01. Monthly Financial Statements and Budget Variance Analysis

Monthly financial statements

Monthly financial statements are used to record sales, expenses, and the movement of cash and deposits for each month.
This is the process of understanding the resulting monthly income and expenditures.
These statements identify whether the business activities of the month resulted in a profit or a loss, and this information is utilized as a reference for improving future activities.

Financial statements do not just tell you whether you have made a profit or a loss. Analysis of profit-generating factors enables you to implement measures for increased profits, and investigating the causes of the losses allows you to take measures to improve your profit structure.

Therefore, monthly financial statements may be used in monthly executive meetings and, in some cases, in a whole company meeting to share the company’s current status internally.
It is up to the management to decide to what level the company’s business status should be shared within the company, but sharing the information within the company can strengthen sales activities and raise awareness of cost reduction.

Getting monthly financial statements done early

As mentioned above, reporting the results of monthly financial statements is effective for improving future business activities, so it is ideal to close monthly accounts as soon as possible.
For example, in listed companies, the monthly closing is done by the accounting department around five business days after the end of the delivery month, and the monthly financial statements are often checked at the board meeting around the second week of the month.

Some companies complete their monthly financial statements near the end of the following month, or in some cases, two months later, and then receive a financial report. However, if the results of the previous month are reported when the next month’s activities have already been completed to some extent, it is difficult for those at the workplace to have a real sense of what happened and to come up with effective ideas for improvement.

Depending on the financial situation, it may have been possible to record sales earlier or delay expenditures, but late preparation of financial statements prevents this.

Therefore, the earlier the monthly financial statements are prepared, the better.
Since it is necessary to ask business partners to send invoices earlier and to issue invoices as early as possible, early closing of accounts requires the cooperation of the entire company, and it also requires an accounting system that can prepare monthly financial statements early.

Budget variance analysis

As mentioned above, it is important to identify the monthly results in a form such as a trial balance in the monthly financial statements. However, in addition to that, it is also effective to conduct a budget variance analysis to improve business activities.

Budget variance analysis involves comparing the annual business projections prepared before the start of the fiscal year with the actual results obtained from information such as monthly financial statements to see how much of the projections have been achieved, to analyze the reasons why the projections were or were not achieved, and to incorporate them in future activities.

In budget variance analysis, it is more effective if the analysis can be done not only by simply looking at whether each goal was achieved or not, but also by subdividing items by business unit or product.

Having achieved the overall sales goals does not necessarily mean the results were favorable. If only one product is producing these sales results and other products are not, you need to take action such as reviewing the validity of the plan for the product that did well and the sales method for the other products. The same can be said for expense items.

Shared administrative department monthly financial statements: budget variance analysis

The Shared Administrative Department also provides a proxy service for accounting journal entries and reports the results in the form of balance sheets and profit and loss statements as monthly financial documents. We will submit a report in the form of current consumption tax estimates and monthly trends as well.

We also have a wealth of experience in the preparation of budget variance analysis documents.
Even if you do the accounting entry in-house, you can request only the monthly financial analysis and budget variance analysis. Depending on how detailed your business projections are, we can also prepare information for detailed improvement plans in the budget variance analysis.

02. Collection Management

The importance of collection management

Even if sales are recorded as a result of the company’s business activities, they are meaningless unless the company bills for them and receives payment. If the sales are not received, the company has to send a reminder. Consequently, if the sales are not collected, they are recorded as bad debts and do not contribute to the company’s profit.

In addition, in order to increase sales, costs such as purchasing and labor costs are necessary. However, if payment is not collected, the expenditure for these costs will become just another expense, only worsening the company’s financial situation.

Important but complicated collection tasks

Collection is an important task, but it is also a complicated one. The more business partners you have, the more things you have to check. Some business partners may pay you after deducting fees, some may pay multiple invoices at once, and some may pay amounts that do not match the invoice amount in the form of advance or deferred payment.

Sorting out different payment methods and verifying payment can be an unexpectedly time-consuming process.
However, if you neglect to do this, you will not be able to show the carry-over amount when preparing the next month’s invoice, and you will not be able to identify which clients have paid and which have not, making it impossible to manage client credit and determine whether or not to continue doing business with them.

Handling business partners who have not paid yet

When a client has an outstanding account, it is necessary to send a reminder. It depends on the company’s rules as to how long it takes to send a reminder to a client who has an outstanding account, but a lack of communication with the client prevents you from knowing whether the reason for the non-payment is due to a failure to send an invoice, a simple misunderstanding on the part of the client, or the client’s financial situation. Your response will depend on the cause.

In addition, the slower the reminder, the harder it will be to ask for payment and the less likely it will be collected. You may even lose business with clients with whom you might have been able to continue to do business if you had taken appropriate measures promptly as a result of factors such as reminders and non-payment.

Therefore, it is recommended that a system be established to monitor the status of outstanding payments as appropriate and to take necessary actions.

Shared Administrative Department collection management services

The Shared Administrative Department can manage collections on your behalf. You can request collection management services only, or if you would like us to handle journal entries and billing as well, we will be able to provide you with a more accurate and faster service.

Based on the status of payments received, we will monitor the collection status and prepare a list of payments not yet received and an accounts receivable time chart, which is a list of accounts receivable by period. With these reports, you will be able to check payment and decide whether or not to continue with the transaction.

03.Journal Entry

Journal entry requires a certain level of expertise

Journal entry is the process of recording the company’s financial movements in numbers, such as recording sales, expenses, bank account activity, labor costs, and tax payments, and this work requires a certain degree of expertise.
While simple and repetitive day-to-day transactions are easy to learn, transactions that require complicated journal entries occur on a fairly frequent basis.

Therefore, many small and medium-sized companies that do not have employees in charge of accounting outsource journal entries to external companies such as accounting firms.
One of the reasons for this is that although it is a simple task in a sense, it is time-consuming and sometimes requires specialization making outsourcing the faster option.
Also, in recent years, the number of accounting personnel has been decreasing and it is not easy to do this work in-house anymore.

Strong relationship with other work

Many companies still outsource journal entries. Journal entry is a task that is strongly related to other tasks provided by the Shared Administrative Department.
Billing and payment transactions are directly recorded in the form of journal entries, and the results of journal entries are used in monthly financial statements, which are then used for reporting in the form of budget variance analysis.
Recording incoming payments enables you to perform collection management tasks, and payroll calculation also involves recording journal entries for payroll accounting and payments, as well as withholding taxes and social insurance deductions.

The Shared Administrative Department does not require you to purchase journal entry services. However, for the reasons mentioned above, we believe we can offer you the most efficient service if you choose to request these services along with others. (Of course, we understand that you have a relationship with your current accounting firm, so there is no problem with using your current subcontractor for journal entry services while requesting other services.)

04. Cash Management

Significance of cash management

Conducting activities such as billing, payments, and payroll, journalizing them, and preparing monthly financial statements, along with performing budget variance analysis to compare the results of monthly financial statements with the business projections, are all actions taken in response to past events and confirmation of results.

It is difficult to visualize the future of a company by only looking back at the past. Of course, it is important to understand whether your business activities have resulted in profits or losses, but that alone will not give you a clear picture of your future financial security. If you continue conducting business without an understanding of your financial security, you may not be able to handle sudden expenses and may miss growth opportunities.

Examining your cash management over the next several months enables you to identify how much cash you currently have available and whether it is likely to run out shortly so that you can consider investments for growth and start making preparations for fundraising activities. Also, it is easier for banks to make lending decisions if you can prove your future income and expenditures.

Understanding cash management

The structure of the cash management statement is similar to that of the cash flow statement, but unlike the cash flow statement, which calculates income and expenses in terms of operating, investing, and financing activities, the cash management statement is often determined by ordinary income and expenses, extraordinary income and expenses, and financial (borrowing, etc.) income and expenses.

As they are only future projections, cash management projections are not definite. However, it is very important to plan future actions based on future cash management projections, taking into account expenses such as temporary taxes and labor insurance payments. The reason for this is that the certainty of future investments and decisions for financing will be different.

For example, receiving an urgent order is a positive from the perspective of business performance, but as a result of making the necessary purchases ahead of time, the company may run out of funds before receiving payment for the sales. Or, you may receive an order but be unable to make the necessary purchases due to your financial situation. If you have a proper grasp of the cash management situation, you will be able to determine whether or not to accept the order from a financial perspective.

Support for cash management from the Shared Administrative Department

The Shared Administrative Department can also include cash management statements in your monthly accounting reports. We can create cash management statements that include future projections based on the sales projections we receive as well as the incoming and outgoing payment sites so that you can assess how much cash you have available in the future. With this cash management statement, you will be able to make investment decisions such as purchasing fixed assets and inventory, whether or not to apply for loans, ascertain payments such as taxes, social insurance, and labor insurance premiums, and more.

05. Making Payments

From small and medium-sized companies to large corporations, every company has payments to make

There aren’t any companies that don’t have payments to make. However, there are several steps involved in the payment process, from obtaining invoices to processing payments, and it is not easy to manage the payment process while also conducting your core business. In addition, invoices come up at different times for different departments, and the confirmation process is also time-consuming.

Payment delays must be avoided, as they will result in a loss of trust from the client. However, it can be easy to lose track of payments when you are busy with your daily work.

Have you ever considered outsourcing everything from payments to business reporting?

All companies have some sort of payment to make. We have already mentioned that it is an essential yet time-consuming task. In order for you to concentrate on your core business, why not consider outsourcing the entire process from obtaining invoices to payment processing and business reporting?

Let us take care of your routine monthly tasks and make payments for the monthly expenses incurred.

06. Billing

Billing can be tedious to manage

It is difficult to try to keep track of how many accounts were billed in the month, whether there were any irregularities, and so on.
Even though monthly billing is a fairly simple task, managing it can be tedious.
Even so, it is a very important task because it directly affects the company’s profit if there is any omission in the billing.

We can handle your billing work and more!

After informing us of a completed sale, we will send an invoice to your client. We will also take care of the collection management beyond that.

07. Overall Accounting

Accounting handles the company’s money and serves as the company’s circulatory system.

Accounting handles the company’s financial affairs and is one of the most important tasks in the operation of a company. It is a complicated process and there is a lot of information that cannot be disclosed internally or externally. Some areas also require specialized knowledge and experience. There are many instances where it is impossible to entrust the work to someone else or where you have to rely on an accounting firm.

Billing and collection management are important but tedious tasks.

In order to run a company, you need to generate sales. However, it is not enough just to record these sales. You must also do the following:
(1) Make invoices
(2) Check whether the invoiced amount has been paid properly.
(3) Send payment-due notices if payment is not received.
However, many business owners feel that all of these tasks are very tedious.

Payment operations must not be neglected either.

In the same way that you must manage the collection of invoices, the companies you do business with also invoice you and manage their own collections. If there are any missing payments, or if there are mistakes in amounts or delays in payments, you may lose the trust of your business partners, and you may not be able to purchase or outsource, which can limit the activities necessary for sales.
Therefore, it is necessary to keep track of the due date and amount of payment for all invoices received.

Cash management is one of the most important tasks of a company.

As the term “profitable bankruptcy” suggests, there are cases where a company goes bankrupt because it is unable to collect funds or receives bills that exceed its capacity, even though it is profitable on the PL.
Of course, it is very important to record sales, and a company’s activities are designed to achieve this, but if the company fails to manage its finances, it may not be able to continue its business.
However, cash management requires the forecasting of receipts and payments, as well as expertise and experience in identifying receipts and disbursements other than ordinary income and expenses. Due to the challenges posed by financial expertise, many companies are forced to rely on their president’s instincts.

Necessary duties of the president:

Many companies can manage their finances based on the instincts of the president. Those who can handle the role of president are amazing, but even company presidents experience anxiety daily. There may be a lack of confidence in the certainty of the calculations because they are not systematic. Also, some payments are regular but infrequent, such as labor insurance and property tax, which tend to be forgotten. Sometimes, it may be possible that the president doesn’t know everything about the accounting process well enough to grasp the entire financial situation.
The Shared Administrative Department believes that the president does not need to have such expertise and would rather have the president spend his or her time on increasing the size of the company than on such tasks. Many company presidents may actually feel this way too.

Benefits of external accounting

The Accounting Section of the Shared Administrative Department takes care of the accounting functions that companies usually deal with on their own, receiving work orders from the president and reporting back to him or her.
Since the operation is carried out by an accounting firm, we have specialized knowledge in accounting, a deep understanding of how a company’s cash flow works, knowledge of non-recurring income and expenses, and a high level of quality so you can give us work orders with confidence.
There is no need to spend time and money on hiring in the accounting industry where human resources have been dwindling in recent years, no need to worry about letting employees manage the company’s finances, and no need to worry about letting employees know important information such as company-wide salary information. By simply providing the Shared Administrative Department with work instructions, you can free yourself from the complexities of accounting and enjoy the benefits of high-quality accounting functions.