A common reason for the failure of a new business is poor bookkeeping. It’s an area that small businesses often neglect and yet, it is one of the most important. Good bookkeeping gives you accurate information about the financial position of your company.
A financial officer, whether bookkeeper or accountant, ensures that business transactions are properly recorded and that supporting documents are present and correct. They carry out routine calculations, reconciliations and bank transactions, and they record daily business transactions in the accounting cycle. In short, your bookkeeper is the person responsible for keeping accurate, timeous financial information, perceived by many to be the lifeblood of any organisation.
The Role of the Financial Officer
A junior bookkeeper‘s tasks include completion of the monthly bookkeeping function to trial balance; debt collections; supplier statement reconciliation; inventory systems and bank statement reconciliation; payroll calculations; and tax calculations.
A more senior bookkeeper will complete the monthly and annual bookkeeping function; has the skills to do depreciable asset disposal; year-end adjustments; preparation and analysis of financial statements for sole proprietorships, partnerships, close corporations and companies; has a thorough understanding of cash flow statements; and can complete management accounts and has a working knowledge of cost accounting, including knowledge of breakeven analysis, cost-volume-profit analysis, advanced costing, budgeting and standard costing, financial management and business ethics. An accountant’s role is to monitor the bookkeeping system and interpret the results. It’s a less mechanical and more subjective role. On a monthly basis usually, the accountant presents the financial statements to business management in such a way that decisions can be made.
Financial reporting should at a minimum include a trial balance – a list of all the accounts for a period that tests whether the credits and debits agree. This comprises a profit and loss statement (compiled at the end of an accounting period to show gross and net profit or loss), a balance sheet (a condensed financial statement showing the nature and amount of a company’s assets, liabilities and capital on a given date) and a cash flow statement (a summary of a company’s cash receipts and cash disbursements over a period of time).
The financial officer is responsible for producing these reports on time and ensuring they are accurate. Any errors can cost your business significantly, causing it to make business decisions based on incorrect information.
Imagine the impact of employing more people than you should based on incorrect financial information, a cash flow that suddenly dries up and makes it impossible for you to pay creditors, or an inability to pay taxes.
In addition to putting the brakes on your business, it will also give your suppliers and customers a very negative image of your company.
Education and Qualifications
The person you choose to manage the day-to-day finances of your business must at least be registered with the Institute of Certified Bookkeepers (ICB) and have a qualification in bookkeeping, such as a national certificate or diploma. The size and complexity of your business will determine the level of education and the qualifications of a suitable financial officer. In a mid-size company, for example, it’s advisable to employ an accountant who has a Bachelor of Commerce degree.
There is no substitute for experience. Avoid hiring a finance person with only a couple of courses under their belt and no actual bookkeeping experience. The value of having a financial officer who can interpret figures, suggest corrective action based on those figures, and make recommendations to management for future planning, cannot be overstated.
Candidates should be able to provide you with a list of satisfied clients or previous employers.
Your financial officer should be familiar with the software and systems on which you run your business. Previous training on an accounting package is imperative, as most financial people will easily be able to navigate different software solutions once they have the basic skills in place.
One of the most important considerations is character and personality. You’ll want to hire someone who is meticulous and able to pay great attention to detail; the person must be articulate and able to discuss finances with management; trustworthiness goes without saying, so be sure to perform credit checks.