Accounting Unleashed

By Ellen DePasquale

Ask any small-business owner these days whether they’ve automated their accounting process, and the answer across the board is bound to be an emphatic, ‘Of course.’ Whether it’s off the shelf, through an application service provider, or customized, they’re using it. Whether they’re taking advantage of the information that software could provide is another question altogether.

According to Judy Thornell, few small-business owners have as firm a grasp on their accounting as they should. As president of BayTek, a consulting company based in Las Vegas, Nev., she has developed a client base of more than 15,000 small businesses, and the most common thread among them is their crunch for time. ‘In a small business of less than 25 employees, the owner wears so many hats that they focus too heavily on promoting their business and not enough on accounting for how well (or poorly) it is doing,’ says Thornell. ‘They have zero time because they are so involved in every aspect of their business that they wind up doing their accounting to the best of their ability instead of utilizing the reports their accounting program has to offer.’ Ironically, these are the businesses that would benefit the most from understanding the reports.

Do the Right Thing
Amy Slater, controller at OB Construction, a small, 15-person shop located in Henderson, N.Y., has found that the most important issue regarding the data is making sure that it is entered accurately. When the data in the system has errors, there can be costly ramifications down the line.

Slater recalls an unpleasant experience when an incorrect invoice was sent to a client. Although some businesses could have easily solved this error by issuing a new invoice, the remedy was not as simple for Slater. In construction there are several factors involved in processing payments that can hold up a check for a month, causing cash flow problems. Many of Slater’s clients draw funds against construction loans to pay invoices. The terms of the loan often dictate the payment terms of the contract between OB Construction and their clients; specifically, the time period in which invoices can be presented and paid.

When their client received the erroneous invoice, they could not process it. They contacted Slater and explained that if they did not receive the corrected invoice immediately that they could not process it in time for the current months ‘draw’ and that Slater would have to wait until the following month’s draw for payment. Slater issued the corrected invoice in time to make the client’s current month’s draw, and initiated a reconciliation process at OB Construction to prevent any future invoicing problems.

In addition to reconciling the invoicing, Slater reconciles all the data entry on a monthly basis before she runs project profitability reports that she submits to the company’s principals. The most frequent discrepancy she finds occurs in accounts payable, when an outgoing payment is not associated with a job. Any adjustment then changes the profitability of that job.

‘All data entry needs to have a process so that you limit the number of errors,’ says Slater. However, it is difficult to eliminate them all. ‘The number of errors is directly related to the volume of data,’ she explains. Because she has implemented reconciliation processes on the invoicing and end-of-month data, she makes it very clear to new employees that it won’t take her long to identify someone who does not follow the data entry procedures. Slater uses BusinessWorks accounting software, which is very user-friendly, so errors are kept to a minimum and easily corrected when found.

Stay on Track
Not only do you have to understand what your accounting system can do for you, but you have to use it regularly to gain the greatest benefits. Chad Derk, principal at marketing and technology consulting firm Swim Fish Consulting, views reports on the status of his projects daily.

Derk uses NetLedger, an accounting ‘application service provider’ (ASP), which offers a unique accounting scenario for the small-business owner. Because the software and Derk’s data are housed on the Internet, NetLedger’s multi-user system allows users to log in from any location that has Internet access. This allows Derk’s accountant to run the data entry from his own office, and Derk to review those numbers and run reports from his.

Derk’s daily reports are key to the success of Swim Fish Consulting. Derk employs a large pool of independent consultants as subcontractors, ranging from 25 to 40 at any one time, and diligently monitors each project and the billing from each contractor. ‘Our general administration costs are low,’ explains Derk, ‘but where we do spend is on the consultants, who are pretty highly paid.’

Since many of his projects are contracted for a specific number of hours, it is important to the bottom line that Derk monitors hours carefully. The ability to track hours and rates has helped keep his projects running smoothly even when problems arise. ‘We found that one of our consultants was gradually increasing the hours he was billing us over the course of a few invoices,’ explains Derk. ‘By reviewing the reports daily, I identified this trend and then notified the director of project management, who addressed the situation and got the project back on track. Without the reports we might not have noticed the increase in hours until it was closer to the end of the project when we would have had fewer options to correct the problem.’

Above All, Train
Watching the numbers is exactly what is keeping Randy Bryant, CEO, Loweman Court and Wolftrap Operations Inc., in business. Bryant owns and operates a construction, demolition, and debris landfill located in Yorktown, Va., and relies heavily on the reports from MYOB Accounting Plus. ‘We have a finite amount of capacity and when it is full, I will have to close the operation,’ says Bryant. ‘The data in the invoicing area of MYOB keeps running totals of what I have received so I can project when I will reach my final capability. The reports I run help me estimate my time of closure.’

The importance of this is two-fold. First, Bryant has to make state-mandated preparations prior to closure because they have to cap the landfill. Second, he also needs to know when his income stream is ending. ‘My current estimate is two to three years, and my management decisions will change as those numbers change,’ explains Bryant. The consequence of not reviewing the reports would be running his business blindly. Without these vital numbers, Bryant would not be able to plan for the future, and could be out of business before he was ready.

Bryant is the only person in the office who is hands-on with the accounting program. He says he invested the time and money for training in the consultant who installed and set up the program. ‘I saw her for four or five 3-hour sessions the first month, and then less in the second month. After about 60 days from start to finish, I was on my own. It took 20-25 hours of training time.’

Small-business owners need to be prepared to invest money and time to fully understand what the accounting system has to offer. The best thing a business owner can do is to make sure that the people responsible for daily data input are well-educated on the features of their software. Keep in mind, though, the cost of education is generally more than the cost of the software.

Small-business owners need to take advantage of the information sitting dormant in their accounting systems. In Thornell’s experience, many times the program already does what her clients are looking for; they just didn’t know it.

Ellen Depasquale is a freelance writer specializing in small-business topics .

Taking Stock

Keeping an eye on the numbers is important for any company, but for small agricultural producers these days, an intimate knowledge of income and expenses can mean the difference between solvency and being forced to sell their businesses. For the past four years, Pat Smith, office manager at Huizenga Pork, a Zeeland, Mich., pig farm with 25 employees, has relied on reports based on the reams of data held in the company’s accounting program to keep spending in check. ‘It doesn’t pay to get comfortable with one vendor if you can save 10 percent with a different one,’ says Smith. ‘Without the reports we would have a disadvantage in negotiating prices with our vendors. Trying to gather all the payment history manually would be like looking for a needle in a haystack.’

Huizenga Pork stores a huge amount of data in their accounting software. Smith uses inventory tracking to order veterinary supplies, including livestock vaccines, at the appropriate time. ‘This way we do not spend more ahead of time than we need to,’ explains Smith. ‘The vaccine has a short shelf life so we need to keep our inventory slim so that we do not waste money.’

‘We go through a lot of vet supplies with the animals, and the volume and frequency in which we purchase them, especially vaccine, will help with the deal as well,’ Smith says.

Smith uses project cost analysis to run reports that attach expenses, such as feed, trucking, and labor, to a particular group of animals. This allows her to generate a ‘close-out’ report when the animals are sold so they can see how the growers performed with their charges, comparing death rates and other expenses.

They use Red Wing Accounting Software to produce yearly comparisons of their accounts payable, which represent the majority of the data in their system. Smith runs reports by item to produce a price comparison based on the history of what they have paid, how much they purchased, and from which vendors. These reports show the average amount spent on the item, and allow Huizenga Pork’s owner to enter the negotiating process armed with the vendors’ previous prices along with his own volume and payment history. This information gives him the advantage as he knows exactly how much business he has done in the past with each vendor and how much leverage he has now to negotiate the best current price, since prices change as seasons change.

Smith reviews the average price of an item every time she enters a new accounts payable invoice. There have been several occasions when the current price they were being charged was higher than the average price they had been paying. In all cases she brings this to the attention of the owner, and in one case, it prompted them to change suppliers.

Smith ran a report that showed that the price of supplies they were purchasing from a veterinarian’s office was steadily going up, and the latest bill was far above the average price. When the veterinarian said he could not lower the price, Smith started to research other suppliers. They found that a large supply house had much better prices, and started buying from them instead. ‘On average, we save 10 percent per order which has helped our bottom line,’ says Smith. This is substantial since they purchase frequently and in high volumes.

Of course, accurate comparisons depend on having the data in the system. One mistake they made at the end of the first year running Red Wing was deleting that year’s data. As they went into the second year with the software, they could not run comparison reports or history reports for payments and item pricing. The lack of the history caused them to be ill-prepared to negotiate prices on previously purchased items.

Simple Rules to Live By

Keep the Cash Flowing
Make sure that the data entry is accurate. Reports are only as good as the information that’s entered.

Monitor Costs
Make sure data entry does not fall behind so you can review current data regularly. This will allow you to stay on top of any situation that may arise, good or bad.

Invest in the Future
Learn your accounting system so that you can take advantage of the areas of the program that will give you specific information about your business.

Getting Started

Almost all of today’s ‘off-the-shelf’ accounting programs offer comparable features and functionality. Here is a brief list of some of the more popular programs. It is imperative that prior to choosing software for your business that you do a thorough needs analysis. Although these programs do have a lot in common, they all have individual strengths and weaknesses that make one of them the ‘best fit’ for the particular needs of your business.

Red Wing Accounting Software
Red Wing Business Systems Inc.

Sage Software Inc.

MYOB Accounting Plus

NetLedger (now Oracle Small Business)
NetLedger Inc.

Intuit Inc.

Peachtree Complete Accounting
Sage Peachtree Software Inc.

Simply Accounting
ACCPAC International Inc.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.
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