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What is Risk Management?

Risk management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. A risk management plan increasingly includes companies’ processes for identifying and controlling threats to its digital assets, including proprietary corporate data, a customer’s personally identifiable information and intellectual property. Risk management is going to ultimately save your business money and increase the likelihood of success.

The Process:

  1. Identify the risk
  2. Analyze the risk
  3. Prioritize the risk
  4. Treat the risk
  5. Monitor the risk

Why Is It Important?

The purpose of internal controls and risk management is to ensure that the company’s operations are effective, that financial and other information is reliable, and that the company complies with the relevant regulations and operating principles. The Board of Directors, assisted by the Audit Committee, is responsible for monitoring and assessing the effectiveness of the company’s internal control and risk systems. Internal audit assists the Board of Directors with its monitoring responsibility by ensuring that the group’s control measures have been planned and set up effectively.

What is Risk Response and The Importance?

Risk response is the process of developing strategic options, and determining actions, to enhance opportunities and reduce threats to the project’s objectives under risk management.

The 4 Risk Response Guidelines:

How Does a CFO Manage and Mitigate Risk?

  1. Control Environment
  2. Information and Communication
  3. Risk Assessment
  4. Control Activities
  5. Monitoring Activities

Risk management is a role that has seen significant growth among CFOs. “In 2012, CFO Magazine surveyed financial executives, 72 percent of whom claimed that their organizations had increased the amount of resources devoted to risk management over the past two years. According to Deloitte’s second-quarter 2018 CFO Signals report, over half (55 percent) of CFOs surveyed said that they are responsible for their company’s enterprise risk management.” A CFO has a large say in the way Risk Management is ran and controlled. It is important that your CFO has Risk Management in mind at all times.

NOW CFO’s Expertise

Our expert consultants have extensive experience and training to assist in identifying opportunities and implementing internal controls for your company.

This includes protection from fraudulent activities, operational inefficiencies, and not adhering to company policies. Whether it be establishing Internal Controls for public reporting or private safeguarding, our professionals have years of experience with Sarbanes-Oxley Section 404 audits and can assist your company in establishing procedures for your internal control structure. Fraud can happen to any company. There are checks and balances that can be implemented in order to do this, and NOW CFO is here to help.

What is bank reconciliations or catch ups?

A bank reconciliation is the process of matching the balances in an organization’s accounting records for a cash account to the corresponding information on the bank statement. The end goal of this process is to be able to determine the differences between the two and make changes to the accounting records where necessary. The information on the bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month.

Companies simply cannot function without bank reconciliation. It should be a part of a finance teams daily routine, but it often gets overlooked and pushed to the side.

What is a clean-up or catch-up?

An accounting or financial clean-up/catch-up goes hand in hand with a bank reconciliation, and it consists of getting of a business’s books and records up to date. Catch-ups are important, since a business’ books are needed both internally and externally. Messy financials lead to poor business decisions.

It allows businesses to stop worrying about being behind. It can include:

Why are business not “caught up”?

Frequently Asked Questions for Bank Reconciliation

1. How often should you be reconciling?

In general, businesses should do bank reconciliations at least once a month. This process typically happens after the end of the month because banks send monthly statements at the end of the month that can be used as a basis for reconciliation.  Ideally, you should reconcile your bank account each time you receive a statement from the bank, whether that is weekly, daily or at the end of the month.

2. Why should you do bank reconciliation?

There are many advantages to bank reconciliation, but some of the advantages are that you can:

If there is very little activity in a bank account, then there is really no need for a periodic bank reconciliation, and you should reconsider why that account is open in the first place.

3. What is the purpose of bank reconciliation?

 Some of the advantages of a bank reconciliation and clean-up are:

4. Do I need to reconcile all my bank accounts?

Any accounts that are active should be reconciled at month end, even if there are only a few transactions.

5. What if I cannot reconcile the two balances?

If you have entered adjustments for both your bank balance and your General Ledger balance, and there is still a bank reconciliation problem, you will need to continue to review both your bank statement and your General Ledger to locate the missing item. This may require going back a few months in order to find the issue, which is why reconciling each month is crucial.

How We Can Help

At NOW CFO, we want all our clients to have financial data that is accurate, timely, relevant, and insightful. Bank reconciliations and catch-ups are necessary. If a business is not caught up on their books, none of the future reporting can be accurate. Something as important as a cashflow forecast cannot be built an if you are behind on your financials, which is why our consultants will always be sure that you and your financials are up to date and accurate.

Get Your Free Consultation

Gain Financial Visibility Into Your Business

We provide outsourced, fractional, and temporary CFO, Controller, and operational Accounting services that suit the needs of your business.

NOW CFO provides the highest level of expertise in finance and operational accounting to accelerate results and achieve strategic objectives for sustainable growth and success.

After completing the form, a NOW CFO Account Executive will reach out and learn more about your needs so that we can pair you with the right Partner.

Learn More: How To Complete a Bank Reconciliation

What is difference between Company’s Budget Report and Financial Report?

Budget Report vs. Financial Report

It takes more than just the Chief Financial Officer (CFO) and the rest of the executive team to prepare the company’s budget. They also need the help of the accounting and finance staff, the department heads and more. When it comes to budget reporting, unless you are preparing the report yourself each time, there can be a lot of unknowns.

Get to know your company by getting to know the budget reporting process. Know the difference between a financial report and a budget report. Understand the different types of budgets that provide the data for the report, therefore know how to read the report. Learn how to present your department’s budget report to the executive team.

Budget reports present one company’s various budgets. Often called budget to actuals, these reports include the cashflow of various departments and sectors of the business. The budget report shows the company’s inflows and outflows of cash as compared to the projections set out in their budget at the start of the period.

The report is primarily used to show how the business is managing its funding. This includes how current funds are being managed as well as how much money is available for new products or changes to services.

In contrast, a financial report is an in-depth analysis of how well the company is doing holistically. It often includes the data from the budget report as well as other key performance indicators (KPIs) to project the company’s success into the future. This report is primarily synthesized to show investors, shareholders and members of the executive team how the company is doing. Both reports are used for financial planning and decision making.

 

Types of Budgets

 

Master Budget

Most companies start out with a master budget. This serves as a project for the entire company, usually for an entire fiscal year. The master budget usually includes projections for revenue, expenses, operating costs and sales.

Static Budget

A static budget is based on planned inputs and outputs for each of the company’s departments and divisions. This budget determines how much money and company has and how much money it will spend, especially on fixed expenses like rent.

Non-profits and other companies relying on donations and grants will usually use a static budget for all of their budgeting.

Operating Budget

This type of budget takes into account the revenue and expenses the company generates on a day-to-day basis. In other words, this budget accounts for the expenses involved in operating the company. This includes things like cost of goods sold, overhead expenses and administrative costs.

Cashflow Budget

Cashflow budgets help determine how much cash is being generated by the company in any given period. This also includes both inflows and outflows of cash.

To create the budget, the budgeter monitors things like the collection rate of accounts receivable and the content and success of the operating budget. Using this data, they determine if the business is on track, if they need a long or short term cash infusion, or if operational processes or procedures need to be streamlined or adjusted.

Reading the Budget Report

A budget report usually contains four columns: budget, actual, over budget and percent of budget.

Some budget reports do not have separate columns for the over budget and the percent of budget areas. Instead, they are lumped together to contain the same data, typically under the header “variances.”

A business owner can also use the information contained in the budget report to expose problem areas in operations. For example, would the figures benefit from an increase in sales and fewer daily expenses? A larger customer base? Actions to remedy these problem areas should be accounted for in the next iteration of the master budget.

 

Presenting Your Budget Report

Many companies will have the department heads present their own departmental budget report in a recurring budget meeting therefore, here are a few tips for nailing your budget report presentation:

Prepare the Report

Preparing the report is also strong first step to any budget reporting meeting. Consider using a software that will help you track and present the data in an aesthetic and simple manner.

Build Out a Forecast

Your executive team will probably ask you for a few projections going into the next budgeting period. Come prepared with a forecast of future expenses.

Hit the Highlights

The budget report will have a lot of data. Pick the most important points and focus on those during your presentation and be sure to highlight areas where you are under budget.

Address Problem Areas

Unfortunately, your presentation can’t be all highlights. Address areas in the report where you are over budget. Come prepared with ways that you are going to cut spending or increase earning in those areas for the next period.

Bring Visuals

Put easy to read charts in a PowerPoint presentation, in addition bring a copy of your budget report for every person attending the meeting. Prepare answers to any questions they may ask.

Get Your Free Consultation

Gain Financial Visibility Into Your Business

We provide outsourced CFO, fractional, and temporary CFO, Controller, and operational Accounting services that suit the needs of your business.

NOW CFO provides the highest level of expertise in finance and operational accounting to accelerate results and achieve strategic objectives for sustainable growth and success.

Learn More: A Guide to Capital Budgeting