A few years ago, while working as a marketing company Controller, I found myself in a unique situation. I was a revenue generator. Each month, I would find up to $40,000 in missed billing. How could this happen? In a fast-growing company without consistent systems, this can happen quite quickly.
Here are five ways your Accounting/Finance team can boost your profits and cash.
If you are a service-oriented company, it is best to review all contracts regularly and keep a summary report updated on all contract terms. A good billing system will have control features to ensure that contract terms are entered correctly into the system. Here are some best practices to ensure you are billing all that you should:
- Recalculate all billing to double-check accuracy.
- Have another person review all billing. It never hurts to have a second set of eyes.
- Review any changes from the prior month.
- Put together a forecast of expected revenue by customer or revenue by product/service. Compare your forecast to the actual billing, and this will usually bring some errors to light.
- Enter revenue streams or billing types in a separate account in the general ledger for easy and quick analysis.
- Keep all contracts electronically, so employees involved in the billing process can access the latest contract.
2. Operating Expenses
It is easy to keep paying the same recurring expenses. I have found that a regular review of expenses helps improve profits. Once, I found a credit card processor that saved a client over 1% on everything processed through credit or debit cards.
Another place to look is health insurance costs. PEOs (Professional Employer Organizations) are good places for small companies to save on health insurance, payroll, worker’s compensation, and human resource costs. These organizations pool the employees of many smaller organizations and can get better insurance rates than many small organizations on their own.
There are quite a few places to look when decreasing expenses. The next place to look is “fractional” services. These are services such as IT, Human Resources, CFO Services, and marketing services that are usually much more affordable than hiring somebody in-house.
3. Cash Management
One of the best ways for improving cash management is to have a consistent Accounts Receivable process when invoices fall into different aging categories. It might amaze you how much more quickly you can collect cash by simply being consistent and following up politely with your customers. It is also an excellent practice to utilize credit cards and have a consistent process for reviewing payables. You don’t want to pay sooner than the due date unless there is an incentive to do so.
Cash forecasting can be very challenging. One of the best ways to begin forecasting cash flow is to understand your trends. Keep track of the average cash deposited each week. As your business grows, you will better understand which day of the week deposits are the highest. Also, have a check run on the same day of the week to increase your cash flow consistency. Consider using a service like Bill.com.
4. Regular Process Review and Enhancement
Businesses that are growing fast are most likely out-growing their processes rather quickly. A regular review of Billing, Receipts, Payables, Payroll, and Month-End processes can be helpful. There are most likely other key processes depending on your industry. It is best to document and look for ways to do routine tasks in an automated way. A few years ago, I was going through this process with the COO, and he asked me why we were doing a specific step in our billing process. We figured out that we were doing an unnecessary effort. On the other hand, as a company grows, there might be new controls to protect the employee and the company from fraud.
5. A Good Dashboard
I can’t say enough about the importance of a one-sheet dashboard with the key performance indicators important for the company. A dashboard with trends can show issues quickly. Sometimes, all the detailed financial reports and models can be so complicated that an owner struggles to truly understand what is happening. A dashboard will make this easy. It will provide a high-level view, which will highlight problems quickly.
Invest in a good fractional CFO who can help you with your billing/invoicing process, expense savings, cash management, process enhancement, and dashboard development. Most likely, the additional profits will outweigh the costs of the fractional CFO.