Accounting Best Practices: Effective Accounting Makes for Better Business Outcomes

Are you in the best position to succeed?

When people ask me what I do for a living, I often have a hard time explaining. They grasp that I’m an accountant, but they have no idea what that truly means. They understand that it’s a necessary function, but the perception is mostly that I’m either a professional who 1) files tax returns for high-net worth people or complicated corporations to keep them compliant or 2) who works with the IRS to get audited clients less severe penalties. 

They’re not entirely wrong, but accounting entails so much more.

Number Crunchers

The American Institute of Certified Public Accountants (AICPA) defines accountancy as “the art of recording, classifying, and summarizing, in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”

Put simply, accounting is the ability to process information to understand an individual’s or business’s finances. And while most individuals can do their own taxes and many companies can get by with just a bookkeeper, the intricacies of being immersed on a day-to-day basis and staying abreast of laws and regulations give CPAs an advantage in delivering more effective outcomes.

Accountants serve as trusted advisors providing sound counsel to clients on how to better achieve their financial goals. One of the primary ways in which we do that is to take information, decipher it, and provide clients with the best options to make sound decisions that lead to better results.

Ineffective Accounting

For corporate clients in particular, CPAs strive to achieve effective accounting by working with them to ensure accountable systems are in place, processes adhered to, and operations function smoothly.

Yet, many businesses suffer from what I call “ineffective accounting.” This doesn’t mean that the business is failing, poorly operated, or headed to bankruptcy. Rather, “ineffective accounting” generally occurs from the staff’s lack of training and/or the utilization of antiquated systems, underutilization of modern technology, or the inability to function efficiently with systems in place.

Without skilled talent or by employing staff who perform duties outside of the scope of their capabilities, organizations can experience disruption that will most likely negatively affect financial operations. Ineffective accounting is also the result of financial reports that aren’t available until weeks or months after the end of a period or due to transactions that haven’t been properly recorded. Additionally, the lack of updated internal accounting software, coupled with the inability to understand how to derive the best information with it, will prohibit companies from obtaining timely and accurate data with which to plan strategically. 

These situations create inaccurate data which is frequently added to already collected information resulting in the proverbial “data dump.” This generated output is inaccurate, has no context or relevance, and is useless in aiding decision planning or making. And these collective limitations create ineffective and unproductive accounting practices that deter organizations from reaching their goals.

This is where MAXIS^® by Freed Maxick comes in.

Accounting Best Practices: Systems in Sync

Data works when it is accumulated methodically, interpreted with the intent to be acted upon, and then set in motion to identify red flags, validate strategy, and, ultimately reach the organization’s financial and operational goal.

Think about how you use information to make daily decisions. When making a purchase, like an appliance, for example, there are a potentially hundreds of models available with a variety of embellishments at multiple price points. All begin with simple design and are then equipped with basic functions. Move to more expensive models, and even fancier options are available.

How do you navigate your way through the clutter to find the one that best meets your needs?

First, you might ask family, friends, and colleagues for a recommendation. Next, you would likely check ratings online or research what reputable test labs had to say, and narrow the list down. Then, you’d probably select the store closest to you that carries the brand, with the specific model and features that you desire. You might even check online to see what deals you can find. A conversation with a knowledgeable sales person might confirm your initial choice meets your needs, or direct you to another model that does. Finally, you will make the decision to purchase. 

The steps you followed provided you with data. You used the most relevant, on-point information to make the best decision that resulted in the purchase that met your needs.

Accounting Best Practices: Informed Business Decisions

Running a business is not dissimilar. Extracting timely data into a detailed report provides management with a precise snapshot of where the organization stands at any given time. Sound data that is able to be reliably interpreted can present a clear picture of where the company is, where it needs to be, and even how to get there. Generating reports gives management insight and to make dependable decisions. This is what I call “effective accounting.”

In my accounting experience, from both private industry and a public firm, data enables us to view a company’s financial health in the same way a physician might look at a patient’s test results and provide an educated direction to a healthier outcome.

To make effective business decisions that yield the best possible outcome, management must work to extract information, analyze it, and make decisions from it or implement adjustments to ensure success.

With effective accounting in place, timely, accurate information is consistently recorded and available for timely decision making. Dependable reports are evaluated and analyzed. Precise internal statistics are benchmarked against industry data to discern specific trends and patterns. Informed decisions are made to either stay on track or used to alter the trajectory to achieve the best possible outcome.

Accounting Best Practices: Healthy Business Outcomes

Some businesses can still make money without an effective accounting operation, but there are almost no exceptions to the fact that effective accounting can lead to higher profitability. 

MAXIS^® by Freed Maxick was created to support an organization’s ability to guide efficient accounting. Learning how to extract timely and accurate data, understand its nuances, and make informed decisions provides better assurance to attaining measurable and sustainable results. Effective accounting can help organizations expedite steady, long-term success.

If you think you might have an ineffective accounting problem, you might want to check out “Top Ten Concerns That Business Leaders Have” as a next step or contact us here.