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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