What are accurate financials and what are some mistakes people make?
You can't control what you can’t measure and that's why it is important to understand your numbers. One of the most common mistakes that we see is that accounts are not reconciled. Start with making sure that there is a checklist that your accounting department follows every month to close the month. That way you can ensure consistency. Then make sure that you review the financials regularly. Look for any outliers. Ask questions. Try to understand what's on your balance sheet, what's on your profit and loss statement.
Every single account on the balance sheet should move every single month. Unless it's retained earnings or a security deposit, it should be moving. Cash moves, accounts payable move, accounts receivable moves, accrued expenses, and prepaid expenses. There are so many accounts on the balance sheet that I see that don't move. You have to ask yourself who is doing your financials if the numbers stay static? Obviously, the P & L could be incorrect.
How many profit and loss statements are inaccurate because there have been balance sheet errors?
The reconciliation is very important, but I've also seen where actuals have been booked to the wrong account and we budget it to a specific account, and if the actuals are being accrued somewhere else, that can significantly impact your variance and your budget analysis month over month.
How often should your company be looking at their budget to actual reports?
Monthly.
Because that's when you can spot those outliers and it should stand out if an amount shows up in an account where you didn't budget for it. That's the biggest red flag. Either there's something going on or it was booked incorrectly. The more often you review, the easier it is to catch these mistakes so you don't wait until year end.
I see a lot of companies that don't get their financials until the 25th, 26th, 27th of the month. Sometimes that's too late to make that month's decision. We have to go to the month after that. The later your financials are, the harder it is to make good decisions.
It's also great to have a budget every single year because you have that benchmark. Each month you're looking to make sure that actuals are coming in as you had planned. Those who don't have a budget, it's a little more difficult to see those outliers.
The moral of the story, have a budget, have accurate and timely financial statements, and if you need any help, please give us a call at optimaoffice.com. (858) 283-1234.