Most small business owners underutilize their accounting software because they approach it as a way to obtain financial information, instead of a productivity tool that allows them to manage their business more effectively. Most accounting systems give owners a method to analyze their business, to make better strategic decisions, and to manage their operating cash flow. Accounting software should make it easier for owners to forecast their future operating earnings and support their customers.
All businesses want grow their operating earnings since growth in income leads to a growth in business value. However, managing growth can be difficult since it makes the owner decide on how to employ relatively scarce resources. The following are several ways that owners can use their business’ accounting software to become more efficient in using the resources they have available:
Electronic Data Interchange (EDI)
Accounting software can be used to communicate with other system using EDI. Sometimes it makes more sense for companies to add functionality to the existing accounting software applications then to do tasks manually with human resources.
Take for example a company that has been successful managing large accounts that place orders online or by telephone. One company, an office supply business averages more than 20,000 items ordered each month and purchased thousands of items each month from one supplier. Company growth requires that they hire 2 or 3 additional staff member to validate vendor invoices against purchase orders. Instead of adding the cost of the additional employees they chose to trust the vendor invoices and forego checking the purchase orders.
Instead of taking the risk that their vendors would not invoice correctly against their purchase orders, a business may purchase an add-on to their accounting system to automatically match the electronic vendor invoice to previously input purchase orders. With this solution there is a small cost in relation to 3 new employees and little risk of error since everything is validated by the system using EDI. This type of EDI application has been around for some time but in the past has been too expensive for small businesses to afford. However, technological advances and the proliferation of EDI applications have reduced the cost to a point that makes financial sense for small businesses.
With EDI, information is stored and transmitted in a standard electronic format that can be used by a variety of different software platforms. For example, if a vendor bill is received via EDI, the software would translate the information into a readable format that can be electronically input into the existing accounting software. At this point the accounting software contains the invoice and the original authorization, which is then matched up for approval. At this point, instead of a process subject to human error, the system can determine if the invoices are correct and report any issues found.
Time Stamping and Tracking
Most accounting systems have the ability to time stamp transactions and perform timekeeping.. Using these features within the accounting system, owners can see when something was entered into the system and who, if anyone, handled a particular issue. It can also determine how much time a particular employee spent on a certain task or for a particular client. With this information it is much easier to track where something is within a particular business process or how much labor is being spent on a particular project or business segment.
Take for example a contractor that has multiple jobs going on at one time that requires the business owner to shuttle employees from one project to another. If employees turn in timesheets at the end of the week there is a risk that they will not allocate their time correctly to each of the projects. This misallocation of time will affect the profit and loss statements for each of the company’s projects. This system does not give management any indication of where labor is being used during the week, which is information that can be used to make the following week’s schedule and to avoid spending overtime pay.
The solution for this problem is to use the time management functions of the accounting system. Modern accounting systems are not just for conducting payroll. Most have time keeping functions that will not only keep track of employee time and determine labor costs, but for those businesses that bill for their employees’ time, will create the relevant invoices. Once employee time is input, business owners can analyze human resource usage and schedule their employees’ time more efficiently.
More advanced time keeping add on applications will allow employees using a mobile phone or other internet based equipment to enter their hours on a certain project. Since the process is automated, the employee and management are notified when the employee fails to enter their hours at the appropriate time. Managers also have the ability to edit inputs and to create a companywide schedule for each project or customer. Some applications have GPS features linked to the employee’s mobile phone that will track their whereabouts during the day. This tracking feature can be used to help allocate time across various tasks or projects. The cost of an add-on to an existing accounting platform is less than you might think. The cost of one service is roughly $20 a month for a supervisor and $8 per employee plus the cost of an appropriate mobile phone.
It is clear from these examples that accounting software is no longer just a means to report a company’s financial information. Most have been designed to be fully integrated enterprise systems that allow owners to better analyze their company’s operations and to automate redundant and repetitive tasks. The cost of these systems is usually less than the cost of the employees needed to provide the same functionality. Since most small business owners underutilize their existing accounting system, they should determine if their existing platform includes additional functionality that they are not currently using before deciding to upgrade to a new more advanced system. In many cases their accounting system can be used to better manage cash flows while reducing overall labor costs.