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
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
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.
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Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
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