Important SOX Compliance Internal Control Considerations During COVID-19

To say that COVID-19 has impacted the way we do business would be an understatement. For many businesses, the effects of the coronavirus pandemic will be felt in waves. One such wave will be felt as accounting teams prepare to close the financial quarter and adhere to SOX compliance. Reporting issues, changes in operations, and increased scrutiny for public companies will all bring new challenges during 2020. This will make SOX compliance even more of a challenge in today’s business environment.

 As operations are altered and supply chains disrupted, it is important to evaluate the reporting and accounting processes for a business. Shifts to remote work have caused major disruptions and require considerations for internal controls and SOX compliance.  

 

Recognize the Key Impacts on SOX Compliance

The impacts of COVID-19 are far reaching and continue to develop in real-time. Recognizing the key impacts of the virus on a business is an essential first step for examining internal controls and accounting processes. To make the necessary evaluations and modifications, you must first understand what has been altered.

 For many businesses, production has been interrupted, supply chains are disrupted, and typical personnel is unavailable. From remote work practices to entire production halts, the exact impacts are different for every organization. These changes may have led to a decrease in sales and earnings, a reduction in productivity, or closure of facilities.

 

Inability to Perform Control Duties

Absences may lead to an inability to perform control duties, which severely impacts SOX compliance. Employee illness or caring for a sick relative are typically covered as paid leave, especially as companies expand their leave policies to account for COVID-19. Office closures, layoffs, or furloughs can also result in unavailable individuals who typically perform certain control duties.

 Review current internal controls and determine if the necessary personnel are in place to carry out control duties. If individuals are not available due to COVID-19 implications, it may be necessary to reassign control duties or modify current internal controls.

 

Impact of Lack of Information Required For SOX Compliance

COVID-19 has a global impact, making processes more difficult for international organizations. If a business has office locations, retail stores, facilities, or key contacts in other parts of the world, they may not be available at this time. A lack of information can impact the ability to operate controls, especially as offices around the world close or move to remote work. Sudden and constant changes in operations can lead to significant gaps in information. If essential information to effectively operate an internal control is not available, an alternate control may be necessary.  

 

Ability to Complete Reports

The timeliness of control operation is likely to be impacted by COVID-19. It is necessary to evaluate the close calendar and prioritize essential activities. Activities that are not considered essential can be postponed until a more appropriate time. The calendar may also need to be adjusted to account for missing information or delays in gathering information and data.

 By evaluating the timeliness of control operation, you can determine whether SEC report filing extensions are necessary and plan for the domino effect of changes. As some items are prioritized and others are pushed back, the close calendar and internal controls will be impacted.

 

Adjust Current Controls to Meet SOX Compliance

Controls that require manual approvals may be difficult or impossible to execute during this time. COVID-19 has required many organizations to shift to remote work, so individuals are not readily available to provide signatures or review hard copies. The approval process for controls that require manual approval must be altered to accommodate these changes.

 Implement digital approval processes to maintain current internal controls while working remotely. Incorporate digital signature capture into the approval process and set up approvals via email communication. Consider creating a template for document review and approval to make sure that all necessary data is captured, review steps are properly followed, and applications are consistent. Approval emails can help maintain documentation and ensure the entire process is tracked from start to finish.

 

Identify Alternate Controls

New controls may be necessary if existing controls cannot be adapted. Digital signatures or processes may not be realistic for all controls with remote work. In these cases, determine if other controls can be added or reclassified as key to compensate for the missing controls.

 

Document Changes

Documenting changes and deviations to controls is essential for reporting and documentation. Deviation lists can be used to compare with the control environment and assess the impact of changes due to COVID-19. In many cases, documentation of changes to internal controls is necessary for reporting and filing. This documentation can help support disclosures that are required for changes to internal controls.

 

Engage with External Auditors on SOX Compliance Issues

Communication and regular engagement have never been more important than it is now. The close process is likely to be difficult when conducted remote, especially for the first time. This process can be made a little smoother with open lines of communication. Make sure to communicate regularly with your team and external auditors to ensure everyone is on the same page and prevent disconnects within your team.

 

Seek Outside SOX Compliance Support

COVID-19 has brought new challenges for all businesses. For many, remote work is a new environment and causes major disruptions to internal controls. You can support your accounting processes and financials during this time by relying on outside experts. At K-38 Consulting, our financial consultants are ready to guide you through the challenges of COVID-19. With experience in a wide range of industries and SOX audit services, you can receive the best information to navigate these uncertain times.

 

How a Part-Time CFO Can Resolve 8 Common Business Cash Flow Problems

Most professionals understand that to be profitable, money coming in must be more than money going out. Cash flow is crucial to the success of a business, but it is often a sore subject for business owners. A whopping 82% of small businesses fail because of cash flow issues, making it the number one reason small businesses fold. But cash flow is far from simple because it can cover a wide range of problems. Keep reading to learn about the eight most common business cash flow problems and how a part-time CFO could help you solve them effectively. 

Why Is Cash Flow Important? – Positive cash flow enables you to grow your business, investing in new ventures or hiring new employees. Negative cash flow means that more money is going out than coming in, which ultimately leads to failure. Cash flow is the lifeblood of your business, ensuring that payments are made for inventory, salary, rent, and additional operational costs. If your cash flow is suffering, a part-time CFO can help identify the problem, which is the first step towards finding a viable resolution.

1. The Cause of the Problem is Unkown – Identifying that you have a cash flow problem is usually not difficult. When spending exceeds available cash, it is obvious that a cash flow problem is present. If you want to tackle the issue, though, you will have to identify the cause. For many businesses, a cash flow problem can arise without an immediately clear source.

Planning and organization are crucial to understanding your cash flow. Start by categorizing your spending and noting the percentages for each category. If the current distribution of cash does not make sense for your business goals or operations, you may be overspending in one or more categories. Focus your efforts on reducing spending or making adjustments in the higher categories first.

A financial professional, such as a part-time CFO, can provide valuable insight for your cash distribution. They can offer expert advice on the current state of your cash flow distribution and suggest improvements. Also, by hiring a fractional CFO, you can benefit from financial expertise without committing to a full-time executive salary.

2. The Books Are Not Organized – Entrepreneurs and business owners are busy, so bookkeeping often takes a backseat on the priority list. Unfortunately, disorganized books can cause a headache in the future. Inconsistent invoicing, a lack of payment records, and disorganized billing can result in money lost and serious cash flow problems.

Organizing your books takes time, but it can help you identify unpaid invoices or other inconsistencies that lose you money. Putting an accounting system in place can help ensure your books are always up to date. This system can also generate reports that provide insight for both you or your accounting team on the financial state of your business. If your team does not have the necessary talent to maintain sufficient accounting records,, a fractional CFO may be a worthwhile addition to your team.

3. Cashflow Benchmarks Are Not In Place – Are your budgets based on data? Allocating money without a clear goal or reason is dangerous and often leads to cash flow issues. It is easy to start a cycle of overspending, which makes it more difficult to cut back later. Researching your industry and the spending of similar companies can help provide a benchmark for your cash flow. Make sure to identify companies in a similar lifecycle stage for the most accurate benchmarks.

This is another area where a financial expert can be valuable. Part-time CFOs have a wide range of experience with many companies. They can offer guidance based on their experience, especially when it comes to benchmarking your cash flow.

4. Expenses Are Too High – A lot of companies deal with this issue from time to time. Expenses can easily climb over time, often going unnoticed until a cash flow issue arises. To combat this problem, it is important to scrutinize your expenses on a regular basis. Understand the expenses your company pays on a consistently and determine which items can be cut or renegotiated. After you complete your benchmarking, you may notice that you are overspending compared to your competitors or industry. This information can be used as leverage to renegotiate contract terms for large expenses.

5. Bad Debts Are Piling Up – If a small business does not have a credit control system in place, bad debts can pile up quickly. When customers owe money that cannot be recovered, cash flow issues are bound to occur. Once you have organized your books and put an accounting system in place, adding a credit control system is a simple next step. From email reminders and letters to working with a debt recovery firm, there are many ways to reduce bad debts.

6. Credit Terms Are Out of Sync – The periods for paying your suppliers should align with the terms for your customers. By syncing your credit terms, you can better control your cash flow. When credit terms are out of sync, unexpected expenses have the potential to ruin your business or seriously cripple your cash flow.

Renegotiate terms with your suppliers and customers if necessary to bring your credit terms in sync. This may be a large and time-consuming project, but it is ultimately worth it to even out your cash flow.

7. Cash Flow Is Tied Up In Inventory – If your cash flow problems are not related to overspending, your inventory or sales cycle may be to blame. Housing inventory for long periods of time ties up your assets, reducing your available cash and storage space. You should have the necessary amount of inventory on hand to fill orders while holding items for the shortest time period you can manage. It may even be necessary to analyze your sales and determine which products or services have reduced margins.

Your sales cycle can also help predict your cash flow. Understand your sales cycle fully to accurately forecast your inventory needs and cash influx over time. It is also important to identify seasons of flux for your sales cycle, so you can prepare in advance. A part-time CFO can assist with this task by compiling various models and forecasts based on your company and industry.

8. Growth Is Happening Too Quickly – While growing your business is typically a positive thing, uncontrolled growth can lead to cash flow problems. Hiring extra staff or increasing your supplies in anticipation of more business may leave you with wages or bills you cannot pay. Uncontrolled growth results in higher expenses before you receive payment from customers, and these cash flow problems can cause your business to fail.

If you are interested in growing your business, a financial advisor can offer valuable insights. With a wide range of experience, part-time CFOs can guide you through the process of growing your business at a steady rate that is sustainable over time.

Part-Time CFO Services From K-38 Consulting – If your business is experiencing cash flow problems, a part-time CFO can help identify and resolve the issue. CFOs from K-38 Consulting offer an affordable way to get the advice and insight your business needs, without hiring a full-time financial executive. You only pay for services when you need them, and your professional CFO provides expert support for your business. Schedule a free consultation with K-38 Consulting today and start tackling your cash flow problems!!

Part-Time CFO Services Can Help Your Company With Financial Forecasting

Part-time CFO services may be what your business needs to navigate today’s complex business environment. Business leaders and CEOs are busy. With little precious time, it can seem impossible to add one more thing to your plate. Financial forecasts may be common knowledge, but few CEOs actually have the time to build a financial forecast for their business. From lack of time to a shortage of resources, there are many reasons you may not have a financial forecast already.

However, this simple tool can work wonders for the future of your business and provide the competitive advantage you need to succeed. Keep reading to learn why a financial forecast is important and how to build one without wasting your time. 

What is a financial forecast?

Financial forecasts are most commonly used to predict the financial outcomes for a company. The expenses and income for a business are estimated over a certain period of time, typically one year. Historical data, including accounting and sales, as well as external data from the market or key economic indicators can be used to develop a financial forecast.

Companies utilize financial forecasts to set expectations for the future and determine what is realistically possible for a business. Financial forecasts can also be specific to a certain area of the business. For example, a company may develop a financial forecast for sales.

Why should you consider having a part-time CFO to create a financial forecast?

As a CEO or entrepreneur, your time is valuable. Much of your focus and effort is spent on seeking new business opportunities, investing in marketing and sales, and looking for new avenues of growth. All of these pursuits are worth your time, but they leave little room for much else.

Financial forecasts get shoved to the backburner all too often. While business leaders recognize their importance, and even intend to create forecasts, they are overlooked due to more pressing matters. A financial forecast may not help you instantly move the needle in the same way other executive moves can, but it will set your business up for long-term success. Financial forecasts provide more than just a simple outlook for the future. They offer a roadmap for your business to follow, setting goals and measuring success along the way. A part-time CFO may be exactly what your company needs to assist you with your forecasting needs.

A part-time CFO can help you gain a clear direction for the future

You likely have sales targets, revenue goals, and growth strategies in plan for the foreseeable future. Reporting for each month, quarter, and year is common among businesses. In fact, it is so common that it often turns into a routine. Have you stopped to think lately about why you project the numbers you do, or what the overall goal is for your business?

Without a clear direction for the future, you are left setting arbitrary goals. Creating a financial forecast forces you to put concrete plans and expectations down on paper. A one-year financial forecast based on the current path and trajectory of your business is a great place to start. Pay attention to where your business will end up if things continue as they are. Is that where you want your business to be in one year? Are you moving towards your big-picture goals?

A financial forecast provides a visual representation of the future of your business, so you can decide if things need to change. Approaching your business goals with intention, instead of falling into old patterns, can breathe new life into your company. Also, taking purposeful steps can make you more likely to reach your goals than wondering aimlessly. The cost of hiring a part-time CFO to assist your company with forecasting can be well worth it.

A fractional CFO that knows your business can adjust early and often

In business, companies that can pivot are able to survive. Businesses that cannot make adjustments as needed will quickly fall behind the competition. Thankfully, a financial forecast can help position you to make adjustments quickly and often. Even the most thought-out plans hit roadblocks from time to time, so preparing for change is essential.

When you build a financial forecast, you set a target or a goal. Over time, you may find yourself moving towards that target too slowly or faster than expected. You may also realize that the initial target you set no longer makes good business sense. Whatever the case, having a financial forecast enables you to line up your expectations with reality.

The sooner you can identify mistakes or notice when things go off-target, the faster you can make the necessary adjustments to get back on course. Instead of reviewing your company’s performance at the end of the year, when it is too late to make changes, use a financial forecast to provide accountability along the way.

Part-time CFOs focus on the right KPIs

You likely have countless reports and files of data sitting on your computer. As a business leader, analyzing your company’s performance is a key part of your job. However, there are likely some numbers or metrics you value above the rest. By creating a financial forecast, you can highlight the key performance indicators that make the most sense for your business and cut out the rest of the clutter.

By focusing your attention on the KPIs that move the needle for your business, you can more accurately determine your progress. You can also recognize shortcomings earlier because they are no longer buried under mounds of unnecessary data. Dialing in on your KPIs provides an added level of focus for your business, helping you gain an edge over the competition. A part-time CFO that knows your industry and company can help you develop appropriate KPIs.

Plan for multiple scenarios

Ideas, big and small, are what keep businesses running. However, tackling a new idea can be a great risk. Investing time and money into a project that does not bring about results can drain your resources, and so can successful ventures that are not planned properly. Financial forecasts can help you work through what-if scenarios, determining what the result might look like if an initiative succeeds or not.

With the numbers from your financial forecast, a part-time CFO can help you more accurately predict what the outcome of a scenario would mean for your business. How will it impact the rest of your organization? Financial forecasts enable you to test your theories and walk through ideas without taking a major risk or wasting resources.

Part-time CFOs help you work smarter with a financial forecast

Financial forecasts might sound all fine and good, but what do you do if you do not have the time or resources to build your own? Business leaders can work smarter by contracting out their financial forecast. You do not have to invest in hiring a full-time employee, and you leave your schedule open to focus on running your business.

A part-time CFO can develop your financial forecast, providing an unbiased look at your data. You can work with a CFO only when necessary, paying a fraction of the cost of an in-house executive. Experienced consultants, like those at K38 Consulting, bring industry specific expertise to help you realize your growth potential and build financial forecasts.

Contact us today to learn how we can assist your company with forecasting needs to better help you navigate todays complex business world.