Finanical Reporting
Finanical Reporting

The importance of accurate financial reporting

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In order to run a business, owners need to have reports available to them to make informed operating decisions. Most of my clients – and undoubtedly your clients, too – are busy running their businesses, so they neither have the time nor the skills to pull specific information or generate regular reports. And, while there are many programs that have the tools and capabilities to satisfy this need, including QuickBooks® Online, they have to be set up correctly.

One of my newer clients, a construction and maintenance service provider with 26 hourly laborers and five salaried employees, recently experienced their first large net loss year. They have been in business for 10 years; it started with the owner mowing lawns as a college student. That mowing company turned into a statewide recognized company, so while the opportunity to grow was strong, there was no reporting structure to dig into the details and provide a path to growth.

When the owner came to me, he knew several things: the revenue they were making by type of service, the total cost of goods sold, and the amount of overhead expenses. However, he did not know the profitability of each job or how many hours were spent by the laborers on each job. With this lack of reporting, I could only theorize why this seemingly established company was suddenly in the red for the first time. We had to quickly get to work.

A four-step process to create reports

I’m sure this process is different for every firm, and you have to create a system that’s workable for everyone. This is how I do it.

Step 1: Ask the owner some questions. During discovery, I offer my advice on what I believe they need to make informed decisions. I want to know how they envision the reports, and what numbers and statistics they think they need. This is our brainstorming session where I write down what we need to generate better reports.

Step 2: Garbage in, garbage out. I look at their current programs, along with a high-level view of the decision makers and their roles in the company. From this analysis, I learn how information is being put into the programs and systems. The rule of thumb is garbage in, garbage out. If I am working with inaccurate data, I can never produce accurate reports. In this situation and most of the ones like it, very capable people were entering accurate data, but they weren’t properly earmarking the data to create more informative reports, whether attributed to a lack of understanding or program constraints.

Step 3: Review the software. Next, I look at the program they are using, and suggest slightly new procedures/research, or recommend something new. The company was using QuickBooks Online, but with more than 150 active projects, they needed something that would integrate with QuickBooks that offered real-time job costing and invoicing for contractors. We decided to go with Knowify.

Step 4: Implementation. We met with all the decision makers and everyone who would be active in the implementation. I talked about the tools we would use with Knowify, how it will feed into QuickBooks Online, and how the integration will allow us to create the reports we need. On my side, I feed QuickBooks Online into Fathom to help me analyze and interpret the data, as well as create useful dashboards.

During implementation, each person had their duties they still operate in, but we slowly transitioned what they were doing from the old way into the new way. With any client, if we rush the process, there would be too many issues to fix in a timely manner. Rushing can also negatively impact the group’s cohesiveness and excited spirit, and in the worst case, impact how their customers are viewing their invoices and services provided.

The ink is now black

The company went from being massively in the red to hitting a net income of 863 percent over our initial target! How did this happen?

  • We shifted to a new operating program (Knowify) through QuickBooks Online.
  • We set up customized KPIs and measurements in Fathom.
  • We rendered a monthly financial analysis.
  • With improved reporting, the operations side of the business tweaked their sales process.

We were also able to automate every legal contract that was signed, customized the scope of work of the project, improved the payment schedule, and enabled instant e-sign. In fact, everything is now paperless for new client project setup, saving the company massive amounts of time. While there is still progress that can be made, the company is on the right track.

Takeaways for your firm

Again, every firm’s process will be somewhat different, but we can learn best practices from each other. Here are the three most important things to remember during these types of projects:

  1. You must understand what the owner/manager needs to know to run their business. Providing only what you think will not be sufficient.
  2. There are many software programs that are customizable, but they are only as good as their users. As trusted business advisors, we need to put the time in to understand operational programs.
  3. When you come on board to a new team that needs help, there will be an overwhelming excitement from the company, but it’s important to take it slow. Major changes can quickly impact employees in many ways.

What are some of the financial reporting solutions you typically recommend? Include a comment below to share your ideas with our colleagues.

Joe Paddock, CPA, MBA

Joe Paddock, CPA, is owner of Paddock Accounting, a 100 percent-remote firm in Dallas, Texas. After passing all four CPA exams and working full time in New York, he relocated to College Station, Texas, and worked as head of the business solutions department at a CPA firm that is in the top 10 percent of U.S. firms. Coming from a family of eight with four brothers and three sisters, he and his brothers hold the national record for the most wins in the country for wrestling. Joe and his wife, Louana, live in Dallas with their dog, Maddie. More from Joe Paddock, CPA, MBA

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