Amid concerns about inflation, rising interest rates and potential looming recession, finance leaders are winding down 2023 with cautious and measured optimism for business growth. This mixed outlook presents ongoing challenges and opportunities. Preparation, as always, is key if businesses are to excel. Here’s what finance and accounting teams need to be on top of as we head toward 2024.
16 Accounting Challenges and Their Solutions
Accounting teams that leverage technology are better able to adapt to changes and challenges, like some of the unexpected supply chain interruptions and fluctuating revenue trends seen in the past few years and so far during 2023. So what are the biggest challenges facing accountants today? Cash flow, hiring new talent, adapting to new tax and regulatory changes and continuing to adjust to remote work remain some of the most common hurdles for accounting teams.
-
Cash Flow
Often when there is economic hardship or signs that one is pending, companies move quickly to ramp up liquidity by implementing cost containment, and deferring planned investments. After a period of significant investments in technology and equipment in early 2023, some businesses are beginning to pull back and refocus on improving cash flow in 2024 due to softening consumer spending.
Improving the efficiency of accounts receivable and accounts payable processes will be vital to ensuring steady cash flow. Keep an eye on metrics like expenses, past-due invoices and operating cash flow. Generating and tracking cash reports daily can help you plan for the future because you’ll see changes or fluctuations you can use to inform other decisions. In addition, get everyone in the company thinking in terms of cash flow. Management and consulting firm McKinsey & Company says that boardrooms have shifted their focus from earnings before interest and taxes (EBIT) to cash – and that has translated into responsibility for cash management at all levels of the business.
-
Financial Reporting for Regulatory Changes & New Accounting Standards
Managing financial disclosures continues to be a concern for companies of all sizes, especially in combination with staff shortages (see #3). For example, even though the public health emergency has ended, finance leaders are concerned about complying with reporting requirements from COVID-19-related government stimulus programs and ensuring proper documentation, recording and reporting for audits. Several new standards, amendments and changes in U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) came on board for 2023 reporting (to be completed in 2024), such as for leases, insurance contracts, tax assets and even basic disclosures about materiality and estimates. Additionally, changes that increase reporting and disclosure requirements for environmental, social and governance (ESG) and cybersecurity are challenging accounting teams, so they need to be even more mindful of the shifting regulatory landscape.
-
Hiring and Retaining Talent
Hiring is a continuing challenge for accounting and finance roles and is expected to become an even greater challenge. In fact, it is the No. 1 concern among CEOs, CFOs and controllers surveyed by the American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA). Increased educational requirements, prioritizing work/life balance and a wave of retirements have caused a shortage of accountants, especially CPAs. Technology, healthcare, property management and financial services industries have an especially high demand for positions that keep cash accounts strong, such as billing, accounts receivable and collections.
Retaining top employees as competition intensifies is a key challenge. Some 8 in 10 finance and accounting managers are concerned about keeping valued employees. Two key areas of concern are low morale (see #11) and high rates of burnout because of heavy workloads – the latter being a somewhat perennial issue for accountants. Taking steps to ensure that key employee retention strategies apply to the accounting and finance department – such as continued education and training – is one place to start boosting morale. Helping accountants develop the technical and soft skills to better apply their domain knowledge to business strategy as more transactional tasks are automated will be crucial to retention in 2024 and beyond. In addition, some expect that compensation may need to be reevaluated as a motivating factor.
-
Automation and Artificial Intelligence
Artificial intelligence (AI) is a work in progress that accountants are watching very carefully as a potential tool for shifting their workloads and gaining efficiency. It’s a developing situation that has come a long way since 2020, when only 2% of large firms had implemented machine learning or AI. AI implementations are being tested to address labor shortages, automate labor-intensive tasks and deliver more insightful data.
As more transactional work becomes automated, accountants will need to develop different skills to apply their expertise to information and data generated from new technology and play a role in more of the business strategy. Cloud-based accounting software, budgeting, forecasting, data analytics and visualization tools are building some of the foundations for automation in accounting.
-
Upskilling
As automation increases, boosting existing skills and expertise to leverage the outputs of technology will benefit employees and your business. Focus on upskilling and learning more about cloud-based payroll and human resource information systems, enterprise resource planning (ERP) systems, data analytics and financial modeling and forecasting. In addition to technical skills, other beneficial so-called soft skills in demand will be the ability to work independently and in virtual teams, attention to detail, being comfortable with change, creativity, a desire for continual learning and written and verbal communication skills. Offering continuing education and training also has the added benefit of boosting employee morale and retention. Companies ranked highly on employee training see 53% lower attrition rates than those ranked lower.
-
Tax Law Changes
Applying changes in tax laws is a perennial concern for accounting teams, especially because effectively navigating the tax law changes can help you have more funds available to weather other business challenges ahead. Digitized, accurate and easy-to-access records with accounting software will make a complex tax year more manageable.
Key tax changes come from the Inflation Reduction Act, which includes a new alternative minimum tax for corporations and renewable energy credits. Additionally, accounting teams will need to watch several bills pending in Congress that aim to extend provisions of the Tax Cut and Jobs Act – specifically tax breaks for small businesses.
-
Expense Management
As a result of the mixed economic outlook, CFOs and their accounting teams are under pressure to deliver increased efficiency and tightly manage expenses. This means increased expense analysis for large costs, such as reducing the costs of goods sold to eke out a few more points of gross profit margin. Tighter control over smaller expenses can also add up, such as trimming travel expenses, as well as the challenges that come with remote workforces.
Updating expense policies together with stricter enforcement and lowering allowable limits are on the forefront of CFOs’ minds. Taking control of expenses likely includes checking internal controls and consider further automating the expense management process with software to increase visibility, discourage fraudulent expenses and automatically flag questionable ones.
-
Payroll Management
New payroll challenges from changing laws and regulations at federal and state levels are on the horizon. And managing withholdings for employees in different locations has become a significant hurdle for payroll managers. Remote work has made the management of state income taxes challenging because of the complexity of determining primary work location. Violations can trigger audits and result in costly tax penalties.
If you haven’t already, consider automating your payroll processes. Cloud-based payroll platforms help with the calculation of earnings, deductions, company contributions, taxes and paid time off, while providing support for multiple jurisdictions when it comes to taxes, forms, direct deposit and more.
-
Cybersecurity
It takes 204 days, on average, to identify and contain a data breach, and the average cost is $4.45 million – a 15.3% increase over $3.86 million in 2020. Because the effect on business is so significant, the Securities and Exchange Commission (SEC) issued new rules for reporting cyber incidents, beginning in December 2023 for most public companies. The new rules require disclosure of material cyber incidents within four days of identification, using an SEC Form 8-K – a significant challenge for accountants and their IT partners. The new rule also adds several additional requirements to a company’s annual SEC Form 10-K, including cybersecurity risk management, strategy and governance.
Accounting teams are well-suited to be evangelists of cybersecurity companywide — they’re already schooled in robust internal controls, access and permissions required of their roles. With these new regulations, they will also need to be knowledgeable partners with IT staff. Outdated software can increase the success rate for malware and ransomware, so make sure all systems are up to date.
-
Remote Work
Like many other industries, one of the top accounting trends is a desire for more flexible and remote work. More than 63% of accounting professionals looking to change jobs desire at least a hybrid position, if not fully remote. But remote work brings challenges to accounting and finance teams – who for decades have done tasks such as month-end close by means of long nights in the office. Remote work also exacerbates the risk of cyberattacks – with IBM finding that 70% of companies that have adopted telework during the pandemic saying they expect it will increase data breach costs.
Focus on making established financial controls work with a dispersed workforce. Use a classic risk assessment framework to determine which controls may open the company to risk.
Remote workforces aren’t expected to go away anytime soon, and it is even seen as a way to attract talent from afar. For most businesses, cloud-based accounting software lends obvious advantages in supporting remote accounting teams. And the technology frequently outperforms VPNs with access to premises-based software.
-
Low Morale
It’s no wonder that burnout is a common problem for those working in finance and accounting. Between juggling responsibilities, heavy workloads and a constantly shifting regulatory landscape, accounting and finance departments can easily be plagued with low morale. Another common concern is being understaffed — on average, businesses with less than $25 million in revenue employed just three people in finance roles. And even for businesses with annual revenue between $100 million and $499 million, that number is only 13 people employed in finance roles.
How can you raise morale among your accounting team? Find ways to formally recognize individual contributions on a regular basis, especially at the manager level. Managers have an enormous impact on their employees’ morale. Keep lines of communication open between your accounting and leadership teams. Listen to their input not just on financial matters, but strategic decisions as well. Give them the tools they need to collaborate, especially for hybrid teams. And automate tedious parts of their work to free up time.
-
Accurate Financial Forecasts
A mixed economic outlook and market volatility make accurate financial forecasting more difficult, yet more critical. Business leaders should engage in scenario planning and reexamine forecasts for sales, expenses and cash. Test and retest assumptions, model cash flow, burn rate and liquidity under multiple scenarios.
One of the top accounting tips for small businesses and startups is to use financial statements to evaluate and predict business performance. Because so much is changing so quickly, access to real-time analytics is key. That’s what will make the difference in building financial models that factor in historical trends, current conditions and best, worst and most likely scenarios.
-
Keeping Up With New Technology and Tools
Aside from a shifting regulatory environment and tax laws, keeping up with evolving technology can be a burden. There’s a reason skills around cloud-based accounting software are some of the most in-demand for accountants and finance professionals. Research firm Gartner recently said that by 2024, more than 45% of IT spending will shift to cloud-based technologies; in many instances that will include financial and accounting software.
The latest innovations around real-time analytics, robotic process automation (RPA) and AI will depend on having a sound, reliable, clean data infrastructure. But many companies are working with legacy, on-premises accounting systems that are outdated. Financial reporting, cash management, accounts payable and month-end closing processes are all being impacted by technology and will continue to be key components of automation and cloud-based accounting software in the near future.
-
Innovation
Is accounting a challenging career? Absolutely. But there are also exciting new opportunities opening as more transactional tasks become automated, freeing up time for accounting professionals to turn their attention to more analytical duties — and innovation in the accounting software is abundant.
For example, consider the opportunities AI innovation can bring to the accounting industry. Some question whether AI can take the place of accountants, as evidenced by its recent passing of the CPA exam, creating a host of both practical and ethical issues. Should accountants be scared by this innovation or embrace it? Current thinking is that AI can’t pass for an accounting expert, but it can be a useful tool that can level up the experience of human accountants. For example, AI might be helpful for remembering facts (such as tax code), understanding instructional material (such as GAAP guidance) and even applying information to a situation (such as lease rules). But where it currently is inconsistently effective, according to a recent AICPA panel that tested AI in various areas of accounting, is analyzing relationships, making judgments and creativity. Most human accountants might welcome the opportunity to spend more time focused on higher-level tasks.
-
Globalization
As businesses continue to increase in size and complexity across the world, accounting departments will need to accommodate more and more international standards and regulations. As technology has made this easier, accountants find themselves needing to contend with rules and norms prevalent in both their country of origin and the markets they work in. Local economic instability, cybersecurity standards, and tax law changes across these countries will require adaptable accounting teams and technology that eases the challenges.
-
Economic instability
Implementing and continuing to enhance cloud-based accounting systems is the first step toward tackling many of the challenges 2024 will present. Top-of-the-line enterprise resource planning software integrates finance and accounting with other business software modules, such as supply chain, warehouse and order management. With a reliable source of data and increased automation of time-consuming and error-prone tasks, the accounting team has more time and better data to weigh in on the strategic decisions and even become a key partner in guiding the business strategy.
Repetitive, time-consuming (yet essential) accounting tasks — including recording transactions, account reconciliation, managing accounts payable and receivable, tracking income and expenses, and reporting — can all be automated, in real time and in compliance with accounting regulations. This ultimately saves businesses time, cuts operational expenses while boosting productivity, accelerates the financial close and enhances the precision of financial reporting.
Article by Netsuite
