Consistency Is Key To Small Business Growth
Growing small businesses often fail to use the elements of basic accounting to identify current, future opportunities and problems.
According to Will Stewart, Corporate Controller, MidCap Credit & Capital, the general ledger – it is essentially the master accounting document presenting a complete record of a company’s financial transactions.
Adds Stewart, paying attention to this vital process can help companies grow.
Consistency is Key
One of the biggest challenges for any small business is always going to be the question of maintaining consistency across the accounting process. The lack of consistency across processes, general ledger accounts, and accounting practices generally stems from having different people maintain different sets of ledgers. Frequently, the individual posting to a general ledger is primarily focused on completing their task and will have a tunnel vision that only takes into consideration their singular ledger.
The potential result is the ways in which different individuals maintain their ledgers may vary from one to the other, introducing inconsistency into accounting and reporting practices. It especially rings true for small businesses that have multiple locations where they don’t necessarily have the same people performing the same tasks across the multiple ledgers they possess – with an even greater risk when they are working in different instances of the accounting software. Additionally, when a diversity of practices evolves around recording intercompany transactions, significant consolidation challenges are created because it is more difficult to identify the intercompany transactions that need to be eliminated.
These challenges become too complex for entry-level financial systems, which are not built to scale, to take on and typically require significant manual effort to overcome. Senior financial professionals then spend a significant amount of time making corrections to the general ledger in order to ensure the results of the business are consistently reported. This takes away their time and mental energy that they could have invested in more strategic initiatives for their organization.
Having inconsistent practices can also have detrimental effects on business outcomes. For example, if a small business owner is seeking new financing sources, the potential financier performing financial statement due diligence procedures potentially may identify those inconsistencies. This can create a negative perception of the company’s accounting practices and may call into question the reliability of its financial results. The greater perceived risk may result in a greater cost of capital to the company or may result in the company not receiving financing at all.
Solution
If a small business has determined that a pain point has developed from either the time spent correcting financial results due to inconsistent accounting practices and/or making adjustments to ensure financial results from multiple operations are reported consistently, this is a key indicator that a change needs to happen. When MidCap Credit & Capital reached this point in our maturation, we implemented a robust cloud-based financial solution that eliminated the shortcomings of the previous system. The results of the implementation enabled our leaders to be empowered to restructure the business, to unlock valuable insights into how they could consolidate our accounting practices, and to implement necessary
automation processes. The initial benefits of doing so include material contributions to obtaining new financing, which offered a lower cost of capital, and a significant reduction of operating expenses at the management company.
Implementing cloud-based financial technologies ensures that everyone, regardless of where they are physically located, is working within the same system and helps administer improved consistency over accounting processes. Additionally, the strategic assessment required to implement an integrated system, can offer significant business insights to financial leadership stemming from the assessment of their organization’s actual needs and forecasting where it is headed. Ultimately, small businesses should be able to focus on growing their business while allowing technology to help streamline their accounting processes, generating more efficient outcomes and setting them up to scale the business without adding more complexity to their internal workflows.
