We all know the importance of planning and having procedures in place to help manage our workflows, our families, and our lives.
Procedures help us develop a routine. They save time. Let’s look some aspects of procedures in the accounting field.
- When to use procedures in small and big businesses
- What the benefits are of procedures
- How to create a procedure
- Why keeping procedures fluid is good
- Who it affects
When to use accounting procedures in small and big businesses
As a small business owner starting out, you may wear many hats and perform many duties. Although it’s not ideal, it’s usually necessary since the business is new and revenues aren’t flowing just yet to justify hiring staff. You may be able to pay the bills as they come in or send out an invoice on the fly when things are slow. But as you grow, there will be a tipping point where you may not be available for those functions, and handing them over to qualified staff will be necessary.
Or you have an established business, and you have some procedures in place, but you recently signed on a few new clients and your current procedures aren’t being followed consistently. You discovered a few bills were paid late with significant late fees and a few customers didn’t pay their invoices on time because they weren’t invoiced correctly and there is some confusion on who is responsible.
Benefits of procedures
The greatest advantage of having accounting procedures in place is that any experienced bookkeeper or accountant can quickly step in and do the bookkeeping work without having to reinvent the wheel.
Robust accounting procedures form a template for the workflow, specifically designed for your business. It establishes what needs to be accomplished, when the deadline needs to be met, and who is responsible. Procedures create clarity, save time, and reduce stress. They keep you in compliance with Generally Accepted Accounting Principles, which is a good business habit to acquire.
How to create accounting procedures
Keep in mind, our goal in any small or large for-profit or non-profit organization is to manage the inflow (revenues) and the outflow (expenses). Here are a few examples on how we create procedures to solve major accounting issues.
- We start with some basic who, what, which, when questions, and with the answers, we design the workflow specific to your business.
Do you invoice your clients? Which department is responsible for invoicing? Would that be your bookkeeper or the sales force? Do you or your customers require PO’s (Purchase Orders)? When there is an issue with the invoice, who will be responsible for the verification and correction?
When a bill comes in, who is responsible for verifying the receipt of goods or services? Do you require your vendors to include a PO number on their invoices? Who enters the bills to be paid? Who is responsible for signing off on the payment? Who is responsible for initiating the payment?
- Another way we can collect data to create procedures is when a problem requires a solution.
For example, you have many vendors that provide goods and services vital to your business, and they need to be paid quickly. The bills are sent to the right department, and the vendor is using the correct purchase order. Meanwhile, even if the invoice was paid on time, perhaps no one was tracking to make sure the goods and services were received. Production has come to a halt, and customers are waiting for their orders.
A simple accounting procedure such as having a signature proof that the right amounts were received or the services were provided helps to connect the dots so that the accounting department is confident the bill can be paid.
- Many other scenarios might be helped by emergency accounting procedures, so the inflow OR outflow of goods and services does not cause you to lose business and opportunities.
Why keeping procedures fluid is good
Accounting procedures are not static rules. The best accounting procedures grow with your business. You may, in the beginning, use a simple template and add or delete some procedures that work better with your staff and type of business. Even if you have accounting procedures in place, it’s always a great practice to review them with your team. Being open to new ideas and technology that support your accounting staff eventually helps to expand the potential of your business.
Who it affects
Without procedures, important deadlines are missed, and the late fees and fines (or worse) can affect your bottom line. As we saw, missing inventory can ruin your manufacturing cycles and lose customers. When the retirement plan hasn’t been handled properly, your employees are unhappy.
So, having robust procedures will keep your company in good graces with your many stakeholders. Sound accounting procedures contribute to sound sleep. It might be a good idea to train your existing bookkeeping and accounting staff or hire an outside bookkeeping service or CPA to help you create the unique procedures for your business or to execute on those in place to a higher level.
Contact your CPA or call us if you have questions on the best procedures for your company now or how to position your accounting procedures for the exciting days ahead.