For decades, finance professionals followed a traditional and somewhat rigid approach. They would create an annual budget, review quarterly reports to find out what went according to plan, and then adjust to promote good financial health.
However, this old-school philosophy, known as reactive accounting, leaves the door open for errors. As a result, it can cause compliance headaches and leave a company facing otherwise avoidable financial challenges.
Fortunately, there is a modern alternative that centers on using proactive accounting practices to mitigate errors and future-proof your finance team. Learn more about proactive accounting in this guide.
What Is Proactive Accounting?
Proactive accounting involves anticipating and addressing financial issues before they escalate into significant problems. This forward-thinking approach requires your finance department to move beyond rigid budgeting and reconciliation processes.
The way they do this is by adopting modern technologies that facilitate real-time monitoring. Additionally, you’ll need to automate the data entry process to cut down on errors and streamline accounting tasks.
A proactive, continuous approach to financial upkeep not only means fewer errors but also enables your team to transition into a strategic role that supports C-suite decision-making. You and your finance employees can focus on growing the business and seizing opportunities as they emerge.
How to Transition From Reactive to Proactive Accounting
Here’s a look at how you can retune your finance department to embrace proactive accounting processes.
Implement Robust Controls
Establishing strong internal controls allows you to safeguard assets and keep financial reports reliable. Review your current controls and policies to ensure that they’re in place and updated to reflect the current business environment. Outdated controls are just as detrimental as having no safeguards in place at all.
Periodically review all of your controls and regulatory processes, including:
- Audit schedules
- Separation of duties
- Approval processes
- Any other policy that could impact the company’s bottom line
Engage stakeholders from various levels of the organization so that you can obtain a diverse perspective regarding what controls need to be updated.
Leverage the Latest Tech
The right technology holds the key to reducing errors and promoting efficiency. Take advantage of specialized financial reporting software and tools to streamline repetitive tasks and decrease your team’s workload. Integrate your reporting tools with the other solutions the organization uses to take a holistic look at the company’s financial health.
Automate Wherever Possible
You’ve built a talented finance team. The last thing you want is for them to be bogged down with tedious, redundant data entry tasks. That work is frustrating and wasteful, and it increases the risk of reporting mistakes.
Review your current data collection processes and automate as much as you can. Automation at scale can eliminate dozens of hours of manual labor from a team’s monthly workload, giving them more time to engage in dynamic tasks.
Perform Regular Account Reconciliations
Timely reconciliations allow you to detect and fix discrepancies early. Don’t wait until quarterly or annual reports are due to begin the reconciliation process. More frequent reconciliations can help you catch errors sooner and reduce the risk of a compliance issue.
Your team should also perform periodic internal audits. In-house audits are a great way to gauge your finance department’s accuracy and identify small problems before they become major ones.
Engage in Continuous Planning and Forecasting
Financial planning isn’t a task you only do once or twice a year. Proactive accounting processes require you to engage in continuous planning over traditional annual budgeting. Regularly updating your forecast based on current market trends allows for strategic decision-making based on real-world conditions.
Collaborate with your C-suite to build a dynamic forecast that can be adapted to address emerging financial challenges. Align your forecast and planning processes with big-picture organizational goals so that you can help the business grow in 2025.
No matter how thorough you were during the forecasting process, things won’t always go as predicted, and that’s okay. What matters is how you adapt.
Be Strategic About Cost Management
Cost management is not merely about reducing expenses but also optimizing spend. As a finance professional, it’s up to you to mind the company’s money in a way that supports short and long-term goals.
Analyze spending patterns and negotiate with suppliers to promote optimal financial efficiency. Even relatively small weekly or monthly savings can culminate in significant revenue gains over time.
Become Proactive and Make Finance a Strategic Asset
Proactive accounting will enable your finance department to drastically reduce the number of errors it makes. However, that’s only the first step.
The next is to take a more proactive approach that unlocks real-time insights into the company’s financial health. By doing so, you can transform the finance department into a strategic partner that assists with C-suite decision-making and brand growth.
Today’s finance teams are more than number crunchers. They support the company’s mission by promoting financial alignment and ensuring that other departments have the resources they need to succeed.
