Solve Business Problems Before They Become Critical With Accounting Software

Running a business and ignoring or havingdecline. There is a tendency in businesses not
inadequate accounting software is like building amaking sufficient profit for the creditor balance to
house on top of a bonfire and not bothering to fitgrow as the time taken to pay suppliers is
a fire alarm. Many small businesses run intoextended. Such action may be necessary and is a
difficulties sooner or later, it is a fact of businessnatural reaction but the real cause should be
life. Timing and how those crises are dealt withaddressed, that cause being an inadequate level of
are critical to both the success and in some casesprofitability.
survival of the business.The profit and loss account for a small business
Important as self employed business usuallyshould not be viewed as an administrative
dispense with regular presentations of the financialheadache but a vital tool in the financial
psoition and the ensuing discussion. Considering themanagement and control of the business. A
financial state of a business is a critical area that ismonthly profit and loss account produced by
so often missed from the management of a smallaccounting software should be viewed more of a
business.financial health check on the business.
Every business has to prepare a set of financialThe profit and loss account will show the sales
accounts. Those financial accounts may beturnover and a list of purchase expenses
produced manually or using financial accountingproducing a net profit or loss for the month. By
software. The main objective of producing thecomparing the current month to recent previous
accounts is all too often to satisfy taxationmonths the trend of financial performance
requirements and not the financial control andbecomes obvious. This is a critical function of
management of the business.accounting software to produce real numbers that
When accounts are prepared on an annual basiswill indicate where action is required.
the day to day financial management of theThe accounting software retains previous financial
business is reduced to the size of the bankinformation entered that enables sales to be
balance. When that bank balance reaches a criticalmonitored and the effect of sales and marketing
low level the small business will react but thecampaigns to be seen in real numbers. Patterns of
action required to fix the problem may well havemovements in costs are visible. Any numbers
been endemic for many months. Early action isproduced by the accounting software can then
always best.provide the basis for management action to
By using accounting software and the financialeither improve financial control or take
control it can offer the small business not onlymanagement decisions to grow higher sales or
provides an early warning system but alsoreduce costs.
indicates where management action is required.By using a financial accounting system to critically
Financial accounts should be prepared by all smallreview the business finances on a regular basis
business on a monthly basis to maintain financialprovides both opportunities for sales growth and
control.higher profit levels but also serves as an early
Simple accounting software can produce anwarning system of business problems. Both a
income and expenditure account which sufficesprofit and loss account and balance sheet are
for many small business enterprises who alreadydefinitive tools in the armoury of the accountancy
have full knowledge of the business finances.function to achieving financial control of the
Other types of accounting software can producebusiness and producing the desired financial
balance sheets and with a balance sheet the valueperformance.
of creditors, debtors, bank balances and assets. InThe absence of a suitable accounting software
larger organisations the financial accounts will besystem or used purely for tax purposes once a
more sophisticated and produce analysis of allyear leaves the financial performance of the
main areas of the business.business to the intuition of the management and
During the financial life of a business there areis unmeasured. If you are a sports fan and your
types when sales grow and times when salesteam mangement wa sleft to guesswork you
decline. The amount owed by customers is calledwould not be a happy bunny.
debtors and the debtor balance may grow in lineA long jumper practises every day and believes
with sales turnover but can also move accordinghe is jumping well but never measures his jumps
to the efficiency of the financial control and creditor analyses his physical condition, training schedule,
control systems in place. The movement in therun up speed. It would come as no surprise if
debtor balance potentially having a critical financialanother long jumper with similar ability who
effect on the liquidity of the business.monitored fitness levels, worked on the run up
The overall movement of the debtor balance onand jumping technique and measured every jump
a day to day basis is not always obvious and onlywould in competition jump the farthest.
by producing a specific total at the end of eachAnd so it is with accounting software and regular
month can the debtor balance be viewed andfinancial control. If the numbers are produced on a
questions asked to maintain strong financialregular monthly basis the numbers can be
control. Slippage in credit control procedures mustdiligently analysed and an improved financial
be tackled at the earliest stage to avoid a seriousperformance will follow but most importantly
financial impact on the business.business problems can be detected and fixed
Purchase expenditure can also increase andbefore they become terminal.
reduce and the creditor balances can increase and