Monday, December 2, 2013

Strong Companies Possess Financial Powers


Today we have a guest blog from Julie Eisenhauer:

When I was organizing my thoughts to write an article about the factors that demonstrate financial power within a company, I was reminded about the extraordinary powers of Superman.  He was described as “faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound.”  Similar to Superman, your company can possess the power to prevent unexpected surprises.  Can your company be described as “audit ready”? Does management understand the financial statements, and are results monitored?  These are key indicators that demonstrate the financial power of a company. 
  
“Audit ready” all the time
I know the term “audit” causes anxiety by many, but being “audit ready” all the time demonstrates your company’s strength to produce accurate and timely financial reports that allow management, owners and outside users to trust the results when evaluating your company’s performance.  Can a potential investor walk into your accounting office today and perform due diligence on your financial reports?  Would you be able to produce the account reconciliations and documentation supporting the balances? Are you confident that your company is in compliance with all laws and regulations?

Understand what your financial statements are telling you
Financial statements tell a story about the financial strength and performance of a company on a certain date and during a specific period of time.   Management needs to understand what the story is telling them to identify strengths, weaknesses and opportunities in the company’s financial performance. 

For example, an increase in the balance of accounts receivable at a rate higher than revenue may be the result of slow paying customers.  The company may be at risk for collecting on these receivables, requiring prompt action by management to investigate.  A slowing in the turnover in accounts receivable reduces the ability of the company to turn the receivables into cash to pay its current obligations timely.

Monitoring budget against results
The budget is a measureable tool that can provide visibility into the company’s performance and can also be a means to hold management accountable in achieving financial goals.  Unusual variations between actual results and budgeted expectations should be investigated.  A timely review of these variations enable management to recognize and respond to unusual trends that may indicate fraud, unwise use of resources, operational inefficiencies, poor decision-making, missed business opportunities, and other threats that can negatively impact companies. 

How would you rate your company’s financial power?  Is it more powerful than a locomotive?


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