Successful businesses recognize that accounting is more than crunching numbers and generating financial statements. Sophisticated accounting management enables small and midsize businesses (SMBs) to elevate their profile, revenue, and operations, driving the business forward and accelerating growth.
But what does sophisticated accounting management involve and how can it take your business to the next level? Here’s a look at what sophisticated accounting management means and 10 ways you can use it to elevate your business.
What We Mean by Sophisticated Accounting Management
When most SMBs think of accounting, they think of core accounting functions such as accounts payable and receivable, payroll, and financial reporting. While taking care of these tasks accurately and in a timely way is critical, it’s just the start. Through a more holistic and sophisticated approach to accounting management, growth companies can position themselves for greater success.
Ensuring you have the financial health to achieve your goals demands a strong foundation, and that starts with developing an organized, accurate, and complete track record of where you’ve been financially so you can better prepare for the future. Such a foundation can help you spot and mitigate negative trends and identify and capitalize on new growth opportunities.
With the right growth accounting foundations in place, you can develop data-driven insights that allow you to improve profitability, make better decisions, and drive your business forward. That’s what sophisticated accounting management is all about.
10 Ways Sophisticated Accounting Can Elevate Your Business
- Complex Revenue Recognition Procedures. How you recognize revenue is critical yet challenging, especially since all revenue isn’t created equal. There are complex regulatory requirements to comply with, to ensure your financial statements aren’t misleading. For example, ASC 606, a framework within GAAP, was implemented to streamline contract-based transaction accounting. But in the process, it introduces revenue recognition complexities related to how you define meeting performance obligations and transferring goods and services, and it moves revenue recognition to an earlier stage of the sales pipeline (with potential accounting ramifications). An experienced growth accountant can review your customer contracts, recommend revenue recognition improvements, and record your revenue and associated deferred liabilities accurately and compliantly.
- Complex Expense Recognition Principles. Like revenue recognition, expense recognition is an essential consideration for preparing accurate financial statements and ensuring you’re investing in expenses that generate a strong return. By ensuring your business adheres to sound expense recognition principles in keeping with US GAAP, professionals experienced in sophisticated accounting management can help you make more strategic decisions about what to invest in and eliminate expenditures that aren’t contributing to the bottom line.
- Creation of Capitalization Policies. Do you have documented policies for how and when to capitalize expenditures like equipment? Without such a policy, companies often lack consistency in how and when they record expenditures as assets on their books. A well-developed capitalization policy ensures the assets you use to generate income are valued and reported accurately on your financial statements. Fractional CFOs and Controllers know how to create appropriate capitalization policies that clearly distinguish between operating expenses and capital expenses.
- Balance Sheet Allocation. As your business grows, so does your balance sheet. Over time it’s more complex to accurately allocate assets and liabilities across different types of activities or based on whether they’re short term (assets convertible or liabilities due within the next 12 months) vs long term (assets convertible or liabilities that fall due beyond the next 12 months). Professionals who are experienced in SMB accounting management can tackle those complexities and ensure you’re allocating assets and liabilities appropriately.
- Multi-Entity Accounting. Many companies are multiple-entity businesses that operate separate divisions, subsidiaries, branches, or other entity types, often based in various countries and/or running on different accounting systems. Tracking and reporting on financials across multiple entities and systems is complicated, and when international locations are involved the effects of foreign exchange add another layer of complexity (as explained below). Accounting professionals who understand the ins and outs of multi-entity accounting and intercompany transactions can streamline the process and ensure you’re working with the most accurate financials.
- Consolidated Reporting. When companies grow through acquisition, as many tech companies do, there’s a good chance that newly added entities remain on disparate systems since converting to a single platform is time-intensive and expensive. Even companies that use a single accounting system can find it difficult to get a consolidated view of financials across the business. Fractional CFOs and Controllers who specialize in SMB accounting have experience consolidating financials across various entities and systems into a single financial package that includes the balance sheet, income statement, and cash flow statement, providing the full visibility you need to run the business and make informed decisions.
- Foreign Exchange. For businesses that work across borders—whether it’s selling to customers or buying from suppliers—foreign exchange (converting one country’s currency to another) can have a significant impact on your financial statements. Professionals who are skilled in sophisticated accounting management can ensure you recognize foreign exchange gains and losses properly and deliver the most accurate financial statements. They also can consolidate your financials from the individual company’s functional currency to the parent company’s currency.
- Equity Incentive Plans. If you’re like many growth companies, especially in the technology industry, you use equity incentives to attract and retain the talent you need to achieve your objectives. But when you add stock options or restricted stock units to your compensation packages, you add accounting complexity. Equity incentive plans are complicated to develop, difficult to understand, and challenging to account for correctly, which can prove troublesome if you’re audited. A Fractional CFO or Controller who is well-versed in equity compensation plans can ensure you’re properly accounting for and reporting on stock options and restricted stock units in your financial statements.
- Third-Party Accounting Systems. Are you making the most of your accounting system’s functionality? Many growth businesses start out using a basic accounting package, then over time they find they need a more robust system to support a more complex organization and data-driven decision-making. Fractional CFOs draw on their experience across various accounting platforms to assess your needs and make objective recommendations on which software solutions will best meet them. (If your accounting professional attempts to dictate that you use a particular system, that’s a clear indication it might be time for a new accounting partner!)
- Retailer Performance Management. If you sell your products through retailers, as many consumer packaged goods (CPG) businesses do, you know that merchant chargebacks can be a nightmare. At a minimum, they tie up your resources to pursue and manage. In the worst case, disputed chargebacks directly hurt your bottom line through high fees and lost shipping costs. Left unchecked, they can begin to represent a larger percentage of your revenue earned. Through proactive accounting management, an experienced partner can help you dispute customer chargebacks, reduce the volume of legitimate chargebacks and associated fees, and keep more cash in the business where it can fund important initiatives, accelerate your growth, and ensure your financial business success.
When you team up with a Simple Startup controller or fractional CFO, you gain a partner who cares about your business just as much as you do. Our team goes well beyond reporting the numbers—working with leaders across the company to ensure you have the right foundation in place to understand what your financials mean and develop strategic insights that enable you to accelerate your growth and achieve your goals.
Contact Simple Startup to learn how our sophisticated accounting management services can help drive your business forward.