Are Your AP, AR and Payroll Resources on a Collision Course?
Having the Individuals who Perform Accounts Payable, Account Receivable and Payroll Functions also Perform Financial Reporting is a Bad Idea. Here’s Why.
As a small business grows, the individuals in the accounting department become a jack-of-all-trades for accounting activities. They will handle all aspects of accounting including:
Looking at the past – Preparing financial statements
Handling the present:
Processing vendor payments and checks – Accounts Payable
Preparing customer invoices and receiving payments – Accounts Receivable
Compensating employees – Payroll
Forecasting the future – Preparing budgets
Of the tasks noted above, any business owner will say that the most important process is billing and collecting. Without cash coming into the business, nothing else can happen. Compensating your employees becomes the second most important activity. Without your employees, nothing else can happen.
However, the intense focus on these activities makes financial reporting and budget preparation an afterthought.
When you don’t have good financial statements or good budgets, you will find it difficult to obtain a bank loan, to get investors, to sell your business, and, most importantly, to understand the financial details of your business so you can make necessary improvements.
At some point in time in your growth, consider hiring an accounting manager or controller who can focus on the financial statement preparation and budgeting. Don’t assign them responsibility for any AP, AR or payroll function.