Creating Better Financial Control

#5 of the 5 Required Disciplines for Managing Your Business

Did you know that some 95 percent of business leaders are less than impressed with the cost-to-service value of their accountant?   

We have a great deal of respect for accountants and value their position both to us as a company and within the mechanics of a business. However, this consistent area of irritation isn’t with the accountant as a person, it is with the dynamic of the relationship. 

In this article, we will provide both a clear description of what activities all small to midsize businesses need to be doing, and how they can remain financially strong. Additionally, we will take a closer look at why you, like most business leaders, might be feeling you are not getting receiving the best value for money from your accounting services.

Before we begin, a quick reminder of the five core disciplines all business leaders need to ensure are well implemented and maintained to have a strong and adaptable business.

The five disciplines are:

The five disciplines are:

#1 – Practical Company Planning
#2 – Using an Accountability Chart
#3 – Effective Management Meetings
#4 – Using a Company Performance Scorecard
#5 – Strong Financial Control

Let’s be honest, working on financial management activities for most entrepreneurs is up there with watching paint dry for levels of excitement. I too feel myself nodding off after just a few minutes of logging into my accounting software. This reality is one of the reasons these activities make the Top 5 list of required company disciplines.

Another reason is that running out of money – insolvency – is a common cause of collapse for companies. And let’s be clear, there is a lot of carnage on the business battlefield, with over 90 percent of businesses shutting down within the first six years [1].  The key issue is that as companies grow the financial swings get bigger, and a lack of clear and accurate monetary forecasting information creates a deadly blindspot for leaders.

In tackling this problem for companies well over 100 times now, I have recognised two major flaws most business owners have in the area of financial management.  

Issue #1: Your company’s financial control management isn’t clearly defined

What we don’t see, we don’t manage – which leads to money problems.

If you are unsure how this might apply to your financial management, consider this: There are nine essential activities every business needs to do consistently to remain financially strong. Most business leaders think of Invoicing, Accounts Payable, Payroll, and Tax and Compliance which covers less than half of what is required.

When companies don’t manage all nine they are setting themselves up for short-term cashflow challenges and longer-term insolvency.  

We won’t go into all nine activities in this article, but you can download a helpful infographic on all nine areas here. Rather, we will focus on one of the nine activities – Management Accounting – which addresses the reason why most business leaders are underwhelmed by their current accounting services.

Issue #2:  The Financial Management Accounting Activity Is Not Being Completed Each Month

When your Financial Management Accounting activity is done correctly each month, your books are fully reconciled and the financial reports are 100 percent accurate. When the activities or disciplines are not in place the numbers are often mostly accurate but there are discrepancies and ‘guesstimations’ for any inaccuracies. This in turn results in subsequent problems which often snowball, resulting in inaccurate data, fines and cashflow challenges. Below are a few examples:

  • Bank accounts are not reconciled or cross-checked with bank statements due to auto-feeds directly from the bank into the accounting software.
  • Fixed assets, depreciation and loans are typically not accounted for until the end of the Fiscal Year by the Tax Accountant and suddenly, you have an unexpected large depreciation expense and a new financial liability.  
  • Accounting activities are limited to data entry and not performed consistently or thoroughly. When required entries involving employee entitlement provisions, stock takes, prepaid expenses or revenue received in advance occur, it is often entered only partially or incorrectly. As one specific example, good accounting practices would amortise the entry over the correct term, creating smoother results month to month and avoiding irregular profits.

The reason this is a problem in most small-to-midsize businesses is because:

  1. The company’s bookkeeper doesn’t have the experience or skills to identify and resolve the problems that arise with transaction details.  
  2. The business leader often doesn’t even know this is a required activity each month (highlighting Issue #1) so they don’t set an expectation within their team.
  3. The accountant often could perform this task but they have set up a relationship with the business owner that focuses on what they do most often in their business, which is Tax and Compliance work. This accountant issue is why you may well be dissatisfied with the level of support you are receiving from your accountant.

Issue #3: Your Accountant Is Not Focused on Helping Your Financial Management

This is a significant disconnect between business leaders and accountants. Accountants are primarily focused on appeasing the Tax Office. The challenge is that Tax and Compliance activities don’t help you run your business or deal with planning for future cashflow requirements and profitability. Accountants need to accept a portion of responsibility for this misperception. They say they can provide ‘advisory’ services which can include activities that will help produce more clarity around cashflow, profitability and business risks. However, most rarely do. My theory on why this occurs is simply because it is easy to sell services that customers have to buy, such as with tax and compliance work,  while advisory-type services are harder to sell because they are different from the norm.

As a business leader, it is important to really refine this dynamic with your tax accountant.  You need to be able to see and understand that their service focuses on keeping you compliant by filing accurate tax returns. Most are not set up to provide monthly support at a management accounting level. Don’t take my word for it, just ask what percentage of their clients they provide monthly management accounting services for. The ones who actually perform this work for customers will confidently say 80-90 percent, while most accountants will respond more uncomfortably and provide some explanation as to why they don’t.   

This is why you are likely not wildly happy about the value of your current accounting services. You would like them to provide insights on how to better run the financial parts of your business but they are only set up to provide intermittent tax-focused work. 

To add salt to the commonly felt wound, in order to generate an accurate tax return much of the ‘management accounting’ efforts need to be done at the end of the year to clean up the records in order to file accurate numbers. This means you end up paying for the work at the end of the year, which is too late to help you make better decisions on company budgeting throughout the year. Had you paid for the work to be done monthly, you could enjoy the benefits of having accurate data and reporting. You would then pay less for the tax return at the end of the year because the books would already be accurate.  

This rarely-discussed dynamic is a significant opportunity for business leaders to get far better financial support while not paying more for the overall service. You simply need to find the right kind of accountant who can provide this type of monthly advisory work. 

Again, to be clear on the type of support your company needs, please checkout the Nine Required Financial Management Activities. You can take this list of activities and discuss them with your bookkeeper and accountant to gain more clarity on the responsibilities required to better support your financial management needs.

We hope you now feel we’ve delivered on our promise for providing clarity on the key financial management activities you need to be sure your company is consistently doing well. Additionally, we trust we have helped you better understand why you may feel less than impressed with the level of support you receive from your accountant.  

As always, we are here for questions. Best of luck on your business’s financial management journey!


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