How to Get Answers About Your Business's Financials

When reviewing your financial reports, do you see things that don’t look right to you? When you ask your accounting manager about them, do you get the answers you want?

If you're a business owner who can’t readily get answers to questions about your company's financials, it's a problem. Here are the possible reasons why you may not be able to get your answers -- and what you can do to clear these obstacles to financial transparency.

Vetting Your Financials

If you're a sole proprietor, you're at the leading edge of information about your business. You might see problems that others don’t because they lack your knowledge. If your business is more complex, with shared authority, you need to make sure that authority is matched with the responsibility to review and confirm financial accuracy. This doesn’t mean getting buried in the details. It means scanning the “big picture” and asking other people to provide answers when things don’t make sense to you. Don’t stop asking questions until you're satisfied you can answer them for your banker or investors.

Here are a few of the errors that could cause financial confusion: 

Accounting error: Transactions might be recorded to the wrong accounting category or there could be timing issues. Timing issues can be easy to identify. By comparing third and fourth quarter income statements for a client, I recently found four entries for health insurance premiums in the third quarter and two in the fourth quarter. Erroneously booked transactions can also sometimes be easy to spot. I once found a $30,000 oil field “tank battery” booked to travel and entertainment after seeing the monthly balance for that account way out of line with previous months.

Missing information: Sometimes I find that accounting is simply not “in the loop” about any or all aspects of a financial transaction. Years ago, one of our corporate attorneys called my accounts payable manager and begin chewing him out because one of her vendors had not been paid. Donald checked his records, reported that he couldn’t find the invoice, and asked if she might know where it was. She responded that it was right there on her desk (for her approval and to be forwarded to accounts payable for payment). I’m not making this up!

Forgetfulness: You might know of but have forgotten an event that would cause the financials to be different than expected. I recently found that third-quarter bonuses had caused higher payroll expenses than in the fourth quarter, even though the number of employees increased in the fourth quarter.

It’s not important that you forgot. What is important is that your're asking the right questions and should demand answers until you're comfortable that your financials truly reflect the results of your operations.

These are some reasons why you might not be getting timely answers to your questions:

Training issue: In most cases, users have mastered only a small percentage of an application’s capabilities. Proper software training will result in both greater productivity and accuracy for your employees. It might also allow you to do a better job with a smaller accounting staff. I recently discovered a QuickBooks accounting software feature that allowed me to analyze three years of data in about two hours -- a task that otherwise would take two days. A little new knowledge improved my productivity twelvefold; not a bad return on investment.

Inadequate accounting software: If your accounting software doesn’t fit your business, you're probably paying a heavy price. You're not getting the specific information you need and your accounting department is underproductive and overworked. I recently worked with an office supply house receiving about 10,000 orders a month for over 19,000 line items. It was impractical to hire a staff of accountants to manually reconcile invoices against purchase orders. They needed integrated supplier invoicing, by which suppliers submit invoices electronically to be verified against purchase orders by computer.

Inadequate resources: There's an old saying, “garbage in/garbage out”. Timely and accurate accounting is a company-wide responsibility. Those who have the authority to create financial commitments for the company have the responsibility to provide sufficient information for accounting to properly record the transactions. Accounting could be “understaffed” because they're spending more time trying to get answers about transactions than recording them.

Inadequate staff: Your accounting staff might not have the right skill set for your business. You might not have an adequate staff to handle the workload. Being an expert in Microsoft Word doesn’t make one a professional writer. Neither does being an expert in a particular accounting application impart an understanding of generally accepted accounting principals. Don’t confuse a data entry person with an accountant.