What to Do When You Don’t Understand Your Financials

Congratulations – you’ve completed another year of business operations with apparent success! Your company is growing in both personnel and expenses. Yet, there’s a disconnect somewhere… your financial software generates reports that seem adequate, but your cash position doesn’t align with your expectations. 

If this scenario feels familiar, it may be time to acknowledge that you need help fully understanding your financials – and how they relate to your business operations. 

First, Understand the Three Types of Accounting 

The first step to gaining clarity is to understand which accounting method you’re using – and which accounting method you should be using. There are three distinct types of accounting, each serving different purposes: 

1. Generally Accepted Accounting Principles (GAAP): This standard accounting framework is designed for external stakeholders such as investors and lenders. These are likely the financial reports you currently receive. While valuable for publicly traded companies and external reporting, they may not provide the operational insights needed to run your business effectively.
2. Tax Accounting: This approach focuses specifically on determining taxable income and tax liability. While necessary for compliance, tax accounting offers limited utility for day-to-day business management decisions.
3. Managerial Accounting: This often-overlooked accounting type is specifically for the company managers. Managerial accounting creates systems that support the complex decisions required to run your business successfully. 

The first two accounting types are the most common. They are needed for loans, investors, and filing your taxes, and are provided by most accounting firms. But if you’re reading this article, managerial accounting is most likely for you.  

What Is Managerial Accounting? 

Managerial accounting focuses on providing timely information that informs business decisions. Key areas include: 

1. Cash Flow Tracking: Keep a sharp eye on the cash going in and out. Tracking your cash flow allows for more efficient spend management and is ideal for forecasting future cash needs. 

1. Department Tracking: Categorizing your accounts by departments can help organize your business and gain deeper insights. For example, you may be spending $50,000 on salary a month, but who are you actually paying? Is it your R&D team? Is it sales commissions? Department tracking helps you understand this. 

1. Product and/or Service Tracking: Keeping track of different products and services – and how they are performing – is very important. Which products and/or services are most profitable? Which are you spending the most money on? What unexpected expenses are you incurring on these?  

1. Budgeting: Creating your budget is a start, but it’s important to regularly monitor the budget, too. You’ll see where cost overruns occurred – and where you earned more profit than expected.  

1. Trends and Key Performance Indicators (KPIs): Understanding industry trends (and their relevance to your business operations) is essential for strategic positioning. Identify, set, and track the KPIs most relevant to your company to gain actionable insights that elevate your business performance. 

How Wolf & Company’s Outsourced Accounting Services Can Help 

Implementing effective managerial accounting requires a trusted, strategic accounting partner. Wolf & Co.’s Outsourced Accounting Services team specializes in developing customized financial intelligence systems. We transform raw data into actionable business insights. 

When you partner with Wolf & Company, you can count on us to: 

• Assess your current financial infrastructure. We’ll evaluate existing systems, identify information gaps, and determine what specific reporting needs are aligned with your strategic objectives. 

• Design custom reporting frameworks – just for you. We create tailored dashboards and financial models that highlight critical metrics, relevant to your industry and growth stage. 

• Implement advanced analytics and financial technology. Together, we can deploy sophisticated financial analysis tools that reveal underlying trends, opportunities, and potential challenges – before they impact your bottom line. 

• Provide strategic interpretation: Benefit from expert guidance on translating financial data into strategic decisions and navigate complex business challenges with confidence. 

• Scale your financial operations: We design scalable processes that evolve alongside your business. Your financial infrastructure should support growth, not constrain it. 

Traditional accounting services focus solely on compliance. But Wolf & Company‘s approach is different – we combine financial expertise with business strategy to create a comprehensive financial management system. The result is informed decision-making and sustainable growth.  

Our clients think of our team as an extension of their leadership, providing the financial clarity they need to capitalize on opportunities and navigate challenges in today’s dynamic business environment. Whether you’re an early-stage software company like Salient, an established firm like Merganser Capital Advisors, or even a non-profit like the Boston Public Library Fund, Wolf & Company’s Outsourced Accounting team is ready to partner with you. 

Ready to meet our Outsourced Accounting team? Learn more about us.