Why computerise my accounting system?
The decision generally comes down to the business owner and their previous experience.
Those who have had a computerised accounting system in the past can see the benefits. They wouldn't contemplate the idea of a manual system and realise they need an efficient accounting system to be serious in business and to get a financial ‘reading’.
New business owners need to be aware that the easiest time to set up a computer-based accounting system is the day they open their business bank account. The longer it’s left, the harder it is to get on top of the initial business purchase entries and get up to date to file the first GST return.
On the other hand, another new business owner may be perfectly happy (for years) using a shoebox system and getting their accountant to prepare their GST. For them to change, they need to see benefits both in efficiency and cost saving. They may reluctantly on-board after a heart-to-heart with their accountant.
Occasionally owners computerise only one part of the system (typically invoicing) but all other parts are done manually.
More and more business owners are moving their existing or new enterprises to cloud based accounting systems. It is usually only the very small business (such as those owners who are self-employed sole traders or baby boomers) who continue to work with a manual handwritten cashbook and handwritten invoices. These small businesses are heavily reliant on their accountant for financial reports. They generally keen an eye on their bank statement for a financial 'reading'. They have only a vague idea of their 'profit' until 6 months after the end of the financial year (when they get their accounts).
There are both advantages and disadvantages of using computer based systems over manual systems so here goes:
Pros & Cons of Computerised Accounting Systems
What can go wrong with my computerised accounting system?
Not surprisingly, we think the pros more than outweigh the cons. But that said, you should be aware of the following if you're going to switch to a computerised accounting system...
Computerised files produced by businesses and supplied to accountants vary from very bad to outstanding. If your file is on the ‘bad’ end of the scale it will need many corrections done! Good communication between you and your accountant is vital.
Correct setup is vital – done poorly and you have wasted your valuable time. It is really important to have things done right from the start with a correct structure for the Chart of Accounts. Final reports (Profit & Loss account and Balance Sheet) are based on this information.
Unlike Word or Excel where a little knowledge goes a long way, staff must be properly trained in the correct use of their accounting software as they have choices. It could be that one staff member treats an entry one way, while another does something entirely different! This lack of consistency can turn the accounts into a nightmare and cost the business more than less as someone (usually the consultant or accountant) needs to sit down and fix it. Staff need to be properly trained on the correct use of the program and new employees also need good training.
The more accurate your chart of account is, the better the reports would be and better the information they give. An incorrect or inadequate list will produce entirely wrong reports and that would not benefit any business. It defeats the purpose of accounting and printing reports if the chart of accounts is not correct. This all comes down to correct set up.
Training is critical. Never employ an accounts person without a thorough reference check or test – so many accounts people bluff their way into an accounts job. They can destroy your file in a matter of hours. Frightening but true..