Posted: January 15, 2014
How strong is the foundation of your business?
You need these three componentsDebbi Warden
Construction experience is not required for a business owner to be successful. However, understanding a simple construction concept can help business owners recognize how the accounting function of their business can make or break its overall stability.
My staff and I volunteered to help construct a Habitat for Humanity home in Evergreen. The supervisor assigned us the task of putting siding on the home. Since we had no building experience (we are accountants!), we were briefed on the steps and it looked simple enough. We applied what we learned and nailed the first board. When the project manager inspected it, he told us to take the board down and start again. This happened three times before the first board was deemed straight and nailed correctly.
We nailed siding halfway up the side of the house before the next inspection. Along the way, one of our boards was not quite straight. As we nailed boards over it and worked our way up, the siding became more and more out of plumb. Once again, we had to take all the boards down and correct our error. There are certainly no shortcuts when building a Habitat home!
The project manager conveyed to us that the foundation has to be stable to support further construction. If you have experience, you are accurate and efficient with the process. Without that expertise, the project takes longer and requires more supervision.
Apply this concept to your accounting system. Recognize that accounting is the foundation of every business. When built properly, it supports the business by providing accurate and timely information. This applies to businesses of all sizes.
An accounting system should consist of the integration of these three components:
- The information flow process
- The software choice
- The personnel performing the accounting functions
The flow of business information from receipt to process to filing must be systemized. For very small companies, the system doesn’t have to be written. It is more important that the system be performed consistently and routinely. For example, the flow of a vendor bill may go as follows:
When this system works well and consistently, a document can be found easily and approved bills are paid on time. Everyone in the system knows the process.
Next, choose the right financial software for your business. A sign of a poor software choice is when a lot of necessary reports must be generated manually. This is inefficient and an opportunity for error and misinformation. The right software for your business might be a combination of several that are integrated. A web store and a point of sale software might be integrated with the financial software package. The right solution could be a cloud subscription or simply hosting your desktop software on a cloud server.
Be savvy about the differences between financial software written for the Mac and those for PC. Whatever software you choose, be sure you understand its features and the features it doesn’t have. As part of your business’ foundation, your financial software is critical. Don’t take a shortcut when choosing and integrating software.
The most significant element of your accounting system is the accounting personnel who runs it. There is no such thing as data entry into the system; the right person is doing a lot of thinking while recording and processing the business information. The wrong person may be creating a web that leads to misinformation and the need to untangle later at a much higher cost.
The people working in this system must have accounting knowledge as well as software expertise. They must understand how the recorded information flows through the software to financial reports as well as any tax impact the transaction may have on the business. They must also have a firm grasp on ever-changing compliance rules. This role can be performed by an employee, an outsourced expert, or a combination of both. This is a hat that few owners should wear.
A good accounting system will have a well-defined information flow process. The financial software will play an important role in creating efficiencies in recording and processing transactions that lead to generating business reports and financial statements. However, it is the accounting personnel who bring it all together and make it run smoothly.
A good systems hums with consistent routine, current management reports, and processes compliant with local, state, and federal rules. This results in a strong business foundation that allows the owner to focus on growing the business by keeping the boards straight.
Debbi C. Warden, CPA, CGMA, MBA, founder of accounting and bookkeeping CPA firm The Business Manager, LLC, can be reached at 303-681-2200 or firstname.lastname@example.org.