Episode B.013 Building A Financial Process

F! - Financial Accounting
One of two financial processes that prepares financial statements for decision makers, stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. It is also used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. It is a trailing indicator or metric of past performance.

Start with the Financial Institutions and Support Systems. There is no real order to the following because the decision could change on bank, accountant, software etc., based on the requirements of each.

1. Select Your Bank. You might have an existing relationship based on your personal accounts. That might be the right choice if they cater to the unique needs of small business. If they don't look for a separate bank that is business focused and where you will have a personal contact for your account. One of the key issues is electronic transfer of banking information to your accounting software.
2. Select Your Advisor. This is a critical choice because you need expert advice and somebody that can grow with you. Your choices are book keepers where they just handle the day to day transactions for you . All analysis and report generation is your responsibility. Second choice is an accountant/CPA who will handle the transactions, analysis, and report generation. Additionally they will provide insights into your decisions over the month. The Third choice is a Fractional CFO that will do everything listed so far plus proved wide range of advice on growing the business.
3. Select Your Software. There are 1 or 2 obvious choices but this choice is driven by several factors - the bank, the advisor, and other software you intend to use. The big issue is one time data entry and universal integration. Examples - what CRM (Customer Relationship Management) software will you use and does it talk to your financial software? What is critical is everybody - the bank, your advisor, and the other software packages essential to the business allow you to operate on one platform. Remember data entry ONCE!

Getting Started
Your primary external concern is meeting federal, state, and local tax laws. This includes ensuring you have a business license, EIN for the business.e reporting business income personally consider some form of business incorporation. recent changes in US tax law now makes incorporation a smart move. Check with your accountant to determine the best choice for you.

Create an SOP (Standard Operating Procedure) for the following business operations: Accounts Payable, Accounts Receivable, Purchasing, Payroll, Petty Cash, Property Management, Inventory, and Collections. As the company grows you will expand this list of SOP's to cover additional financial demands.

1. Purchasing: buying the goods and services you need to operate and/or manufacture products or produce services, usually becomes AP unless it is a cash purchase.
2. Petty Cash: is a small amount of cash kept on hand to pay for minor expenses, such as office supplies or reimbursements.
3. Accounts Payable (AP): an account  that represents your obligation to pay off a short-term debt to creditors or suppliers.
4. Inventory: goods available for sale (finished goods) and raw materials used to produce goods available for sale.
5. Accounts Receivable (AR): is the balance of money due to you for goods or services delivered or used but not yet paid for by customers.
6. Collections: is the recovering amounts owed to you by customers. 
7. Property Management: is ensuring all of the businesses assets (machines, equipment, computers, etc.) are labeled, assigned, and inventoried on a regular basis.
8. Payroll: paying employees accurately and on time and complying with legal and tax requirements.

Not on the list but something to consider. What reports do you need on a monthly basis, when do you want to review it, and who will attend the meeting. My recommendation is as quickly as possible after the end of the month. This must include a minimum of 3 reports Balance Sheet, Profit and Loss, and Sources and Uses of Cash.

Next Show: B.014 Building A Customer Acquisition Process