Systems

Back in May I wrote about accounting systems (What Accounting System Should I Choose?) where I talked about accounting systems for startups.

I can't stress enough about the value and importance of getting the right software and creating appropriate systems.

Yesterday I was at a new client's office helping them set up some industry specific software to interface with QuickBooks. They called me because of my QuickBooks expertise and to see if I could help them with the integration. I went to help despite no previous knowledge of this specific third party application.

Prior to me setting up their new system, they spent hours, upon hours writing up invoices, POs, and work orders to run their business. Now they can do these same tasks in minutes and have better records and a far more professional appearance to their customer using their new software.

The business owner was also spending at least a day/month reconciling his VISA/MC deposits, while being completely frustrated at the process. I also got him set up with QuickBooks merchant services so these tasks can be automated in the future. This change will probably cost him an additional $25/month but he will free up an entire day and eliminate a major source of frustration. A poorly designed system had him pulling his hair out.

The industry software he acquired (Mitchell 1) costs about $250/month but it allows him to go from being an amateur to working like a professional overnight. I'll bet this software has an off the chart ROI for him as he goes forward. It was clear that his business was severely hamstrung trying to operate on QuickBooks as he fought to make his system function. Now he has an elegant system that works for him and will give him the information he needs to run his business.

While these additional costs are significant to a startup, a good business must invest money to make money and his investment in the proper systems should pay huge dividends.

What accounting system should I choose?

One of my MBA classmates asked me if I might be able to create a matrix relating accounting packages to size and industry. In her two paragraph inquiry she mentioned seven different software packages. The reality is that there are likely a thousand or more accounting programs on the market, each with their own set of advantages and disadvantages. What might work great for one company could be a disaster for another.

Choosing the right software is a critical business decision. Get it right and you’ll be extremely pleased. Get it wrong and you’ll spend countless hours doing workarounds and other labor intensive work to get the information and control a good system should provide.

Because there are so many choices in the market, it would be impossible for me to know all of them. As a Certified QuickBooks™ ProAdvisor, I am somewhat biased towards them and often recommend that solution. However, QuickBooks is a terrible program for many businesses.

I tend to recommend QuickBooks because it is inexpensive to purchase, easy to use, offers great customer support, is expandable within limits, and offers a variety of industry specific packages. The industry specific packages cost more to purchase but offer many great features for certain companies.

Being the most widely used makes it easy to find bookkeepers and staff who are trained and familiar with the software which can significantly reduce current and future training costs. There are also a number of third-party vendor options to enhance the package that can be purchased separately.

On the other hand, QuickBooks can only handle average cost inventory pricing. If you need LIFO, FIFO, specific identification or some other inventory pricing system, QuickBooks will not work for you. QuickBooks has other limitations as well but those are for another discussion.

Since there is no one size fits all accounting system, I recommend business owners start by evaluating any industry specific programs on the market. Industry specific software helps address business processes typical to an industry without adding extra customization costs.

I was involved in start-up bakery which selected QuickBooks prior to my arrival on the team. While I was trying to determine how to make QuickBooks cost a loaf of bread and then differentiate that from a sliced loaf of bread, I did some research and found specialized bakery software. The bakery software was admittedly more expensive (approximately $5,000 to buy and another $5,000 to set up) but infinitely more useful. The bakery software provided so many additional benefits that the added cost was more than worth it. The specialized software helped the start-up bakery operate at an entirely different level than what would have been possible with QuickBooks alone.

Sometimes it makes sense to use QuickBoooks for A/R, A/P, G/L and financial reporting while using a different package for inventory, costing, billing, or other specialized tasks. It just depends.

The total cost of the system will include the purchase price, setup, training, operating costs, advisory and support costs as well as future upgrades. All of these costs need to be considered when making a choice and compared to the anticipated benefits of the systems under consideration.

Here is where I recommend the value of a CPA knowledgeable in systems design. Armed with knowledge about your business, goals, plans, operations, processes, transaction flows and critical information requirements, a CPA can help you find and select the software that will be a strategic fit for your company.

The value of accounting

A classmate getting ready to launch a business (www.soupcycle.com), recently asked me about accounting systems. Specifically, what should they do and of course, what will it cost?

I recommended QuickBooks given their size, budget and sophistication. However, while QuickBooks will cost anywhere from $200-$450 for the software depending upon the version, this is really just a fraction of the total investment.

After opening the box and installing the software, the chart of accounts, terms, items, vendors, employees, customers and more must be created in QuickBooks. Transactional systems outside QuickBooks must be designed, tested and implemented so individual transactions ultimately get recorded and summarized properly in the financial statements and other accounting reports.

While all of this costs money, I prefer to think of this as an investment in the efficient operations of the business. A well created accounting system is a valuable intangible asset. It provides a significant level of the internal control environment for a small business. Your accounting system should provide timely and accurate financial reports to help you assess progress, problems and success. A quality financial reporting system should make you more attractive to lenders and investors, all other things being equal and it will save you money when it comes time to prepare your taxes since the data will be easier to work with.

Small business leaders have so many things to think about. Failing to recognize the value and importance of a quality financial reporting system is a costly mistake. You wouldn't start a business without a marketing plan. You shouldn't start a business without an equally robust accounting and financial reporting plan.

How much should you spend on accounting? I don't have a specific number or percentage but the number is larger than many start-ups suspect and is a valuable investment and component of a successful enterprise.