A Known Financial Position (KFP) is essential to your success and profitability. “Known” is the key element. It may be that you are losing money or deeper in debt than you would like to be. Find out how much and how deep. That’s the starting place. The financial reports are the Scorecards in the game of business. You can always improve the score. But you must know where you are right now.
Learning how to keep score
You’ll be at KFP when:
- You can generate Income Statement and Balance Sheet reports and trust that the information is current and accurate (on a weekly basis).
- You can go through the reports line by line, account by account, and understand what each dollar amount represents.
You can’t wait until the month is over to find out the score. You need to know the score while the game is on! The best way to do that is by generating financial reports “in house.”
You need a good accountant. Most accountants just prepare tax returns. A good accountant will help you develop an accounting system that delivers the financial information you need to make good decisions. A good accountant will be excited when you tell him that you want to learn how to read and use financial reports. A good accountant won’t feel threatened when you tell him you want to move the accounting system “in house” instead of shipping it out to him.
You need a good bookkeeper, too. A good bookkeeper is meticulous about data entry and getting it entered on time. In a small company, you may hold the position of bookkeeper. This will serve you very well in the long run. Embrace the position. Figure out double-entry accounting and how to fully utilize your accounting system. When you are ready to hand off the position, you’ll be prepared to work well with your bookkeeper to receive on-time, accurate and relevant information. As you grow, you can assign data entry duties to the customer service rep or dispatcher. Or you may have more than one bookkeeper or data entry person.
Getting to KFP
Work with your accounting team, your “Bean Team,” to answer these questions:
- Where do the dollar amounts come from?
- What do they represent…what do they mean?
- How does the information get entered into the accounting system?
- How can we structure the Chart of Accounts to better reflect how we do business?
- How can we separate information, so that we know how different divisions of the company are performing? Should we create divisions in the accounting system?
- Are we tracking information that we don’t really need?
- What will it take to generate current and accurate Balance Sheet and Income Statement reports at any time?
Check out the Month-End Checklist together. This checklist makes sure that you stay in a KFP. Ideally, your bookkeeper completes the checklist. Your accountant can help by checking to make sure that your reports are accurate, and that all the legal and tax compliance requirements are handled. Commit to completing the checklist every month, starting right now.
Start by defining who is responsible for what. Create Financial Position Descriptions. Here is a list of the basic responsibilities for each of these positions.
The Bookkeeper (data entry position)
The bookkeeper is responsible for day-to-day data entry into the accounting system.
- Invoices/accounts receivables
- Bill paying/accounts payable
- Bookkeeping should be done in-house. It is just not that hard to do! Ninety percent of accounting is entering invoices, making deposits and paying bills. Do these functions in real time in your accounting system. No sense in doing them and having an outside Bookkeeper re-do them.
- Bookkeeping needs to be up to date. At the very least, all information for the previous week should be entered and accurate by the following Wednesday.
- The customer service rep (CSR) or dispatcher can help with bookkeeping duties. For instance, the dispatcher could be responsible for entering payables. The CSR can enter invoices. This also adds system protection, because not just one person is responsible for all the accounting or all the money transactions.
The controller is responsible for assembling the financial reports on a weekly basis.
- Assembles the financial reports.
- Balance sheet
- Income statement
- Any other financial reports you require or request to help you make good management decisions.
- Assembles payroll information.
- Calculates commission and bonuses.
- Verifies the balance sheet accounts — monthly.
- Balances the bank statements — monthly.
- Checks for and fixes bookkeeping errors.
- This is a part-time position. Perhaps just a few hours a week. This person could be in-house, or a subcontractor who comes to your shop once a week.
- Use a payroll service, like ADP or Paychex. They do a great job. Then, the controller can make the journal entries from the payroll services reports.
- The controller duties are often neglected in a small shop. These responsibilities fall into no-where-land. Take responsibility for these functions yourself if they are not being done well. Then, you can hand the duties off. Get the controller responsibilities handled and take note of how your decision-making improves!
The accountant is primarily responsible for state and federal tax compliance. A good accountant gives appropriate tax advice, and helps you manage your company to your best tax advantage.
- Prepares the tax return.
- Prepares monthly, quarterly, and yearly-required tax reporting and payments.
- Creates the depreciation schedule.
- Helps manage assets, accounts for the sale or purchase of assets.
- Checks the controller’s reports for accuracy and tax implications.
- Look for an accountant who is excited about helping you develop in-house accounting systems. He or she should be willing to train your bookkeeper and controller, or offer the help of someone on his or her team to help in that capacity.
The Financial Planner
The Financial Planner works with you to help you achieve your long- term financial goals.
- Reviews your personal and company goals, financial reports and makes recommendations for asset management.
- Helps you create end game opportunities — for selling or transferring ownership in your business.
These position descriptions briefly outline the responsibilities, what needs to be done, by you and your financial professionals. Now, this does not mean you need four separate people. Here are a couple of possible financial team rosters…
- A bookkeeper who performs controller duties.
- An accountant who helps with financial planning.
- A bookkeeper.
- An accountant who performs controller duties.
- A financial planner.
- A bookkeeper
- You perform the controller duties.
- An accountant.
- A financial planner.
None of these professionals relieve you of the primary stewardship of your company. Your assets are on the line. You have to pay attention. A good financial team can help you make good decisions.
Be sure to have at least two people on the financial team. Be sure to document each procedure in writing. This way you are imposing structure, accountability … and a system of checks and balances.
Ellen Rohr, president of ZOOM DRAIN, a drain & sewer franchising company. She’s the author of four business books, including “Where Did the Money Go?” – accounting basics, and "The Weekend Biz Plan.” Ellen’s a member of the EGIA faculty, sharing her snappy, helpful, and usually irreverent insights on business planning and financial clean-up.
EGIA Contractor University has assembled the most experienced and dynamic faculty ever put together. Faculty members have personally built some of the most successful contracting companies in America. During Contractor Leadership Live, Ellen will be leading an Exclusive Workshop, Tuesday, Sept. 12, From 1:00 pm – 4:00 pm. This Exclusive Workshop is only available to the first 500 Contractors who register for the All-Access pass. Visit Contracting Business for more information and to learn about the Contractor Leadership Live event. Reach Ellen at www.EllenRohr.com.