Few functions in a business can bring a company to its knees like malfunctioning accounting software. The ability to track invoices and payables, handle cost accounting, prepare payroll and monitor cash flow is absolutely crucial for day-to-day operations.
“If your accounting system is inadequate, or too slow and cumbersome, several steps should be taken prior to purchasing a new system,” says Gerry Herter, a partner and head of the Information Technology practice at HMWC CPAs & Business Advisors in Tustin. “Take the time to identify the benefits of a new accounting program, along with the disadvantages involved in implementing the system.”
Smart Business spoke with Herter about some of the considerations involved in selecting and implementing a new accounting system.
Why is having the right accounting software so important?
Many businesses are constantly battling with their accounting system to get the information needed. Multiple confusing steps are often required to enter and extract certain data that is specific to their projects or customers. Generic accounting programs may be simple to set up, but can be too limiting; whereas advanced accounting software and industry-specific software can be much more beneficial, but at the same time more challenging to implement and use effectively.
Why are businesses often hampered by their accounting software?
Here’s a typical scenario. A new business is well into its first year before the importance of having a complete accounting system becomes apparent. Then, dealing with tight cash flow, the owner picks a cheap, off-the-shelf package, believing the claims that this software will fulfill every imaginable expectation, with no prior accounting knowledge, little effort and minimal computing horsepower.
A few months later, bank statements are stacked up unreconciled, cash in the bank drops as invoicing falls behind, and vendors call for payment while the company struggles to get checks to print on the ‘do-it-all’ accounting software. Finally the owner realizes help is needed and hires a bookkeeper. Now months behind, the bookkeeper has to learn the system, cure the ‘bugs,’ and catch up, all while trying to stay on top of current business. At this point, many businesses fail, not having the tools needed to address or even recognize symptoms of urgent cash flow issues.
Suppose the business survives this initial phase, then what can be expected?
The owner recognizes that the effort to save money in acquiring the software and hiring the bookkeeper have cost much more, intensifying the resulting difficulties. A degreed accountant is brought in to replace the bookkeeper. The owner shows the accountant some jerry-rigged schedules scratched out on a columnar pad that have been hurriedly put together to make sense of the minimal data produced by the basic software. The accountant reproduces the schedules using a computerized spreadsheet that exports the data from the accounting system, rearranging it into more meaningful information. The owner, for once, feels more hopeful. As the days go by, more requests are given to the accountant to devise expanded spreadsheets, providing additional analysis to help in managing the business.
The business owner’s problems are solved, right?
For a while, the upgraded and timelier data help the owner to turn the corner and move ahead. But soon, several new challenges arise. For example, (1) the computerized spreadsheets become more complicated and errors in formulas and calculations creep in, creating inaccuracies leading to bad decisions; (2) new versions of the software are announced, requiring extensive rewrites of the spreadsheets to maintain compatibility; or (3) the accountant departs leaving no one who understands how the spreadsheets work.
What could the owner have done differently to avoid these problems?
In a growing business, there will always be new challenges and not enough money to do all that may be desired. However, the owner was right to recognize that success in this area requires both the right kind of accounting software and properly skilled personnel to implement and operate the system. Depending on resources and conditions, the owner can pursue a process to acquire appropriate, industry-specific software or a more affordable cloud-based application. Also, qualified accounting personnel can be hired to carry out the search and implementation of the system, or outside consultants may be utilized.
In the current example, the company is at the point where an advanced industry-specific application should be considered. With his experience developing the spreadsheets, the company’s internal accountant may be well positioned to assist the owner in the search process. The important thing in this area is to not try to save money in the short run by cutting corners that may jeopardize the longer-term future of the business.
Gerry Herter is a partner at HMWC CPAs & Business Advisors (www.hmwccpa.com), one of Orange County’s largest local accounting firms. Contact him at (714) 505-9000 to discuss how your company or client could benefit from HMWC’s services.