Tips for Navigating a Financial Crisis

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Whether your organization experiences cash flow issues, economic repercussions or fraud, there are steps you can take to navigate a potential financial crisis. A good first step is to contact your CPA. Your team should be available for you beyond an audit or tax filing.

This article provides tips on planning and risk management to avoid financial issues, but also how to prioritize financial management during a crisis.

Internal Controls

Reviews and audits can help an organization test adherence to generally accepted accounting standards but they are not designed to investigate fraud. Every organization is responsible for processes and procedures that ensure segregation of duties, proper documentation, reconciliations and security measures.

One thing that organizations and businesses can do to further test areas of concern is to engage your CPA firm to perform an agreed-upon procedures engagement. Your CPA can test processes that control your inventory, cash handling, loan compliance, grant expenditures or loan compliance terms, to name a few examples. The agreed-upon procedures report identifies the procedures performed as well as the results of the test, which can provide you with evidence that may suggest a need to modify your controls in order to reduce the threat of fraud.

Business Advisory

Throughout the year, business owners or board members may encounter questions about financial management, new revenue streams or staff changes. Often, they try to solve these issues on their own without guidance from their attorney, insurance provider or CPA. The cost for such advice is often a concern, however, the cost of making the wrong decision can be much bigger.

Professional services advisors often have policies about not charging for simple questions or referrals. Check with your advisors about their policies and how they can help you navigate administrative issues, new business opportunities or cash flow concerns.

Staff and Board Training

As new staff and board members join an organization — or leave — knowledge and information can be lost in translation or due to lack of training. These issues can lead to mistakes in decision making or financial management.

Choosing a CPA firm that offers staff or board training as part of their engagement can go a long way toward maintaining skilled talent and quality control over your organization. In addition, you may choose outsourced accounting to a CPA firm, which offers another layer of security and independence.

Navigating Cash Flow Issues

What if your business or organization has sudden cash flow management issues? This can happen with the loss of a major client, donors or members. Cash flow issues also arise due to inflation or higher expenses compared to revenue. Timely accounting reconciliation can alert you to pending cash flow threats.

To hedge against cash flow management issues, it is important to establish an accurate budget for the coming year. Don’t cut and paste from the previous year but discuss any expected changes to expenses or revenue when setting your budget. You should also look at access to credit. With higher interest rates, it is important to understand options for loans or lines of credit in the event of a cash flow shortage. Maintain good relations with your bank or credit union to access cash for short-term needs.

If the cash flow loss is sudden, you can also explore options to reduce expenses or expand revenue. Small changes can also include renegotiating payment dates or asking for payment extensions.

Navigating Economic Downturns

The economy can have lasting effects for good or ill on businesses and not-for-profit organizations. Long-term inflation erodes valuation and cash flow. This can require raising pricing or rates. It may also result in managing with fewer staff or resources.

Leaders can explore new suppliers and partnerships to reduce overhead and share the costs of operations. Economic changes can provide new opportunities for innovation through digital communications and process automation solutions. Rather than looking at why or how things have changed in an economic downturn, seek ideas for adapting to the new financial climate. This is a good time to discuss financial management ideas with your CPA firm.

Navigating Fraud Risks

It is hard to anticipate that people will defraud a business or not-for-profit organization, but it happens. Regardless of the reasons for fraud, leaders must be diligent to avoid situations where cash is easily accessible. Daily reconciliation will identify missing cash and support easier discovery, sending the message that missing money will be immediately accounted for.

Another way to reduce fraud risk is to rotate employee responsibilities and regularly review vendor relationships. Regular internal and external audits can identify irregularities. Leaders should also establish security protocols for accessing sensitive financial or employee data and change passwords regularly.

If you are concerned about financial management risks in your organization due to internal or external factors, contact LvHJ, your coast-to-coast and California CPA firm, for more information or assistance.

Next: After the Audit: How to Assess Improvements


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