Does Your Accounting Software Do It for You?
By Sandy Needham, Net at Work Director of Client Care
New York (June 1, 2008) – Basic financial statements really don’t tell us enough about our businesses on their own. To gain real insight, we have to compare financial statements with a previous period (e.g., last month, last year etc.) or against a budget. No matter what program you use, your software can produce a variety of useful reports and statistics that can help you run your business better. We will cover just a few of the most useful here.
Sticking to the Budget
Budgets can be prepared in most accounting software packages or created in Microsoft Excel and then uploaded to most accounting programs. The software makes it very easy for business owners to run actual vs. budget reports every month. Creating a budget in Excel provides more versatility in “modeling” your budget (sophisticated accounting programs have similar versatility). You can then upload the Excel document, but you must have consistent line items (such as salaries, IT and sales) or your software will have trouble making meaningful comparisons. If you use your accounting software to create the budget, you have less modeling flexibility but don’t have to be concerned with creating consistent line items.
After uploading a budget to the accounting program, a variety of reports can be produced monthly. In addition to comparing your income and expense budget to the actual numbers, you can compare the balance sheet to budgeted cash, budgeted receivables, inventory and payables. Most accounting programs will compute differences in variances (percentages) from prior periods or budgets.
Basic Reports & Functions
Comparing this month’s sales with last month’s as well as with the same month last year (important for seasonal businesses) gives you an idea of how your business is changing. We can compare this year-to-date (YTD) to last year’s YTD. By comparing historical with current percentages for items such as sales, payroll and overhead items, we can look for trends. For example, do the comparisons show “expense creep”? If so, you now know you will need to maintain profitability by cutting expenses. Information is power — the sooner you know about it, the sooner you can react. All accounting programs automate the process and enable you to run reports instantly.
In addition, your accounting software has tools that enable you to easily reconcile your bank balances to the cash on your balance sheet. This step is an invaluable “check” that helps you catch errors (e.g., your rent check was correctly written for $8,500 but was entered as $5,800). Even better, many banks allow you to download your bank statement directly into your accounting program.
Your software can produce monthly financials, or management accounts, which show you:
- Income and expenses for month and YTD compared with last year
- Income and expenses for month and YTD compared with budget
- Balance sheet compared with last year and budget
- Cash flow statement, which shows where cash came from and went to during the year
As you move up from the lower-end programs to more professional programs such as Accpac, Great Plains and MAS500, you will have greater flexibility in report choice and layout. The report example below is typical of a monthly cycle. Accounting programs can now produce real-time reports, sometimes called “dashboards,” available not only to accounting staff but also on management’s desktops at the click of a mouse. Generally these dashboard or “flash reports” will show levels of cash, progress of sales for the month and trends in days tied up in receivables. It’s keeping its finger on the daily pulse of your business.
Accounting software should be used as a tool for analyzing the numbers to help you make better decision.