Doing More with Less:

7 Ways to Harness the Power of an Automated Accounting System

Starting out with spreadsheets.

When you first start out in business, you might get along fine with a manual recordkeeping system consisting of documents, ledgers, and spreadsheets. For a while, it might be OK to send out sales invoices on Word docs and track income on a spreadsheet. It might be OK to write cheques—by hand or maybe online—when your bills are due. Until that day you discover that you owe more than you expect to collect in the next few weeks. What will you do now? Maybe you shouldn't have paid that credit card in full last week. But it's too late. The cash is gone.

And cash flow management is just the beginning. As a small business owner, you wrestle with tough questions at nearly every turn. Should I buy more inventory or add a new display area? Do I spend money on a marketing campaign or hire a new staff person? If you're working from manual or segmented records, you have to base many of those short-term decisions on limited information—such as your chequing account balance or the total amount of unpaid bills sitting on your desk. You may neglect to consider items in process—like goods on order or quotes in process.

Furthermore, without a clear perspective, your long-term business plans may be misguided. You might focus on generating more revenue from customers who don't pay. You might push to sell more of the items that generate the lowest margins. When you need to plan ahead, not just account for historical transactions, you can't rely on the pieces of paper in your shoebox. To build a long-term, successful business, you need comprehensive, timely information at your fingertips so you can make the right strategic decisions.

Finally, what about the hundreds of transactions that occur in your business every business day? At some point, it's going to take too much time to keep your manual records organized and up-to-date. You can quickly lose control. You have to manage your finances, but you can't ignore your customers, your suppliers, or your team. What important information is going to fall through the cracks?

Moving forward with software.

Yesterday's manual accounting system is no longer good enough for the way you need to do business today. It might be time for you to take another look at the tools you're using to run your business—to embrace change and harness the power to do more with less. Rather than running yourself ragged, you can rely on accounting software to help you create order from chaos, ensure healthy cash flow, make good short-term decisions, and follow sound long-term strategies.

7 ways an automated accounting system can help you do more with less

  1. Eliminate duplicate efforts

    Manual systems require you to re-enter the same data multiple times. In an automated system, you can enter data once and then re-use it. Because data is reused and centralized, you reduce the likelihood of errors.

    • Income and expense tracking
      Enter your bills and sales invoices once in your automated accounting system, and you can re-use that data again and again to keep track of income, analyze sales, understand cash flow, and run monthly financial reports.
    • Repeating transactions
      If your accountant tells you to record the same adjustment every month, you can set up a automatic recurring journal entry with your accounting software to ensure the adjustment gets made on a monthly basis. You can also set up recurring customer invoices to automatically bill your customers the same amount on designated dates every month. And you can set up recurring bill payments for monthly bills that are the same amount every month. (See Figure 1.)

      Figure 1: Recurring purchase invoices.

  2. Validate transactions

    When you rely on manual systems, there is no built-in error checking. Automated systems can have built-in defaults, limits, and warnings. You can set them up to warn you about period or date discrepancies and to prevent you from inadvertently re-using numbers on documents.

    • Unique numbers
      Automated systems can help you keep track of transactions by assigning unique invoice and cheque numbers to transactions. In the event you manually enter a duplicate number, you will receive an automatic warning. (See Figure 2.)

      Figure 2: Automatic warning message.

    • Inventory balances
      You can use your inventory system to monitor available inventory item balances. When you enter invoices that require more product than you have on hand, your automated system can alert you about product shortages.
  3. Enforce rules

    Unless you use a ton of sticky notes or get used to wearing a string around your finger, you may run the risk of forgetting about special offers, price discounts, and accounting for all aspects of a transaction. Automated systems can handle the rules for you, without adding any additional hassle to your day.

    • Credit Limits
      You can set up customer credit limits and use your automated system to enforce the rules. As you enter sales invoices, the system will add them to a customer's balance, check to see if the total is within the specified limit, and warn you of any transactions that exceed the balance you specify.
    • Account numbers
      Make sure every purchase and sale you enter is properly assigned to an account. An automated system will have data entry windows that visually lead you through the proper data entry steps. If you forget to categorize a transaction, you will receive an alert message.
    • Taxes
      Calculate and track GST/HST with an automated system to help you apply the proper rate to your sales and purchase invoices. (See Figure 3.)

      Figure 3: Customer and vendor tax codes.

    • T5018 Forms
      Automated systems can capture all of the data for each transaction with every vendor and then produce CRA-compliant T5018 forms at the end of the year.
  4. Monitor your results

    Manual records or cobbled-together spreadsheets can't give you an immediate sense of where you stand. Eventually, you might be able to add and subtract your way to a result, but it won't be accurate. When you run your business on the right automated system, every transaction is automatically recorded against a master record called a General Ledger. That general ledger creates a scorecard for your business; it tells you if you're making money and managing your assets wisely. It can help you monitor profitability and keep an eye on your expenses—and the information is available when you want it in the form of financial statements.

    • Delinquent Accounts
      Accounting software can accumulate customer balances and keep track of due dates. It can apply appropriate payment terms and give you the information you need to collect on delinquent accounts. You can run aging reports to evaluate the results of your collection efforts.
    • Access to Information
      Information is power. By providing employees with the information they need to be successful, you make their jobs more rewarding. When employees are able to verify pricing, review inventory balances, and send emails directly from customer accounts, your customers will notice the difference. (See Figure 4.)

      Figure 4: Inventory price lists and quantities.

    • Top Salesperson
      An automated system can capture sales results by salesperson so you can evaluate the relative effectiveness of your team. With good information, you can identify training and coaching opportunities.
    • Project Management
      An automated system makes it fast and easy to set up projects, track project income and expenses, and monitor project profitability.
  5. Identify and correct discrepancies

    Manual systems are fraught with opportunities for error. There can be classification errors, inaccurate addresses, or item identification problems. With an automated system performing calculations and producing reports, calculation errors are less frequent, and other errors are likely to be more visible. Reporting and reconciliation tools will help you stay on top of the transactions in your business.

    • Bank Balance
      With automated bank reconciliations, you can quickly pull information from your bank account directly to your accounting software. You can identify outstanding items and record any necessary adjustments. (See Figure 5.)

      Figure 5: Bank reconciliation.

    • Pier-1 Report
      Which employees have not had sufficient CPP, QPP, or EI amounts deducted during the calendar year? An automated system can help you pay employees in-house, keep track of payroll deductions, then identify the differences between actual and expected deductions prior to printing employee T4 slips.
  6. Project future outcomes

    Manual systems provide a very short-sighted perspective of your business. You might be able to rifle through a drawer full of unpaid bills to figure out who you owe, but you can't easily determine projected future sales, identify due dates, or plan for inventory re-ordering. With the right automated accounting system, you can spend less time looking back and more time looking forward towards expected delivery dates, planned expenditures, and anticipated cash receipts.

    • Cash Flow
      Powerful accounting software can turn transactions into insights. By comparing customer invoice due dates with vendor payables, your system can help you plan and respond to any anticipated cash shortfalls. (See Figure 6.)

      Figure 6: Cash flow projection.

    • Reorder Quantities
      When it comes to inventory, you don't have time to count and consider what's on the shelf. With an automated accounting system, you can produce a reorder worksheet that tells you what to order from each supplier—keeping you one step ahead of your customers at all times.
    • Forecast Financials
      Use historical data to understand trends and forecast future revenues, expenses, and net income for your organization. An automated accounting system puts this information at your fingertips and can allow you to manually adjust the calculated trend to account for variables such as seasonal changes or anticipated growth.
  7. Be accountable

    With enough time, energy, and effort you can eventually figure out where you stand in a manual system. But you can't put that information in context. You might be able to determine how much you have sold in a given period, but you'll have to find your budgets to determine if you're on track or not. The beauty of the right integrated accounting solution is that everything is in one place. You can see your results as they happen and then compare them to your budget. You can review anticipated needs and make adjustments on the fly. You can be more responsive to your prospects and customers. An automated accounting system can help keep your business on track.

    • Budget Comparisons
      When you store your budgets in an automated accounting system, you can compare your actual results with your plans. When revenues fall short, you can control your expenses to maintain consistent profitability. When your expenses exceed budgets, you can dig deeper to uncover the cause and then take corrective action.
    • Quotes and Proposals
      It's easy to lose track of open quotes and outstanding proposals. By entering them in an automated system, you can stay on top of prospective business and monitor open issues. When you're ready to process the sale, you can convert quotes to orders and orders to invoices without re-entering essential data.

Don't settle.

Today's businesses can't afford to settle for inefficient tools that don't give them complete information. Few owners have time to waste piecing transactions together or struggling to find the right address. They can't keep up with all of the rules, rates, and paperwork. They need a solution that fits their business today, with plenty of room to meet their needs tomorrow. For a small business owner, the decision should be obvious: When you compare the cost of making bad decisions with the cost of purchasing accounting software, you can't afford to run your business without a powerful solution like Sage 50 Accounting.

About the author.

Geni Whitehouse is a CPA and speaker and the author of "How to Make a Boring Subject Interesting: 52 ways even a nerd can be heard." Originally from Greenville, South Carolina, Geni now resides in Napa, California. Geni's favorite fairy tale is "The Princess and the Pea," because she really values a good night's sleep. She is an avid blogger and Twitter fan, and prefers grits to porridge.

Geni Whitehouse, CPA
@evenanerd on Twitter

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