The Benefit of a Trained Eye

What do you see when you look at your financials?  If you are like some business owners we know, you scroll straight to the bottom to see whether the cumulative total of the income and expense entries has a positive result, and whether you like that number.  You may then skim the numbers from the top, to see if everything “looks” right in your income category, and if nothing is very obviously awry, you do the same in the expense category.  Barring any glaring errors, you probably then close the file.

Without systems and an understanding of financial reports, owners may not actually know what these reports – Profit & Loss, Balance Sheet, accounts receivable, etc. – are supposed to look like.  Which is why our clients work with us.  We know exactly what to look for.

We educate our clients on how to read their financial reports and discuss the best methods of organizing them to extract the best information. When we close out the month, our team at Fritz Financial Solutions spends time reviewing the reports for consistency and accuracy.  Let’s look at what that means:

We Look for “No”

There should be no negative numbers on the balance sheet, other than depreciation and amortization – accounting terms for how your CPA expenses your assets over time on your tax return.  While it is possible for there to be a negative number in the Net Income category, if that is the case, we may need to initiate some tough conversations.

There should be no unreconciled transactions — not unless you record issued checks in your register and they have not already have been cleared through your bank.  We find that many people think adding a transaction in QuickBooks is “reconciling.”  But that could not be further from the truth.  To correlate it with the process which you may have learned in home economics, adding transactions is equivalent to writing information in your check register.  Reconciliation occurs when we review every transaction from your bank statement and compare it with the QuickBooks register. (Side note – how do you know that what you’ve added is correct? How would you go about checking your work?)

There should be no uncategorized Income, Assets or Expenses. QuickBooks is a software program always doing its best to help you – but it doesn’t always “guess” right.  Transactions can often be miscategorized into these “uncategorized” accounts, causing your numbers to be off.

We Look for “Yes”

With almost two decades of experience preparing and reviewing month-end financials, we know firsthand the critical importance of reviewing the details – in both income and expense categories – to make sure each entry is in the right place.  We confirm that, yes, everything is correctly categorized.

One of the areas that require an in-depth review is payroll liabilities.  Yes, these sections on your Balance Sheet or in your P&L can be overlooked or accepted without analysis.  These numbers may be entered through a data integration or payroll source outside of QuickBooks or manually via payroll checks or journal entries. Regardless of the entry method, they require careful review.  No set of financials is accurate without the inclusion of payroll and its associated taxes!  But you’d be surprised how quickly payroll can muck up your books.

Why We Know Where to Look

We know how QuickBooks works.  We’ve been working with it for years, and we are QuickBooks Certified ProAdvisors for good reason.  As mentioned before, QuickBooks is always trying to help you by auto-categorizing transactions, or guessing the names of your vendors and payees for the transactions sent through your bank, and users sometimes click through without double-checking the program.  QuickBooks is a robust and useful tool for our clients, but using it can be a case of “You don’t know what you don’t know.”

Clients sometimes utilize QuickBooks’s rules function to automatically categorize new transactions. A word of caution: these rules need to be very specific and aligned with the bank’s exact text to work properly.  It gets tricky when businesses have similar names with very different business categorizations.  For example, one client’s rule auto-categorized any expense to Shell as a gas expense.  This worked well until she purchased a client gift from a boutique that also had the world Shell in the title. Doh!

These are the types of scenarios we are on the lookout for. When our clients receive their detailed financial reports from us at the end of each month, they can feel confident their numbers have been reviewed in detail by a professional.  Can you say the same thing about your financials? We have helped dozens of firms get theirs in order – let us help you!

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Clients of Fritz Financial Solutions have the benefit of the trained eye every day! Sound like something you should explore? Contact us today.