Switch Your Accounting Approach This New Year

Just about every micro enterprise still uses spreadsheets as default accounting systems. However, a growing business needs more useful data for evaluating results and making decisions. Without this, you risk wasting hard-won cash on baseless whims.

When you have more than a handful of clients and are generating multiple transactions, the time has come to adopt a serious approach to accounting; now’s the time to make a move to accounting software (or, if you already have accounting software, making it more useful.) Whatever its brand, well-designed accounting software is capable of much more than producing reports used only for income tax preparation.

Reasons for change

Enterprises that still handle their accounting by spreadsheet and use the data primarily at tax time are most in need of a change. A spreadsheet requires the entry of formulas to obtain needed information, and this task becomes increasingly laborious and prone to error as the number of customers, vendors, and transactions grow.

Accounting software, by contrast, delivers real-time reports as of the most recent data entry. It allows you to monitor changes in business performance over time with financial statements across multiple periods. Most accounting software syncs with other applications – including spreadsheet programs. Just ask your bookkeeper to export previous results to a spreadsheet format to make it easier to calculate key ratios.

What to change

Whether you handle your own bookkeeping or outsource the task, the aim of the process is not simply data entry. Rather, accounting software delivers important information based on the input. As a savvy entrepreneur, you’ll want to take command of this information rather than finding yourself a mere passenger on the roller coaster of business.

The start of a new year is the ideal time to automate with accounting software or derive more benefit from existing software with new financial reports. The latter may only require outsourcing more types of data entry to your bookkeeper, such as customer invoicing and bill payment.

How to change

You will need to carefully evaluate data in transitioning to new accounting software or improving reporting from your current software platform. For instance, you’ll need to enter customer and vendor information in the accounting program. Also, devote some time to considering the workflow required for accurate data entry in future. New efficient procedures will be required for timely input of invoiced sales and billed expenses. For example, some businesses use scanned images of receipts and bank statements as well as electronic transaction ledgers.

Whatever method you choose, make it easy to accurately record events in the accounting software. Even if you intend to personally handle day-to-day entry, it will be beneficial to ask a bookkeeper or accountant to set up the system.

In fact, most entrepreneurs find it advisable to outsource the entire data entry process once their companies reach a certain size. But this doesn’t mean they abandon the job of interpreting the information generated. In switching to or improving accounting software, your desired end is to capture bits of valuable information for improving operations.

How to Get the Real Picture of Your Spending Patterns

Achieving business goals requires planning – and that means the wise use of limited resources. Especially cash. As businesses grow beyond the startup phase, they should replace aggressive spending with a focus on sustainable spending. The entrepreneur who can’t or won’t change this spending focus has cash flow delusions; decisions will be based on an unrealistic understanding of the business’s status. The answer is budgeting.

Budgeting for micro operations: Budgeting is a tall order for a micro operation of one or two people. But even operations of this size should compare side-by-side financial statements of multiple periods to show the results of their cost-cutting moves, such as those listed below:

  • Outsourcing tops the list of advantageous ways to allocate cash. Contracting with outsiders for everything from bookkeeping to maintaining your online presence usually minimizes cost and eases administration.
  • Unless you have a location-based shop for customers, ditching the superfluous landline phone is certain to benefit the bottom line. Ask your team of outsourced workers to use cell phones.
  • If you’re not already a paperless operation, making the move to computer-based document storage is a key cost-containment technique. Plus, it reduces clutter and keeps you organized.
  • When purchasing equipment or furniture, used is often just as good as shiny new stuff and will save considerable cash.

The best way to minimize costs is to examine your financial statements at the end of each month. This enables you to identify excessive expenses and monitor the progress of your cost-reduction efforts.