Mitigating accounting and finance risks: A crucial step for growing businesses

As small businesses evolve and experience growth, they face a myriad of challenges that can negatively impact their financial health and hinder their progress. Among these challenges are certain accounting and finance risks that stand out as critical areas and have the potential to limit business development opportunities.

Below are three of the most prominent accounting and finance risks that growing businesses face, as well as how working with a firm like Siegfried Advisory puts businesses in a position of strength when managing such risks.

Poor record-keeping and failure to reconcile accounts

Proper record-keeping and regular account reconciliations are of critical importance for businesses of any size. Unfortunately, growing businesses often overlook these tasks, leading to significant and potentially detrimental risks. The failure to maintain proper records and reconcile accounts could lead to inaccurate or incomplete internal financial statements, delayed or incorrect tax filings, difficulties in tracking cash flow, and discrepancies between financial records and bank statements, making it challenging to identify errors or fraudulent activity. These risks not only hinder decision-making and financial analysis, but they can also leave businesses vulnerable to compliance issues and financial mismanagement.

Implementing proper record-keeping processes, leveraging accounting software, and conducting regular account reconciliations are fundamental steps that growing businesses must take to ensure accurate financial reporting and maintain financial transparency.

Insufficient financial planning

Financial planning is the foundation upon which successful businesses are built. Without a comprehensive plan in place, businesses may encounter cash flow problems, inadequate capital allocation, and the inability to support expansion initiatives. Overall, this lack of planning can impede businesses’ ability to adapt to market changes and seize growth opportunities.

Many small and growing businesses neglect the following key financial planning and analysis (FP&A) areas:

• Financial modeling and sensitivity analysis.
• Medium- to long-term forecasts and cash flow projections.
• KPI development and tracking.

Business owners and managers who spend time planning for the future and understanding the key drivers of their businesses are well-positioned to identify troubling trends before they become cash problems. This allows them to proactively make the adjustments necessary to keep their organizations on track.

Inaccurate financial reporting

Accurate and transparent financial reporting is the lifeblood of any business that seeks to grow through external funding, such as bank loans or equity investors. On the other hand, inaccurate or incomplete financial reporting has the power to undermine investor confidence and hinder access to financing, which can prevent businesses from realizing their full potential.

Inaccurate financial reporting can stem from errors in recording transactions, the misclassification of expenses, or the failure to follow proper accounting standards. Additionally, many business owners are not aware that internal financial reports omit key GAAP considerations. This can be misleading to some external parties and might violate legal and regulatory requirements.

To mitigate the risk of inaccurate financial reporting, growing businesses must establish robust internal processes, properly train accounting staff, and engage the expertise of professionals. Calling upon experienced experts can help ensure accurate financial reporting that maintains compliance with applicable accounting standards and regulations.

The cost of inaction

It has been said that the cost of inaction is greater than the cost of making a mistake, and this can certainly be true when it comes to growing a finance and accounting function. It’s too common that businesses who have been able to grow their revenue and volume over the years do not devote the proper resources to their finance function. Such organizations then find themselves ‘catching up’ after years of inadequate attention, which is often far more costly than establishing healthy practices at an earlier stage.

In addition to the cost of such a catch-up, the following risks, which were discussed above in detail, are all associated with financial underinvestment:

• Poor record-keeping combined with the failure to reconcile accounts can lead to financial mismanagement, compliance issues, and difficulties in identifying and addressing financial irregularities.
• Insufficient financial planning can lead to cash flow shortages, missed growth opportunities, and financial instability.
• Inaccurate financial reporting can damage the credibility of businesses, erode investor trust, and limit access to financing.

Neglecting these risks jeopardizes the financial health of growing businesses, hampering their sustainability. Therefore, these risks cannot be ignored and must be addressed early on with the help of accounting and finance professionals.

Our unique perspective

At Siegfried Advisory, we understand that each business and business owner is on their own journey to success. And further, each individual journey has its own unique combination of goals, paths, and priorities. Our team has experience working with hundreds of growing businesses, and we offer the most relevant and actionable support available by working closely with owners and their finance teams.

Please get in touch with our team to learn more about our unique perspective and individualized approach. We would be thrilled to help support your goals.

This article was contributed by John Peatross, Senior Manager in Financial Advisory Services at Siegfried Advisory. You can contact John directly at [email protected].