An outsourced accounting team should do more than record transactions and send financial statements. Each month, the team should close the books, verify the numbers, explain performance, and give management information it can use to run the business.
The scope will vary by company, but these responsibilities provide a good standard for evaluating the relationship.
1. Keep the Records Current and Close on Schedule.
The accounting team should record customer payments, vendor expenses, payroll activity, debt payments, fixed asset purchases, and other transactions throughout the month. Missing documentation and unusual entries should be addressed before they delay reporting.
At month-end, the team should complete closing entries and reconcile bank accounts, credit cards, receivables, payables, loans, payroll liabilities, inventory, and other balance sheet accounts. Proper account reconciliation helps identify duplicate entries, missing transactions, unsupported balances, and activity recorded in the wrong period.
The company should have a documented close calendar with assigned responsibilities and reporting deadlines. If the close date changes every month, management cannot reliably plan around the reports.
In our work with growing businesses, we use five business days after month-end as a practical benchmark for closing the period and generating monthly financial statements. Missing vendor invoices should be evaluated for reasonable accruals rather than automatically delaying the entire close.
2. Prepare Reports for Management, Not Only the Bookkeeper.
A standard reporting package typically includes an income statement, balance sheet, cash flow statement, receivables aging, payables aging, and budget-to-actual comparison. However, the reports should reflect how the company operates.
A manufacturer may need inventory, work in process, product cost, and margin reports. A construction company may need job cost reports, WIP schedules, backlog reporting, and percentage-of-completion calculations. Companies with multiple locations or business units may need separate reporting for each operation.
Strategic CFO’s guide to month-end reports provides additional examples of what management reporting may include. Companies that need more frequent visibility may also use a weekly flash report. This one-page dashboard focuses on a small group of operational and financial measures so management can respond before the monthly statements are complete.
3. Explain What Changed.
Financial statements should not arrive without context. Before presenting the reports, the accounting team should investigate material changes and be prepared to explain them.
Management may need to know:
- Why gross margin increased or decreased
- Which expenses exceeded the budget
- Why receivables or inventory grew faster than sales
- Which products, projects, or locations missed expectations
- How current results compare with prior periods
- Which accounting estimates or adjustments affected the month
The team does not need to explain every small variance. Its job is to identify the changes that could affect decisions and bring them to management’s attention.
4. Review Cash Flow and Upcoming Obligations.
Profit and cash are not the same. A company can report positive earnings while cash is tied up in receivables, inventory, project costs, or debt payments.
The monthly process should include a review of cash balances, collections, vendor obligations, payroll, debt service, and other near-term requirements. Companies with tighter liquidity or complicated cash cycles may also need a 13-week cash flow report that is updated more frequently.
The goal is to identify cash pressure early enough for management to improve collections, adjust spending, speak with a lender, or revise operating plans.
5. Meet with Management and Document Next Steps.
The accounting cycle should end with a financial review meeting. The team should present the reports, answer questions, and document any decisions or follow-up work.
Next steps might include correcting an inventory process, reviewing project margins, collecting an overdue account, changing an approval procedure, or updating a forecast. Each item should have an owner and a due date. Otherwise, the same concern may appear again in the following month’s reports.
Recurring problems may also indicate that the company needs better accounting workflows, clearer responsibilities, or changes to its accounting system.
Get More from Your Monthly Accounting Process
Strategic CFO provides outsourced accounting solutions that include monthly reporting, controller oversight, budgeting, forecasting, and financial analysis without the overhead of a full internal department. We also help companies through accounting and finance consulting, interim CFO and controller support, restructuring, and mergers and acquisitions.
Contact Strategic CFO to discuss the support your company needs.
