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 real-time basis.
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 -...