As a small business owner, you need to have the most recent financial information for your company instantly available. But if your business relies on spreadsheets to tackle day-to-day accounting, it might take more time than necessary to find the financial details you need.
The spreadsheet method also limits the number of people who can access data, and may even lead to errors in calculations and inputs. If any of these issues sound familiar, it might be time to make the jump to online accounting software. According to expert self-employed advice, switching to an online accounting software program can benefit your company’s cash flow. Plus, bookkeeping software and online accounting programs make it easier than ever to track every part of your business, from inventory and sales to accounts receivable and payable.
Managing Cash Flow
Cash flow management is an essential part of running a successful small business. When you know how money is moving in and out of your company, it’s easier to manage profits. Delays in payments from customers can have a snowball effect, preventing you from meeting your timely financial obligations. Three main areas of cash flow management make all the difference: accounts payable, accounts receivable, and planning for and avoiding shortfalls.
Accounts payable is the money that your company needs to pay to others for a variety of things, such as:
- Employee payroll
- Raw materials
- Office supplies
- Anything else that your company purchases
When you have an accurate record of accounts payable, you can pay bills on time and avoid late payments. These liabilities are recorded on your company’s balance sheet. Up-to-date accounts payable records can also help you find opportunities to cut back on expenses and save money. That means you reduce the amount of money going out and keep your cash flow healthy. An accounting program organizes all of your bills and payments in one place, so you can plan appropriately for future expenditures and avoid cash flow shortfalls.
Do you know who owes your business money on any given day and how much they owe? Pending payments for services or product sales make up your accounts receivable. It’s essential for your small business to maintain good accounts receivable records. What’s more, it’s a good idea to have a system that notifies you when payments don’t arrive when you expect them. That way, you can calculate late fees and send updated invoices quickly to encourage clients to pay. That’s where accounting software has a significant advantage over spreadsheets — it handles all of those tasks for you, from the invoicing to final collection steps, so you can stay on top of incoming payments and keep your bank balance in the black.
Planning for and Avoiding Shortfalls
When you manage your cash flow effectively for your small business, you can plan for possible shortfalls. That way, if an unexpected cost comes up, such as a needed repair to a piece of essential equipment or increased payroll expenses during busy periods, you’re ready to handle it. It’s also a good idea to anticipate potential shortfalls and find creative ways to avoid them.
Without adequate cash on hand to handle day-to-day expenditures, your business can quickly grind to a halt. One option to this problem? Be ready for times when sales are likely to be lower than average by stockpiling a reserve fund from profits you earn during the high-sales season.
To help your company weather slow times and periods of reduced profits, you can also plan in advance to counter those losses by hunting for ways to increase sales and improve cash flow.
Let’s say you own a company that sells swimsuits. In the spring and summer months, sales are predictably robust, but they plummet as the temperatures drop. As a remedy against cash flow shortages during your company’s slow season, you might consider running a marketing campaign targeting vacationers who travel to warmer locales in the winter months. But in the meantime, relying on the operating reserves you set aside during your most profitable months can keep your business healthy and running on schedule when sales slow down.
The Benefits of Specialized Accounting Software
If you’ve ever spent hours squinting at spreadsheets and doing your books, you know how inefficient and labour-intensive the process can be. Specialized bookkeeping and accounting software offer a better way to manage accounting. It also comes with a variety of other benefits for your small business.
Industry-Standard Accounting Principles
Sure, Microsoft Excel and similar programs provide you with functions that perform financial calculations. But how do you know you’ve chosen the right financial formula and applied it correctly? What’s more, do all of your employees and financial professionals understand how to read and update your company’s spreadsheets? Probably not. Accounting software automatically applies industry-standard formulas and performs appropriate calculations based on the type of data you enter. By using the built-in reporting tools, you can easily create a variety of standard financial reports on demand. With just a couple of clicks, you can create profit and loss statements and cash flow analyses — no time-consuming calculations required. All you need to do is choose the type of report you want to create. If you have multiple people handing accounting, this standardization and convenience can help reduce stress, particularly during an external audit.
Multiple Users and Mobile Apps
How important is having access to real-time financial information for your small business? Imagine this scenario: you’re visiting a supplier, who offers your company an exciting new line of products at a great price. Can you make an informed decision on the spot about whether you can afford to expand your product offerings? Having your latest and most accurate cash flow information at your fingertips helps you make the best decision possible. This type of record-keeping capability can also help your sales staff know exactly what stock is available in inventory at any given time. That way, you don’t need to deal with disappointed clients when a product is unavailable or ships later than expected.
When you’re working on a spreadsheet in an older software version, none of your other employees can access it until you’re finished updating the financial data. This might not seem like a big deal, but it can be — especially if different employees have varying levels of information about each account. Waiting to access the spreadsheet can hurt your time management. Imagine that you’re working on a spreadsheet to compute this week’s payroll, but you don’t know that one of your employee’s work hours haven’t been added yet. Or, one of your accounts receivable was just paid an hour ago, but you’re working from home and haven’t been notified yet about that update. Any commonplace situation like these means your numbers will be off.
Accounting software solves this problem. It allows multiple users in your company to login in at the same time to access and update information. The system updates automatically for every user, so everyone is always working with the most current data.
This feature is particularly important if you have remote workers or salespeople who spend hours outside of the office. Some accounting programs, like Quickbooks, even make it easy for your sales staff to place orders and create invoices from their mobile phones when they’re in the field. This kind of real-time invoicing can lead to faster payments from your clients, which creates a healthier cash flow for your business.
When you’re entering long streams of data or creating a formula in a spreadsheet, it’s all too easy to make a small mistake that has big consequences. While some mistakes are minor, others can set back your small business’s finances for days. For example, if you’re working on a spreadsheet, and you need it to add lines 5 through 22, you might accidentally enter the ending point as line 21. You might not notice this mistake right away, which means your calculations can be off by a couple of dollars — or a couple of thousand dollars. Correcting the mistake takes time and concentration away from other tasks that need your attention. Errors are especially problematic when calculating your taxes because your business may face stiff fines and penalties for filing incorrect tax returns.
With accounting software, you don’t have to worry about problems with formulas. The software automatically calculates correctly, giving you an accurate picture of your current cash flow or tax liability and increasing your peace of mind.
Specialized, Best-of-Breed Expertise
Creating a custom spreadsheet accounting system takes time and experimentation. After all, you’re working with a blank canvas. If you don’t have that extra time in your schedule or the necessary expertise to come up with your own accounting system from scratch, accounting software can be a better solution. It’s backed by industry experts and designed specifically to handle all aspects of small business accounting. That means that you can jump right in and start using it immediately to protect the financial health of your small business.
When you’re just starting out as a small business owner, cheap spreadsheet accounting is a common solution to your company’s financial management needs. However, as your company and your accounting requirements grow, it’s a good idea to evolve your basic bookkeeping process by investing in accounting software. With real-time access to accurate financials, you can make smarter decisions for your company with enhanced confidence. Using an accounting system, such as QuickBooks Online, you can generate a Profit and Loss statement automatically. Learn how today.