Overlooked Features of Accounting Software

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(Monday, December 21, 2009)

Many small businesses use accounting software such as Simply Accounting, QuickBooks, and other programs to do their bookkeeping. All too often these businesses do not use the programs’ most valuable and useful features – the automated financial reporting capabilities, the financial analysis capabilities and the ability to share data with other programs.

A large number of business owners fail to recognize the fundamental difference in the way computerized accounting programs operate compared to manual accounting systems. As a result, they overlook the potential competitive advantage they could gain by fully utilizing the capabilities of their accounting software. Once data has been entered into a computerized accounting program, it can be analyzed in an almost endless number of ways, and can be exported to other programs for other uses. The real value of computerized accounting software lies not in making bookkeeping easier and faster, or simplifying filing tax returns at the end of the year, but in allowing the owner-manager to quickly, easily and affordably manage and direct the business.

Several decades ago, small businesses were generally not able to afford to hire the expertise or devote the time to analyze sales trends by product line, produce long range cash flow forecasts based on historical financial statement data, do sales forecasts by region and demographics, produce financial statements by department or project, analyze operations and compare to a detailed budget, or track inventory in real time and do “just in time” ordering.

Today, these features are either available as standard features of inexpensive accounting software, or as add on modules. Some of the features available are:

· Automated cash flow and other forecasts, using historical data already entered into the program, simply by answering a series of questions in an interactive format.

· Automatically generate invoices for recurring items to clients

· Automatically place orders for inventory items.

· Automatically generate collection letters.

· Automatically generate financial statements for individual departments, product lines, or projects.

· Synchronization of contacts with contact management programs such as Outlook™.

· Estimating and contract costing.

· Automated analysis to assess performance trends such as profits, sales, borrowing, liquidity, assets, and employees compared to others in the industry.

Each program varies in the features it offers, but they all allow financial statements and reports to be generated instantly, and all allow data to be exported to other programs such as word processors, spreadsheets and income tax preparation software.

Every business strives to control costs and increase revenues in order to increase profit margins and generate greater net income. Proper use of the reporting features of accounting software gives the owner-manager the tools to do just that. It is perfectly feasible to track individual products’ sales performance to determine or not they should be eliminated from the product line, for instance.

By analyzing employee productivity, a product’s contribution to profit, and other factors affecting revenue and gross margin, bottlenecks and deadwood can be identified and sales can be increased and gross profit on sales can also be increased, resulting in long term growth of the business. By forecasting cash flows and inventory requirements, financing costs and inventory overhead costs can be reduced, which directly affects net income. By developing a budget and comparing results to budget, the forecasting process can be improved, and problem areas can be identified.

All of this can be achieved at low cost, and most important, without spending large amounts of time, by using the capabilities of the software businesses already own. A few hours in training and planning can reap large returns, and can even make the owner-manager’s job easier, even if at first it seems likely to complicate it. Your professional accountant will be able to provide the training you will need, or direct you to a suitable trainer.