Is your accounting system stealing your profits?

Your books and records are the forensic roadmap for your business’s performance and general health. Very small businesses often run their operations off of a checkbook, but everyone soon learns that it is impossible to operate in that manner as the sheer size of purchases, invoices and expenses becomes overwhelming to track in one’s head. Effective bookkeeping tracks payables, expenses, vendor usage, credits, and invoices due and outstanding. Imagine if you could not rely on this information because it was not properly set up from the start? Chaos.

While designed to help keep your business healthy, a poorly constructed or sloppy execution of your books and records can end up stealing your profits, robbing you of efficiency; causing double entries, lost payments, and even impacting credit and vendor relationships.

Common issues with substandard accounting systems include:

Poor cash flow—even if business has been good
Mis-labeled expenses entered into the wrong account
Missing entries, causing the books to not be able to be balanced
Double entries, causing double credits or double payments, also hindering the balancing of books.
The possibility of fraud to happen without your knowledge
Inability to make any good financial decisions
No planning
Ultimate financial instability due to inability to understand costs, expenses, etc.

While it would appear that your accounting system is a “set it and forget it” type of software issue, the fact is, it is much more complex and requires ongoing maintenance and scrutiny. If you accounting system is not performing as expected, you are probably coming to this realization due to one of the above mentioned issues. This means, damage is already being done to your business.

For this reason, it is important to bring in a professional outsource to inspect your accounting system and assess the areas that may need to be improved, abandoned, or replaced.

Is a new accounting software the right move?

Now that businesses have access to many excellent applications available, it is possible that replacing your accounting system will actually save you money in a short amount of time. Analysis of any new accounting system should include an overview of the system’s functionality to ensure it will deliver the reporting you require, as well proof that their support and service is competent (and reasonably affordable) especially after any initial support period has expired. The stability of the company is also an important consideration. Mergers and failures are common in the software industry, so there is little point in investing in a system that is going to be dead ended in the near future.

Another important consideration in finding a new accounting system is compatibility. Will the system port easily with other data sources (inventory, or your CRM, for example) or will it be a patchwork situation?

Other options

But before considering expensive software, a conversation with an accounting professional can help you improve structural matters that may be impacting the performance of information. You may have a poorly constructed chart of accounts, for example, and, while data is being properly input into the system, it is labeled in such a way as to not provide valuable reporting critical to operating your business. For example, if parts purchases are not properly categorized, you may not be able to differentiate between inventory purchases and supplies that are utilized internally.

Another deficiency that commonly surfaces is the lack of training or skillsets of the internal staff working on the system. While proper training may resolve these problems, it may actually be more efficient and cost-effective to outsource the entire task. An outsourced solution will provide you with a predictable level of expertise, back up if someone becomes ill, and assurance that you will always be utilizing today’s most up to date software solutions. An outsource is also a manageable expense that requires no HR perks, such as retirement plans, unemployment set asides, and mandatory personal days. Simply write a check every month and be done with the task.

If you suspect your accounting system may be stealing from your business, perhaps it might be time to consider talking to an accounting professional about your situation to determine next steps. Feel free to reach out to ZMC & Associates for a no-obligation conversation at your earliest convenience.