Most business owners understand the importance of accounting software and technologies; they rely on it to gain insight into their business and to make better financial decisions. Reliance on technology has grown rapidly in the last decade, and one can only imagine what the future has in store. As businesses become more reliant on their accounting software, it is easy to forget that the system does not replace accounting knowledge and that it is only as good as the information that is entered. Business owners often rely on the output of information as the only means of determining business performance. This article outlines some strategies that business owners can employ to help them make financial decisions that are more informed by utilizing their accounting system on a real-time basis.
Review the information and the input data on a regular basis – Most business owners have a general idea of their financial results on a monthly basis. However, assessing the detailed factors involved in getting to the results is essential. For example, a business owner may believe they had a good year because revenues increased. However, they may not have considered the impact of other factors such as overhead or fixed costs (e.g., rent, telephone, office administration, etc.). How do sales and expenses compare over the past five years? Asking these types of questions is important, as it is unlikely that the variables included in populating net income are consistent year over year. It is also important to recognize that the output (the financial reports) is only as good as the inputs (the data that is entered). Therefore, it is imperative to work with a qualified and competent bookkeeper who understands the business and financial information you wish to receive.
Use your financial advisor as a resource during the early stages - Involving a financial advisor in the early stages (perhaps quarterly as you review your financial results) is ideal because discussions regarding cost savings or tax-planning strategies can be identified from the outset and the financial advisor can ask questions that may trigger new considerations. When working with your financial advisor, it is important that you reveal information to him/her and ask questions, as that will help your advisor plan your financial situation better.
Update the system on an ongoing basis – Bill Gates once said, "The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency."
Once there is an accounting system in place that produces the desired reports, it is crucial that the system be maintained and updated on a regular basis. Software programs regularly release upgrades and updates in an effort to make their systems more efficient and to eliminate glitches. Although these upgrades may cost money upfront, the business will benefit from streamlined processes and work being done in a more efficient manner.
Recognize the importance of information technology in helping the business grow – Business owners should resist over relying on the information being generated by the accounting system, especially as it relates to whether the programs are meeting their needs. As businesses grow, it is crucial to be diligent and to look at the information in different formats. For instance, the results of a retail business with multiple locations should be reviewed individually, as each unit stands on its own. However, consolidated results are also important as they are an indicator of how the business is doing overall, and the overhead costs being incurred at the consolidated level. A good accounting system is one that grows with the business. An automated accounting system that prepares the consolidation of all the units of the business is ideal as it eliminates the risk of manual errors and produces results in a more real time and efficient manner. The focus should always be on long-term benefits.
A good accounting system is one that helps a business grow by providing value-added information. As with everything in life, without support and commitment, even a remarkable accounting system may prove to be inept.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.