Making the right business decisions requires “to the pound” accurate accounts, immediately available, anywhere, any time. At Ascentis we call this “Financial Mastery”.
Achieving financial mastery entails having precise, readily accessible accounts that empower informed decision-making anytime, anywhere. We recognise the critical importance of accurate financial data. In this FAQ, we’ll delve into the top five reasons why management accounts may deviate from expectations and how to rectify them.
From stock discrepancies and cut-off errors to missing invoices, balance sheet reconciliations, and analytical reviews, we’ll explore practical solutions and the role of technology in ensuring the integrity of your financial records.
Here’s our top 5 reasons why things go wrong:-
#1 Stock is not correctly recorded
One of the main changes in year end accounts is the correct recording of stock. Many firms simply leave 1 value in for stock for the entire year and provide a closing balance for year end accounts. It would be a lot easier if a business model could work to this but the reality is the daily/weekly/monthly cycle of stock fluctuates significantly during a month. Without proper controls the cost of sales figure in a month actually only represents the stock bought in the month – the two can be widely different.
We have already done a feature on the matching principle in accounts – Back to Basics Episode One – The Profit & Loss Account
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How to fix this (in order of preference):
- Use technology! There are several apps now that can help with this. Cin7, Deer and Unleashed all manage stock movement for you – Xero also has its own inventory function
- Post the closing stock monthly. For many businesses the stocktake can be a monthly process. Even without this many business owners are at least able to have a reasonable estimate of the stock balance at the end of the month. While this is far from ideal it allows at least a review of the financial information against the owners expectations
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#2 Incorrect Monthly Cut – off
An extension of #1 The next biggest error we see is incorrect cut-off in a month. Ensuring the correct cost is allocated against the monthly sales can unfortunately be a manual process. It’s inevitable that sometimes a sales invoice is either raised early or late – or even just the wrong side of the month. If purchase invoices follow suit then we could be left with a sales invoice in one month – with the corresponding purchase in the previous/following month. Thus showing a 100% profit in one and 100% loss in the other.
A systemised cut off review at the end of the month would spot this – allowing for correct accruals or prepayments to reflect the necessary provisions but technology can also help. A purchase order system would spot any purchase orders raised without invoice and thus help determine any provision to be made.
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Apps that can help:
- Xero purchase orders
- Approval Max
- All the stock apps above also have PO’s integrated with them
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#3 Missing Invoices
Sometimes the purchase invoices just don’t come through at all. While the cut off procedure should allow for the correct cut – off (without one we’d be left with an inflated GP%) , we still wouldn’t want non payment of liabilities to affect the company credit score.
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Resolve this easily by:
- Use document reader app that can pull from certain suppliers
- Dext prepare
- Hubdoc
- Autoentry
- Request and reconcile supplier statements to the Xero balance each month
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#4 Balance Sheet Reconciliations
A reconciliation of the supplier balances is just one of many balance sheet actions that are required in order to prepare a truly accurate set of management accounts. Every area on the balance sheet should be reviewed for accuracy – some of the key areas that highlight incorrect balances are:
- No depreciation postings
- Net wages balances owing
- PAYE liability not correctly represented
- No provision for corporation tax
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Simplify this process by:
- Preparing a checklist for end of month reconciliations
- Hiring professionals!
- If the month end process doesn’t come naturally this reach out to those who can help
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#5 Effective Analytical Review
If we’ve worked through areas 1 to 4 above we’ll hopefully have some pretty accurate data. But, like most things – it can always help to just step back and have one final review of everything.
An analytical review of the month end profit and loss items allows just that. A linear review of each cost centre should identify unexpected costs or missing items.
Shouldn’t there be an electricity bill every month? The rent costs should be the same every quarter? Why does postage have such a spike in July?
This final but fundamental review of the figures gives an opportunity to spot anything not quite right.
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Technology can help here too! Apps to make this process easier:
- Xero analytics
- Futrli
- Fathom
- Highsight
- Dext precision
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For expert guidance and support with business financial planning and any other accounting needs, contact Ascentis today and experience the difference in financial management!