The Mind 🧠 of a CFO

Read time: 2:09 minutes

Actionable Insight - Beyond the Income Statement: CFO's Playbook for Financial Statement Review

Many entrepreneurs concentrate primarily on the income statement, often overlooking other critical financial reports essential for growing a business and deterring fraud. In my Inc. article, 5 Tips To Prevent Fraud, I discussed adding a fractional controller or fractional CFO. While having a fractional CFO might be a future goal, there are immediate, practical steps you can take to protect your business and ensure your numbers are accurate by taking a page from the a2 advisers playbook.

a2 advisers first step

The first step we take at a2 before analyzing financials is to review the bank and credit card reconciliations. This process is essential to verify that all transactions have been accurately recorded. Pay special attention to any uncleared items over a few months old, as these may warrant further investigation. Here is a recent example of why this step is so important.

Examining the Balance Sheet

The next step at a2 advisers is reviewing the current month's balance sheet with the prior month's. We are looking for any unfamiliar accounts, accounts that do not change, or significant (10-20%) balance changes—both increases and decreases. Should you notice any discrepancies, discussing them with your bookkeeper can provide clarity and ensure transparency.

Analyzing the Income Statement

Following the balance sheet, the income statement should be your next area of focus. Ensuring that the changes reflected in the income statement align logically with your business operations is crucial. This step is about understanding the story behind the numbers and ensuring it aligns with your operational expectations.

Understanding Cash Flows

After the income statement, we review the statement of cash flows. This report shows you the movement of cash within your business. It provides insights into how money is being utilized, helping to identify any unusual or concerning patterns that might indicate mismanagement or potential fraud.

Additional Checks: Payroll and Vendor Payments

For added security, compare current and previous payroll summaries. Look for any changes that don't align with your records or expectations. Similarly, reviewing an overview of vendor payments can help identify any unusual or unexpected transactions. These steps are about maintaining oversight and ensuring all financial activities are justified and transparent.

Conclusion: Proactive Financial Management

Small business owners can effectively monitor and protect their financial interests even without a fractional CFO. By proactively reviewing financial statements and engaging in open discussions with your bookkeeper, you can significantly reduce the risk of fraud. It's about staying informed, vigilant, and taking a hands-on approach to your business's financial health. As your company evolves, consider the value a fractional CFO could add, but until then, these practices will serve as a strong foundation for financial security.

Thanks for reading, Luke Templin!

P.S. There are two ways to work with Luke to grow your business profitably.

1. Virtual CFO Cohort for service-based entrepreneurs with $250k - $1 million revenue.

2. Fractional CFO for service-based entrepreneurs with over $1M in revenue.