Most people have heard the expression “shoebox accounting.” It refers to businesses that manage affairs in such a way that all receipts, check copies and accounting records are kept in the proverbial shoebox.
This box is then transferred to an accountant once a year for the ritual tax return preparation. Unfortunately, such methods may be the root cause of some of the failures, inefficiencies and lost profits in many small and emerging companies.
No matter the size, a company may be able to improve profits and streamline operations by automating its accounting and financial reporting systems.
Even though such technology is now available at affordable prices, many companies have not transitioned from manual systems to updated, computerized ones for any number of reasons, including perceived costs, management resistance to change, lack of confidence in automated systems, and insufficient time to oversee the process.
Though management can offer compelling arguments to avoid undertaking a change, once a firm decides to investigate a good accounting system, it usually finds that the benefits far outweigh the obstacles.
Consider that many small and emerging companies are now managed by the “best guess method,” whereby managers use their experience and intuition to make decisions. Although computer systems cannot replace experience, they do provide important information that helps make the day-to-day operations more manageable by supplying data needed for quick, fact-based decisions.
This in turn allows managers to be proactive and better respond to opportunities that occur internally or in the marketplace.
Cash is the lifeblood of every organization, and by allowing managers to monitor overall company performance, good systems can improve cash flow by tracking billings, collections, expenditures, payroll and debt.
In addition, the technology can minimize the investment required by equity and debt-holders to finance aging receivable balances and inventories, consequently reducing the cost of capital and improving the owners’ return on investment.
Ancillary benefits of good accounting systems are sometimes as important to profits as those designed to improve operations and strategic interests.
In some cases, companies make changes to combat losses caused by things like internal theft, spoilage and poor fixed-asset management.
Other benefits range from better control of bank accounts and disbursements to monitoring the ability of vendors to meet delivery requirements.
At a minimum, all accounting and reporting systems should provide the user with basic functions. Beyond that, companies can include customized functions at an increased cost.
Prices can range from below $1,000 for off-the-shelf systems to as much as you want to spend.
Basic functions should include the ability to process all major transactions, including cash receipts, sales, purchases, payroll and job costing.
Reporting systems should also be designed to provide detailed information about revenues and expenses along with accounts receivable and inventory listings.
Some systems can even offer a look at open sales orders and indicate when they were placed and are due to be shipped; fixed asset listings involving investments in equipment; and transaction reports that show sales or purchases listed by customer, vendor or product.
If a company is willing to pay the price, just about anything is available in an accounting system. The system, however, should be designed to be effective without providing so much data that it results in information overload.
In addition, any system that management decides to use should be thoroughly researched to make sure it minimizes the intrusiveness of implementation.
Although you can’t avoid all of the difficulties associated with transitioning to a new system, good planning will make it more palatable.
Timely and effective accounting and reporting are as important to small and emerging businesses as they are to larger companies. In addition, they can be inexpensive.
Once companies understand the benefits of automating and controlling their operations, the decision to implement a new system is an easy one.
Jim Pitrat is a manager at Singer Lewak Greenbaum & Goldstein certified public accountants and management consultants in Westwood. He can reached at [email protected].
Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.
