Computerised accounting software is a great tool to help your business survive, if you know how to use it.
In this post, I want to highlight how 2 businesses which started at approximately the same time, about 6 years ago, but they are now miles apart in terms of financial health.
Business 1 is involved in the construction business. The owners left the accounting functions to a team of in-house bookkeepers. Unfortunately, the owners did not use the data generated by the accounting software to their advantage. The company is now being sued by many suppliers to recover their outstanding amounts. The irony of the situation is that the accounts showed a huge and glaring amount of advances and recoverables outstanding from staff and customers, yet no action were taken to recover them. The customers have disappeared from the scene, and the company is saddled with legal disputes from suppliers. The projects were profitable, but the company did not keep a check on their cashflow.
Business 2 deals in electronics products. The business started at a slow pace and is now showing a healthy cashflow despite being in a very competitive industry. The owner uses MYOB Accounting software in their daily operation - purchasing, sales,a dn banking. He engages a professional accountant to come in once a month to reconcile the bank accounts, and to provide a professional review of the accounts. He also uses the data generated by MYOB accounting software to control the inventory levels and also ensures that the customers do not exceed their credit terms. The owner understood that cashflow is critical to the survival of a business.
Both businesses have MYOB Accounting software installed in their business. Both the business owners are non-accountants. The difference is that business owner #2 made full use of the tool he had to help him manage his business better.
What did business owner #2 do right? :
1. "I used the sales analysis report to get an average quantity of sales for the last 3 months. And I place an order for that quantity at the beginning of the month. That way, I will not run out of stock when customers want to buy, and I also will not be overstocking excessively. My cashflow is quite healthy because I have funds from the sales to pay my suppliers."
2. "I learnt how to use the customers receivables report as a basis for collecting overdue accounts. I call them and ask when we can collect the payments. After doing this a couple of times, I have inadvertently educated my customers about our collection policy, and most times they will comply with the credit terms. It makes my work of monitoring the cashflow much easier."
3. "When I am bidding for a contract, I use the jobs feature to track the project profit and also prepared a budget for the entire project. This allows me to know which project was successful."
4. "I also print the income statement by months to see how I fare compared to previous months."
In summary:
An accounting software is the best tool any small business can have. But like any tool, you must learn how to use it well. And with MYOB Accounting, it's not difficult to learn how to print the reports. It's learning how to read and interpret the accounts that can break or make the business.
On hindsight, if you are starting a new business, you should computerise your bookkeeping functions as early as you can.