for small businesses and startups. Doing so will allow you to be free from being bogged down in technicalities and provide you complete freedom to run your business.

3. Always Keep Things Clear

Maintain a crystallized understanding with your employees regarding what will be included in their payroll, what will be their deductibles, their salary, gross and net income, and all other important information to stave off any ambiguity in the future. If even one or more employees are facing inconveniences with your payroll processing practices, then it can easily lead to unwarranted frustration in your workplace that can seriously harm morale. Therefore, it’s recommended to have internal policies setup that can determine salaries of employees, as well as how they’re processed and be able to correct them if there any mistakes.

4. Classify Employees

You can also simplify the payroll process greatly by classifying employees into different categories depending on their roles. This can help you separate permanent employees from independent contractors and avoid any haphazard mistakes, such as giving permanent employee benefits to contractual workers.

 5. Create A Calendar

Your company risks being penalized if you’re unable to timely submit payroll information on time. While it is very challenging to keep track of tax deadlines, changing paydays, and quarterly reporting, you have to ensure that you’re actually getting everything done on time. You can create a yearly calendar to keep yourself ahead of things and include all important dates in it, including when timesheets and invoices need to be submitted and when salaries need to be processed. Doing this allows your employees to be aware of when they will be paid and also helps you avoid federal penalties. 

6. Be Your Own Auditor

No owner of a company wants to take the stress of worrying about an audit. Ensure your payroll taxes are calculated accurately and tax payments are made timely. Ensure that a proper record or all transaction is maintained either digitally or paper based. As tax season comes around, performing your own audits will easily help you pass an IRS audit. Assess your payroll management system at regular intervals during the year to search and eliminate any problems that may be causing problems or putting your company at financial risk, and you’ll be completely free from any audit-related stress. 

See Also: Top 4 Benefits of Hiring A Tax Professional for Your Business

7. Timely Issuance of Forms

In proper payroll management, there is so much more than simply sending checks out and paying payroll taxes. As an employer, you are required to issue the necessary W2 forms to employees and 1099 forms to contractors before the February 1st deadline to avoid incurring any penalties. These forms can include Federal Quarterly and Annual Tax Forms, State Withholding W-4 Forms, Direct Depositing Forms, etc. 

8. Align the Different Pay Schedules

It is important to remain disciplined when you are trying to handle and execute payroll processes effectively. Whereas many businesses follow a more varied pay schedule such as weekly, biweekly, semi-monthly, monthly, it has resulted in increased payroll mistakes and ultimately results in an uproar by the employees. Minimizing pay periods and aligning the same payday for each employee can be highly successful in preventing mishaps and miscommunication. Also, it’s much simpler to manage one payroll schedule than four or five at once.

9. Maintain Detailed Personal Records 

While it may seem obvious to make sure you have the correct personal details for every single employee in your company, its importance can still not be overstated. An employee’s personal details can change on a regular basis, and some of that information will likely affect their payroll as well. Regardless of whether this change is due to a promotion, a wage raise, or maternity leave, change of bank account etc. everything needs to be always processed correctly. Although at times it can seem like a juggling act, keeping detailed personal records is something that one needs to definitely stay on top of.

10. Turn to The Experts

Transitioning to an online, cloud-based financial management system such as Monily will help solve your payroll problems altogether. It will help you to get rid of timecards, decrease costs, maintain privacy, and more effectively manage payroll data. This significantly reduces the burden on the business owner and simplifies immensely the regular and repetitive task of payroll processing.

Why Is Proactive Financial Management So Important for Businesses?

No business owner starts their company without having a thorough plan for its execution and management. Understandably so, a business can never achieve its purpose if there isn’t a robust strategy backing it up that dictates every move and financial transaction. Financial planning is inherently related to the core processes of any business. It is a necessary practice that allows business owners to create a revenue model, set realistic goals, and track liabilities. As we find ourselves working in more flexible ways to manage our business operations, it’s also equally important to re-evaluate how our company’s finances operate to improve the way we work and ensure consistent profitability.

Whereas conventional management methods such as reactive management are usually preferred by financial managers to dictate the growth of their company, its effectiveness in the long-term falters steadily due to its failure to keep up with the increasing requirements of a growing business. That’s why financial managers need to adopt a proactive approach to accounting to allow themselves to be prepared for any unforeseen disruptions in the cash flow and highlight financial risks before they become detrimental reality impacting the financial viability of your business.

To understand the importance of proactive business financial management, we first have to analyze it deeply to see how effective it is in its true nature.

What is Proactive Business Financial Management?

At its core, proactive business financial management is financial management, but with an extra pinch of preparedness and provision. Whereas some people rely upon the phrase ‘’Desperate times call for desperate measures,’’ Proactive management dictates taking all the necessary precautions and being prepared beforehand before the situation turns into a crisis. Let’s try to understand this phenomenon with an example.

Understanding Proactive Management Through A Visual Aid

Imagine you’ve just started a small business, and you’re continually investing more and more money into it without accounting for adequate ROI or taking measure of the various KPIs. You may think you have a ballpark estimate of say investing roughly $20,000 in your business, but after calculating, you come to realize you’ve spent nearly three times as much. If you take account for any borrowing costs, the hole in your pocket may be much bigger.

To prevent something like this from happening, proactive management indoctrinates a strategic approach to financial management that allows you to make better & informed financial decisions. This approach enables you formalize your business plan in terms of short term and long-term financial metrics and raises reg flags in case things go off track.

So, What Does a Proactive Financial Manager Do?

A proactive financial manager provides a business owner data that includes:

  • A complete framework of a long-term financial plan.
  • Executional Step on bringing such a plan to life.
  • Offering beneficial investing decisions.
  • Offering solutions on the process of funding such decisions.
  • Advising about strategies to maximize profits.
  • Tackle cash runaways.
  • Ensure steady cash flow.

Now that we’ve examined proactive strategy and its benefits for your business, let’s dive deeper and see how it stands against a reactive strategy.

Proactive Vs. Reactive Business Financial Management

A reactive approach to business financial management is one where your money necessities drive you. As the name dictates, a reactive strategy is the one where you respond to a situation after it has gone south, rather than preparing for it beforehand or setting up countermeasures to prevent a crisis from happening in the first place. It usually does more harm than good, you know as they say: ‘A stitch in time saves nine’. The reactionary approach wastes a ton of time and jeopardizes both the financial opportunities for a business as well as the financial integrity of the business. Instead of having a thorough plan, you’re only left firefighting crises. You find yourself making impulse investment or borrowing decisions and then rush in trying to make ends meet when a financial crisis comes to the surface. In simpler terms, it translates to waiting for a pot of milk to boil until spills everywhere, then trying to clean up the mess.

Shockingly this is the way most businesses operate without realizing there already exists a much more efficient method to handle finances. Transitioning into a proactive financial mindset allows managers and business owners to discover new business opportunities, drastically reduce costs and double the revenue, maximize financial security and minimize the risks.  A Win-Win Approach!!

What Does It Mean Having a Proactive Financial Manager for Your Business?

Proper cash flow management is essential in any business and implementing a smooth and streamlined process for managing accounts receivable is one of the best ways to ensure good and healthy cash flow. Proactive business financial managers utilize concepts such as zero-based budgeting in their planning.  Zero based budgeting is the practice of identifying all expenses that need to be made at the beginning of every new period. Then analyzing these expenses to make  robust cash-flow predictions that are backed up by real data and thorough planning, rather than a shot in the dark estimation.

A proactive financial manager performs:

  • Routine financial analysis to understand the numbers as close to the heart as possible.
  • Upon stumbling onto any miscalculations or intuitions of soon-to-happen errors, reports to the CEO before taking preemptive measures against it.
  • Afterward, they will guide you in running your business by creating a well-defined strategy that only results in profitable growth and new opportunities to seize.

Whereas having a proactive financial management can substantially improve and simplify your finances for the long run, you can streamline your business finances by utilizing and hiring the best talent and expertise to do the job for you. Outsourcing business accounting to a virtual financial management specialist who handle all your financing, accounting, and bookkeeping needs on your behalf while allowing you completely focus on growing your business can be very rewarding.

See Also: Top 6 Small Business Bookkeeping Tips For Steady Financial Success

How to Find a Suitable Proactive Financial Management Service for Your Business?

Choosing the right financial partner to delivery proactive accounting for your business is essential. Online accounting services such as Monily conduct a comprehensive analysis of your company’s financial situation before offering proactive solutions. Our experienced Chief Financial Officers (CFOs), provide regular, detailed financial insights, helping you to maximize bottom-line for your business and much more. With Monily’s excellent track record of helping small businesses and startups, you’ll have complete freedom and independence to pursue new ventures while having up-to-date accounting, bookkeeping, and financial records.