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Accounting: Beyond the Basics

From monthly profit-and-loss statements to annual reports, accounting is just basic business hygiene, right? Wrong. Read on to see how your business can use financial information as a strategic tool to improve day-to-day business results.

Accounting is a part of basic business hygiene: buying materials and services, paying employees and vendors, creating balance sheets and tracking tax liability. But savvy business owners and managers also treat accounting as a strategic tool for improving business results. To achieve these benefits, businesses need to look beyond the general ledger and think about to better use and improve their financial tools and infrastructure to enhance business processes and decision-making.

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Strategic Accounting Tips and Tools

Accounting data is traditionally used to evaluate a business after the fact: monthly roll-ups, annual reports, etc. But businesses gain the most value from financial information when it is used to guide and inform decision-making about daily operations and business strategy.

The ability to share real-time operating and financial data among managers and decision-makers can benefit a business in several ways. Availability of financial data to line-of-business managers can help them manage their operations for better financial results. For example, if the heads of marketing and sales have immediate data on which customers are the most profitable in terms of the products they buy and the amount of support they need, they can concentrate marketing and sales efforts to win repeat sales from those customers and to acquire more customers like them.

Integration of operations and financial data can also give business owners and managers a bird’s-eye, real-time or near real-time view of the business, enabling better decision-making. With the right information in hand, you could avoid wasting inventory space on a product that isn’t selling well or is less profitable than others. You could give more business and incentives to the distributors or resellers who are selling the most or who pay fastest, contributing the most to your cash flow. Real-time feedback can help managers to get maximum ROI from their assets, relationships and operations.

Businesses need to consider how their accounting tools can streamline operations or contribute directly to the bottom line. For instance, a comprehensive, easy-to-use accounting system can help a company to save on outside accounting fees for monthly and quarterly roll-ups. Generating digital invoices and sending them by e-mail can get bills into customers’ systems faster, speeding payments and improving cash flow.

Accounting systems can also help companies facing industry-specific or other regulatory requirements. While Sarbanes-Oxley requirements apply only to larger public companies, even private companies are under more pressure to meet financial control reporting standards. Many accounting software vendors have specific packages or add-ons that help companies automatically capture information and generate reports needed to satisfy regulatory requirements with minimal added cost and effort.

Getting There

The first step in achieving the benefits of strategic accounting is to integrate financial information with other business systems and to make it available to managers and decision-makers outside the finance group. To do this you need:

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  • Financial applications that can be used by more than one user at a time. If your current software doesn’t support multi-user access, check with your vendor. You can probably upgrade to a multi-user license with minimal effort and expense.
  • A server with the power to handle all your users and financial data now and for the foreseeable future. If applications aren’t responsive or reports take too long to generate, users will be less willing to review and use the information that’s available.

The next step is to look at your accounting systems and find out where integration, upgrades or add-ons could give you additional benefits. Some questions to consider are:

  • What functions should be integrated? You may want to integrate the financial system with other existing systems such as inventory control, order tracking, manufacturing control or customer support. Your software vendor undoubtedly has software and/or professional services available to help you with this.
  • Do you have the capabilities you need? As your product line diversifies, you might choose to add Supply Chain Management (SCM) capabilities so you can view outstanding supplier orders and project cash flow requirements. Or you may use built-in project accounting or invoicing functionality today, but as your business matures, you might want the ability to customize tables or forms to generate different kinds of reports or to meet the requirements of different partners and customers. Your software vendor may have add-on products that you can use to add more sophisticated functionality or to customize accounting processes as your business needs evolve.
  • Do you need a vertical industry package? Any general ledger application will meet basic needs such as accounts payable and receivable, payroll and balance sheets, but your accounting software vendor may also offer applications that are oriented towards a specific industry such as retail or manufacturing. These specialized applications can help improve financial management across your business and also streamline the work of regulatory compliance. For example, a retail system that integrates inventory and ordering information with financials can help your business manage inventory more closely, correlate sales to specific products to guide future business strategy, and simplify monthly or quarterly roll-ups. A package geared toward non-profit corporations can streamline the work of meeting mandatory reporting requirements.
  • Do you have enough accounting capacity for the longer term? Your business can outgrow its financial systems. Your vendor probably offers several levels of financial management package, geared for different numbers of users and data processing demands. (These capabilities are also a function of your server, so make sure your server has the power you need.)

The Bottom Line

Accounting is no longer simply a back-office function. With the economic and competitive pressures on today’s businesses, it is vital to practice sound financial management in every aspect of a business. With the right processes, tools and systems in place, businesses large and small can use their financial information to make better decisions and achieve better results, not just by the month or the quarter, but each and every day.

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