The accounting department in any company plays a crucial role in managing money. For a business to be able to perform at its best, it is important that all departments have clear goals and objectives. The goals and objectives may be different for every company.
An accounting process is a system that combines computerized and manual accounting procedures and processes. This allows for the collection, classification, summation, interpretation, and storage of accurate and reliable financial information to aid in decision-making by managers. Accounting systems serve two main purposes: to detect and prevent fraud and waste, and to create financial statements for managers, creditors, lenders, and other parties.
Accounting: What it is
Being an accountant will mean that you will assist your employer with the management of the company’s finances. No matter which type of accounting it is, you will need to have an excellent understanding of your employer’s financial operations. You’ll need to keep track balances, profit and Loss statements, and general ledger transactions to attain this knowledge. Your analytical skills allow you to determine where accounting discrepancies began.
Your employer may also request you to make recommendations for financial actions. Expect to defend your recommendations before your employer.
Your Accounting Department’s True Purpose
Your accounting department has two major purposes.
Improve financial results and attract capital
Everything we do within the accounting department fits into these two goals, even though most people don’t think so.
Improving Financial Result
Your management team is out on the streets every day, executing strategies to grow the company and improve profitability and cash flow. The accounting department is able to see themselves as a member of the same team. They look for ways they can help and support the group. A team member can be helped by financial information that is accurate, concise, and understandable.
Although the accounting department may be on the front line with customers closing deals, it is not there 24/7. Their role involves more supporting the company goals, and instilling good decision making. A well-functioning accounting department can make a big difference in the quality and speed with which financial decisions are made and the results achieved.
Financial information provides a link between the goals and the actual results. This allows managers to see what happened and how they can improve their performance. It allows field employees to quickly and easily understand what they should do (or change) to achieve the results they have set out to attain.
If your accounting department was slow to pay vendors or sent out incorrect customer invoices, neglected accounts receivables, often reconciled cash accounts and had no controls regarding expenditures or safeguards around company assets, it would quickly become an enemy to all people within (and outside) your company.
They would make it impossible to improve your cash flow and profitability. They would bring down your results. They would ignore the implicit promises vendors made, driving down cash flow and seriously reducing profitability.
Every department in your company should strive for operational excellence, including the accounting department. Good transaction processing skills are important because they support the wider goals of the organisation. Sloppiness or inefficiency in any aspect of the business will lead to problems and distract others from the more important tasks.
It is the way that the accounting department (and CFO that oversees it) adds value to an organisation’s success.
The accounting department plays two roles in capital raising. First, as the company becomes more efficient at improving its results every month (every quarter) and every year it attracts capital, it becomes easier. Lenders love to find financially sound companies to invest in and lend to. They are excited to see the company’s financial performance improve. When the company improves its financial performance, it becomes easier for capital to be attracted.
Investors as well as lenders quickly discover that the leadership team can make money. They see the company performing well and they are happy to invest in it. This is the recipe for continuing access to capital.
Second, capital attraction requires you to inspire confidence, credibility and trust among investors and lenders that will provide the capital needed for your growth. From a CFO perspective I prefer to think of this objective as referring to the institutions and people who are able help us financially as “customers”. That would include existing lenders, shareholders/owners or the Board of Directors as well our leadership team. This could even include different regulatory bodies–essentially, everyone with a vested stake in our financial success.
Investors and lenders are more likely to value accurate and detailed financial information than most people. It is important to remember that many of them are highly financially motivated. They have a professional approach for accounting and financial reporting which helps them monitor key drivers that drive the company’s success. They are able distinguish between a loose and serious approach to financial management. They know what a highly functioning accounting department looks.
To earn the trust and respect of investors and lenders your accounting function must be at the top its game every day. People invest in companies because they want to be sure that their money’s being managed by smart people who keep track of everything. Unprofessional accounting practices can cause you to lose credibility and degrade your ability attract capital.
A company that produces inaccurate and slow financial statements and tax returns, isn’t able to provide cash security and has poor control of its finances will not be approved by any lender or investor.