Scaling up: Don’t leave your accounting department behind

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Scaling up: Don’t leave your accounting department behind

By Anna MaskerIn standard19th August, 2016

Woman On Laptop Running Business From Home Office

You may have started this business on your kitchen table, or in your garage, or, even in a trendy new co-working space.  But now you’re officially a “big” company, pulling in a couple million — with your own office space and a staff and a lot of growth on your horizon. You are a real success story.

But you know who got left behind at the kitchen table or in your garage?

Your accounting department.

They’re still working off the rickety chair or on the too-small table, cranking out your invoices and paying your bills.   It may be your mother, your wife, an untrained employee, or a bookkeeper you hired when you were only a couple of people.   Now they are trying to manage the volume that your larger business demands.

Here’s the thing.  The way your accounting department worked when you were $500K in revenue, isn’t going to work when you are $5M in revenue. 

I get it… accounting isn’t sexy.  It doesn’t generate revenue.  It’s not fun.  (Except when they get you paid.) Heck, you may not even know what they do all day!  They are just along for the ride and to keep it all together while you focus on growing your company.

But that’s a dangerous mindset.

When your accounting department isn’t scaled with the rest of your business, here’s what happens:  You lose money.

You lose money in quiet, stealth ways that you are too busy to notice while you focus on growing your company.  There are things that start falling through the cracks and either your bookkeeper doesn’t know or he/she isn’t telling you:

  • Not all invoices go out the door. When you are growing fast and you don’t have the right processes in place, it is easy for an invoice or two to slip through the cracks, or a credit card not to be charged, or invoices to go out late, eating up precious days of cash flow.   You may not notice it because either you are focused on your next big project or you are only focused on a few big clients.
  • Vendors are slipping in extra charges on their invoices. It doesn’t take long for a vendor to realize that you aren’t paying attention to your bills and, for the less scrupulous ones, they take advantage of it.  What often happens is someone in your company is making a purchase and the invoice goes right to the accounting department to be paid.  Even if the accounting department gets the purchaser to approve the bill, the approver many times just glances at the bill or forgets what the original order was for and signs off anyway.  The bookkeeper does their job, and pays the invoice—including those extra charges.
  • You are losing money on some of your customers and product lines but you don’t know which ones.  Most accounting departments of growing companies are just struggling to keep up with the increased demands on them.  They either don’t know or don’t have the time to figure out which customers are unprofitable or which product lines are draining cash from the business.  Simply understanding this helps you strategically cut costs and pinpoint the places you need to focus your efforts.
  • The door opens for fraud.  When you grow quickly, everyone wears a lot of hats, including your accounting department.  They may be handling purchasing, paying your bills and reconciling your bank accounts.  It’s pretty easy when no one is watching to write themselves a check or to divert company funds for their own personal use.
  • “Winging it” with decisions or going on gut feel isn’t going to work. When you were small, just knowing your profitability and making sure you were getting paid was enough.  Now every decision you make has bigger dollars associated with it, and wrong decisions are more costly.  The thing is when you grow you don’t have the pulse on the business like you used to and the way you think things are operating, often aren’t.

So how do you scale up your accounting department?  

  • Get the right people in the right seats. It might be time to admit you’ve outgrown your current bookkeeper.  While they can still be a valuable member of the team, you are going to need a level of sophistication that goes beyond just data entry.  You should consider hiring an accounting manager or using an outside service to make sure your accounting is done by someone with an accounting degree or background.  Depending how big you are or how complex your accounting is, you may need to hire a Controller on a part-time or full time basis.
  • Tighten up the processes & use technology. There is nothing better to stop profit leaks in a business more than other than tightening up procedures–and sticking to them.  There are also a slew of new apps that integrate with your accounting system which can reduce the manual processes, paper and errors while giving you better access and visibility to things like bills and expense reports.
  • Put in checks and balances.  In my last post we talked about how easily fraud can happen in small businesses and ways you can prevent it.  But more than just keeping fraud in check it is important that other departments help in the compliance.  For example, purchasers should need Purchase Orders to contract with a vendor, customer-facing staff should review invoices and you as the owner should always, always be looking at your bank and credit card statements for unusual transactions.
  • Demand timely closes and good reporting.  Once you start demanding timely closes, you’ll start to see where processes are breaking down.  Once you start scrutinizing your reporting you’ll see how things are really operating, putting some numbers and facts up against your gut feel.

All owners of growing businesses have many demands of their time, money and attention.  There are many other, more exciting places to invest money– hiring a new sales person, putting in a new CRM system, hiring a new tech, etc.   Often, “upgrading my accounting department” never makes the list.  We encourage you to re-think that.  You might just find that the investment pays for itself.

 

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