“Follow the Money” - 5 Must Have Accounting Policies

Detectives follow the money to catch the culprit. Smart business owners do the same to stay in control.  Owners and decision makers require a set of strong policies so they can “Follow the Money”.  When it’s only four checks a month and maybe a couple invoices, you can handle it yourself, but what happens when you grow?  Policies are set up so you can delegate and guide staff while your organization grows.

 Let’s say you’re an entrepreneur with a great idea you want to organize a company around.  It is likely that the expertise you bring to the endeavor is in your idea (your service or product) and not in the ways to set up the back office to be scalable.  It doesn’t matter if you’re building the best widget, providing services as a ‘non-profit’ for your community or consulting with fortune 500 companies, there are certain “Must Have” Policies that need to be initiated and implemented to keep you and your team aware of your progress in order to make informed decisions..   

Generating $$

Whether you call them customers, clients or recipients, the people who are benefiting from your products and services need to be identified and tracked.  If you are a non-profit receiving outside funding, the funders will want statistics on your endeavors to justify new funding decisions.  If your company is  considered “For Profit” then you need to know who to invoice, how much and how often.  Tracking this data is usually called Accounts Receivable and can be as easy as a spreadsheet or as detailed as the software you employ will allow.  In any case, you need to have policies around who to provide the information to: customers and clients will need regularly prepared invoices and statements.  Grantors and Funders will require regular reporting on progress.  Determining the frequency of these events and who in your organization will be responsible for facilitating this activity is your first Must Have Policy.

Keeping the $$ safe

in other words, Banking.  Where you bank and what services you need will be one decision.  The next step is the policy around who has access to the accounts and in what capacity.  Some personnel will need to be able to sign checks and make transfers / wires.  Other staff will only need to view data in order to generate the required reporting.  Decisions around who can access the bank for your organization, rights and roles in the banking software, what frequency the account is to be monitored and what information is required to be shared about the activity in the account are all details to be included in this Must Have Policy. 

Spending the $$

Paying for supplies and other services you use in your organization.  The policy in this instance needs to address all the details around making payments.  Will you cut checks internally? Use software to send payments through ACH? That is the “how the payments are made”.  The other considerations are what payments should be made and at what frequency.  This entire process is usually called Accounts Payable and is a place where the reputation of your company can be enhanced or adversely affected. Whatever your decisions on the frequency of payments, you need to communicate your intentions to your various vendors so there are no misunderstandings.  Many companies maintain a weekly Accounts Payable schedule.  Other companies need more time to validate invoices for accuracy and will schedule payments on specific dates during the month.  So let’s discuss the approval process as the largest part of this Must Have Policy.  Decide who in your organization will know if supplies have been received, how are they to be communicated with so the approval can be gathered and documented? Some invoices will be so routine that a separate approval process will be beneficial.  Determining which vendors fall in each of the approval processes and if there are multiple staff to gather approvals from will constitute the bulk of the details that need to be determined and captured in this policy.  

Payroll

this is a specialized subset of “Spending the $$” and requires consideration separately.  The details around who are employees and the requirements for compensation will need to be gathered from Federal, State and sometimes local Municipalities.  Once you have the general framework of what must be done you will need to make the determination of how you are going to capture the details of individual employees' work effort.  Timesheet software is available, there are payroll services that have embedded reporting components.  What additional details you need to capture will drive many of the decisions in this section.  Do you need to know what client the employee was working on in order to facilitate billing that client accurately?  Do you have staff that only need to be recording their working hours without additional details?  Each organization will have differing needs for this reporting and it needs to be stated in this Must Have Policy.  As a best practice, this policy should be shared with your staff so there are no misunderstandings about what information is being monitored and what requirements you have of each employee.  Many times a full “Employee Handbook” is generated that details the requirements from your State and other governing bodies.  

Reporting on the $$

Financial Statement* generation.  There are specific pieces of information that must be represented in any reporting that is considered Financial Statements, however there are also details that are purely for internal management use and can be either incorporated into the monthly reporting or generated at other intervals to ensure informed decisions are made timely.   What types of information are critical to your managers?  What frequency do they need that information?  Is some information needed daily (perhaps a “dashboard”), other information is better viewed on a weekly basis for comparison to other time periods for tracking purposes.  Financial Statements are usually prepared on a monthly basis as there are outside sources of information that will only be available at that frequency.   Your decisions on what needs to be tracked and how it needs to be demonstrated in the various reporting are all elements in this final Must Have Policy.  

*Financial Statements usually include a Balance Sheet and Income Statement prepared on a monthly basis.  These statements require reconciliations of bank statements and expense details that are captured throughout the work outlined in the other Must Have Policies.  Financial Statements show the health of your company and will be required by any bank in their lending process.  Likewise, future investors will want to see multiple financial statements as part of their due diligence in considering investment and lastly, financial statements are the first documents your tax accountant will require to complete your annual tax filings.

These policies should be reviewed at regular intervals to ensure you make the best decisions on each policy for the current stage of your growth and that you have delegated the correct authorities to each team member.  Payroll requirements change often with new rules handed down by government agencies.  This is an especially critical policy to keep up to date.  Scheduled review of each of the policies will ensure your policies continue to meet the needs of your customers, vendors, employees and management / owners.

 If you’re in a position to take this information and make these decisions with confidence – that is fantastic!  If there are items that you would like more clarity on how they would apply to your specific situation, GCM Enterprises can help, contact us for a quick consult.