Your role as CEO, president or founder is critical to your small and growing company—you need to focus on product, customers and strategy. One of the last things you want to do is babysit your bookkeeper. Yet I can share dozens of horror stories born of a lack of accounting oversight in the early stages of startup growth.
What should you track? Here are seven key items to request from your bookkeeper and how to review them. Asking for these items is good accounting hygiene: it informs your bookkeeper that you are inspecting their work and allows you to quickly identify and minimize potential problems. And it shouldn’t take you more than an hour a month.
1. Bank & Credit Card Statements
As Founder or CEO, you must retain a copy of all bank statements for your records. When you receive those, electronically or by mail, scan through them. What I look for, line by line, are any unusual or odd transactions, like a vendor you don’t recognize. You may not know everything that’s going on, but you can see how much cash you started and ended the month with, and where the money went. After a few months, you will have a sense of what’s reasonable.
Do the same for corporate credit card statements. Check the beginning and ending balances, payments and charges. Scan down and highlight the ones that seem unusual and get answers from your bookkeeper.
2. Bank Reconciliation Report
This report is a strong control for the business. Your bookkeeper must reconcile the books to the bank every month, so seeing it proves that the bookkeeping is being done on time. Here, you will find all the differences between cash in the bank and cash in the books. It’s common for them to not match, and important for you to understand why.
Review any unreconciled items that hit the bank but aren’t yet in your accounting system, or vice versa. You’re looking for old items or strange ones. Then ask: why is that there and what’s the story? If it’s material, clear it up ASAP so your view of available cash remains up-to-date.
3. Payroll Report
Once you accumulate five or six employees, you’ll want to track payroll. You can sort through this report in two to five minutes, even in a 50-employee company. Request a monthly report from your payroll provider (or internal department) and have your bookkeeper provide it to you. Save each payroll report monthly yourself so you have it.
This information is a great reality check, just to see your cost of payroll and ponder what everyone is accomplishing. From there you can keep an eye on your headcount and pay amounts, and watch trends. Here is where overtime is visible. And you can ensure there are no unauthorized payroll changes. (I’ve seen unapproved bonuses or reimbursements, changes in pay rates and all sorts of shenanigans when payroll is not supervised.)
4. Key Balance Sheet Account Reconciliations
Certain accounts will be quite busy, depending on your business—and your challenge is to know exactly what is going on in there. Most commonly watched are prepaid expenses or accrued expenses. Also pick out key balance sheet accounts critical for your business or that carry a material dollar amount. If your inventory is large, for example, build a schedule to watch that. Fixed assets can be another hot spot if you are buying monthly and need to track them.
For each key account, have your bookkeeper create a roll-forward from the prior month to the current month, to the next month, and show both new and cleared items. This practice contributes to good financial control.
5. Spend by Vendor
In a standard P&L, you see your operating expenses and where they originate: marketing, rent, utilities. Spend by vendor teases apart expenses by destination. I find it’s a good management review to see dollars out the door and to whom. And to identify any unusual transactions (“why are we buying this?”) You can see issues that may not be obvious in the P&L. It’s a good thing to eyeball this list on a monthly basis. If you review monthly, you can keep erroneous spending at bay.
6. General Ledger Journal Entries
This report gets a bit technical. It’s an easy report for a bookkeeper to run, and shows all the special entries made in the system by hand. These are unusual (sometimes recurring) transactions that require a special entry. If recurring items are missing, or if you see something you don’t understand, ask why they used a general ledger journal entry to record it.
Often, these entries are used to correct problems. When the financials are off or they forgot something in a prior period, you can see what the bookkeeper is “fixing.” This report is a good control and review of the guts of your financials.
7. Financials: P&Ls and Balance Sheets
This set of financial reports helps you spot trends and overview your entire business, and should include:
- A P&L statement showing all your expense and revenue accounts, versus the prior month.
- A P&L versus budget for the month, with the variance, so you can find out why you were off budget.
- A P&L showing every month this year, for trends analysis. If it’s August, this report will have eight columns. You could also look at monthly P&L for the current year-to-date, or have the current and prior years in total as well.
- A balance sheet by month. You can compare, for example, accounts receivable (collections) and sales: are they growing in lockstep? Declining or accelerating?
- Other reports you may want include: sales by customer, channel or class; margin by product or channel; or P&L by class.
This 7-part monthly set of reports is a perfect DIY starting block for the small and growing company. If you get this info teed up and know what you’re looking for, this is maybe an hour’s exercise for your review and peace of mind. This process establishes two good accounting practices as well, making sure bookkeeping is done on time, and keeping finances under control.
Even for a busy CEO or founder, this is a solid use of your time.