Financial accountability is one of the major success factors of a small business. It is a topic we are encountering more frequently as we are all challenged in some way by the current state of the economy.

But where do you get the tools to measure this? It may not be as complicated or as costly as you might think.  

Financial accountability in your business starts with the company’s financial statements. Understanding how to decipher your financial statements can transform them from the bound report you get from your CPA at year end that goes in the file with all of the previous years’ reports, to a powerful tool that is the foundation and starting point for measuring your success, making critical day-to-day management decisions, and planning for the future.  

Even inexpensive accounting software with a well thought out structure can automate your daily bookkeeping as it is creating real-time financial statements behind the scenes of each transaction. Once you are generating financial statements, it is important that you have processes in place to ensure their accuracy and most importantly, that you understand how to read them.

A periodic meeting with your bookkeeper or controller and your CPA can assure that you are fully and effectively utilizing your financial statements.

The next step to accountability and success is through routinely analyzing company management reports. With automated accounting software, there is typically an abundance of reports and graphs to provide the key information that businessowners are looking for on a daily and weekly basis, usually with a few clicks of the mouse. These reports include:  cash flow forecasts, accounts receivable and accounts payable aging reports, collection reports, sales by category, profit and loss by job, and profit and loss budget vs. actual.

These reports will tell you how much cash you have, how much money you need to pay out, how much money you can expect to receive in the coming days, details of what items have been sold, how profitable each job is to date that you are working on or have completed, and how your revenue and expenses compare to what you budgeted for the year.  

Getting into a routine of generating and reviewing these reports at consistent intervals will provide you with some great insight and help you to make better decisions on a daily basis.

Key ratios should also be calculated to measure the health of your business. Ratios can indicate whether you will have enough money to pay bills on time, how many days on average your customers are taking to pay your invoices, how dependent your business is on debt financing as compared to equity, and if your business is meeting its loan covenants, to name a few. These ratios can be measured and compared to previous periods as well as be compared against industry standards that are published by sources such as Risk Management Association.

Understanding your historical ratios and the industry standards also gives your business a measurable goal toward success and benchmarks for the future.

One of the most critical steps to success through accountability is planning.  Planning provides a road map for success and a measurement of accountability. Preparing and reviewing an annual budget provides a goal that is easily measured against your actual performance. Knowing your budget and where you are in comparison throughout the year allows for making more informed decisions regarding sales and marketing initiatives, pricing, staffing and spending, to name a few.

It also helps you to more accurately project your annual profit and balance sheet before year end, to strategically strengthen your financial position as well as minimize your tax liability.

Utilizing these tools and sharing them with your management team allows you to keep everyone in your business accountable while providing them the same road map you have chosen. Sharing them with your CPA and other trusted advisers can help you understand, implement, plan and measure your success.

		Heather M. Chunko, CPA is a partner with Fortin & Chunko, PC, a certified public accounting firm in Lansing, specializing in construction accounting, business consulting and taxes.