Maximize Accounting Department ROI with Clear Expectations
One of the most underutilized resources at many mid-sized firms is the in-house accounting department. While devoting lots of resources to the department in terms of both money and time, many businesses don’t gain the accounting department ROI that they should.
A common reason why is because CEOs and owners sometimes don’t know exactly what they should expect from their accounting departments. This isn’t too surprising when you consider that the business owner probably isn’t a financial or accounting expert. Often, he or she takes a hands-off approach to the accounting department, leaving the details up to the controller or CFO. But doing so can result in lost opportunities to maximize the value of this important resource.
Financial Reporting, Planning & Relationships
To maximize accounting department ROI, you first need to determine what are the specific accounting department responsibilities and roles. Doing so will enable you to set realistic expectations for the department’s performance and deliverables. In most organizations, the accounting department is held responsible for the following tasks:
1. Financial statement preparation
The primary responsibility of the accounting department at most organizations is to prepare accurate and reliable financial statements on a consistent basis. These usually consist of a balance sheet, profit and loss (or P&L) statement and cash flow statement. The accounting department might also deliver supplemental reports customized by department or product line.
Depending on the sophistication level of your business, you might also require your accounting department to prepare more advanced analytical reports. These may include trend or variation analyses and measurement and analysis of the key performance indicators (KPIs) that are most crucial to your business and industry.
2. Budgeting & financial planning
Along with the financial statements, the budget is among the most important financial documents prepared by the accounting department at most businesses. This is the blueprint from which all financial plans and decisions will ultimately be made. At larger organizations, the accounting department might also be involved in higher-level strategic planning, especially as it relates to finances.
A big part of financial planning is providing analysis and insight into where the business is going based on measurements of operating performance. If things are headed in the wrong direction financially, the accounting department should be able to suggest remedies to get things back on track again before disaster strikes.
3. Cash flow management
Cash flow is the lifeblood of any business and it’s up to the accounting department to ensure that cash is being managed efficiently. Many businesses that seemed to be financially healthy, at least on paper, have failed due to poor cash flow management. Therefore, the accounting department should keep a tight reign on cash flow at all times to make sure sufficient cash is available to meet daily working capital needs.
4. Managing banking & vendor relationships
A designated point person in the accounting department should make sure that the bank is receiving current financial information on time so the business remains in compliance with any loan covenants. There should also be a designated point person to communicate with vendors about contract and payment terms and negotiate contract renewals when the time comes.
Financial Communication & Staffing
Once you have identified accounting department responsibilities and roles, you should establish an internal chain of communication between department leaders and the owner, CEO, board members and other key executives. For instance, you need to decide whether communication between your designated accounting department liaison and other department heads will flow through the owner or CEO or whether they will communicate with each other directly.
Also determine what role (if any) the accounting department will have when it comes to communication with customers. For example, will accounting be directly involved in collecting past-due payments or working with customers to establish payment plans and make other financial accommodations? This should be discussed among managers before the time comes to start making these kinds of arrangements.
With accounting department responsibilities, roles and a chain of communication in place, you should now make sure staffing is appropriate to gain maximum accounting department ROI. Your goal should be to make sure all of your accounting employees are performing jobs that make the most use of their skills and abilities. For example, employees with good people skills should probably be responsible for internal and external communication, while those who are more analytical can be put in charge of strategic planning initiatives.
One of the most underutilized resources at many businesses is the in-house accounting department. A common reason why is because CEOs and owners sometimes don’t know exactly what they should expect from this department. They often take a hands-off approach to the accounting department, leaving the details up to the controller or CFO. However, doing so can result in a lost opportunity to maximize accounting department ROI. An outsourced CFO services provider can help you maximize the return on investment in your accounting department.
Arthur F. Rothberg, Managing Director, CFO Edge, LLC