The old way of accounting is really boring.
If you are like most start-up entrepreneurs or small business owners, each month you transact “making, buying and selling” through a manual system (spreadsheet, timesheet, cash register, receipt or quote book). Then, progressively through the month, or at the month end, the data is manually entered into a hard-drive or desktop accounting system.
At some point, several days into the next month, you may get an income or profit & loss statement. By this time, it is too late to truly inform strategy for the new month, and oftentimes, these statements are fraught with errors due to the manual process. Consider this a management accounting fail.
And, the quest to receive accurate and timely financial and statistical information so you and your team can make day-to-day, rapid business decisions only gets worse when you rely on desktop solutions and manual processes.
At the end of the year, you might package up all your receipts and a copy of the year-end file from your accounting system and send it to an external accounting firm for processing and filing. The external accountant starts on your file, stops to ask you questions, starts again, asks more questions and then later, sometimes even months later, finishes your job and presents you with a set of financial statements.
Most experienced business owners have been through this at one time or another: the external accountant sets a meeting with you, does not explain things very well, gets you to sign documents, then files the work with the government and you’re done. Done, but the financial statements have old redundant data that reflect last year’s performance, not yesterday’s. There is nothing from this process that helps you run your business. True management accounting is absent.
You are left unable to make business decisions and you are left with three, often unanswered questions, which every small business owner needs answered:
1. Where did the cash go?
2. Am I making money, and if so how much?
3. How much free cash do I have right now?
You will never get an accurate, “real-time” answer to these questions while you have an archaic desktop-based accounting system that involves manual data entry. These systems are well past their use-by date.
Yawn! Stretch! Boring!
Accounting, however, can be sexy if you change your systems to cloud technology. (Cloud is just a fancy word for Internet-based.)
Imagine if your accounting system talked to your client management system, which talked to your inventory system, which talked to your distribution or point-of-sale system. Imagine if all the technology was hosted on the Internet and it all synced up every day, or even every minute if you wanted.
What you end up with would be a secure, easy-to-use system with rich, accurate data, less manual input and thorough reports to help you run your business in real time.
In my business, I get dashboard reports automatically sent to my email every day. I receive client numbers, client frequency, most recent sales, forecast pipeline, cash balance and revenue & profit for yesterday, month and year-to-date. These reports give me a snapshot of the most important things going in my business at any given time. This type of management accounting enables me to run a better business because I have accurate information at my fingertips to make management decisions.
I know how much money I am making. I know where the problematic areas are. I know how much cash I have to play with. I used to pay external advisers around $2,000 a month for “management reports” that were late and not nearly as accurate as what my system generates now for a fraction of the cost.
You cannot generate this sort of data on multiple-hard-drive or manual-based systems. You just can’t. You can only get what I am talking about with cloud accounting technology.
It starts with the accounting software. When the data is in the cloud, it can be seriously sexy!