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What keeps accountants awake at night?

Too often, it’s that looming monthly report to management. If more money is going out than coming in, the accountant will face some tough questions from the board – and worse still, they may not have the answers. The system they’re using may tot up certain sets of figures, but it’s not explaining why they’ve turned out this way.

“The trouble with most accounting systems is, they’re not truly integrated,” says Norman Tough, Director of Greentree Partner Caletech. “You’d be surprised at the number of products out there that are just bolt-on bits and pieces, and they don’t properly integrate and they don’t do the simple book-keeping properly.

“You end up with figures for management which are basically just single-entry accounting, and something that’s just been made up in the accountant’s head because he doesn’t have the proper system behind him to actually give him the correct figures.”

GROWING PAINS

When a business outgrows its accounting system, it’s the accountant who suffers. Your basic system – Accounts Payable, Accounts Receivable and General Ledger (GL) – may be sufficient for the small firm with just a handful of employees, but when the business expands, extra functionality is needed. What’s more, every type of business has its own specific demands when it comes to tracking money.

Manufacturing incorporates numerous complex processes, eg: the bill of materials, a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end product. The cost of manufacturing a single item has to be determined in order to find out how many need to be produced in order to make a profit. Maybe the item is no longer in high demand. Is it time to discontinue it and make something else?

An integrated system must account for the impact of errors, breakages and shortages, not to mention lead time (delays in supplying materials). Because manufacturers tend to own large amounts of complex equipment, they need to manage these assets to ensure they’re properly maintained and always working – and if not, the cost of breakdowns and repairs must be noted. (David Sankey discusses asset management in detail here.)

The system also has to factor in labour costs. The company may want to know whether moving the entire process to another country where labour and other costs are cheaper would be a smart move – another task for the accountant.

In the distribution sector, efficiency is the key to success. Warehouses need to fill orders quickly and accurately, and in order to do this they not only need to have adequate supplies on hand at any given time; they also need to know exactly where they’re stored so they can be picked, packed and despatched promptly. Dissatisfied customers may take their business elsewhere, refuse to pay their bills, or even impose financial penalties to cover their costs for botched orders (more about that here). Again, the accountant will be asked to explain the outgoings.

Efficiency is also the watchword for the service sector; orders and invoices have to be processed, prices for work have to be quoted, and all the documents have to be matched and tracked. Modern technology is increasingly doing away with paperwork, and accountants need to assess the cost of the technology by calculating the benefits in time, accuracy and customer value. An integrated management system can also issue alerts to ensure jobs are carried out.

Retailers have to know whether they’re selling the right goods at the right price, and their accounting software must be able to tell them where their strengths and weaknesses lie. These are known as key performance indicators, or KPIs (more about those here). They include seasonal fluctuations, overstocking and the possible need to discount some items for quick sale, and projecting possible profits from targeting specific consumer groups or taking on new lines.

Overheads such as wages, rent and utility charges also have to be calculated.

“You need to have good systems in place so you know that these things aren’t just running away with your money,” Norman says. “You can’t just look at these figures individually; it’s crucial that you have an integrated system, with one database.”

Come the monthly board meeting, the accounts department presents a report that it hopes approximates a true and accurate account of the month’s transactions, although doubts may persist. The questions start to fly about figures that don’t give the board the information it needs: what are all these variations in costs, why can’t you tell us what’s causing them, etc.

The accountant has spent so much time processing the figures, there’s been no time to analyse them so those questions can be answered.

“At that point, you either leave the company or you buy Greentree!” Norman laughs.

GAINING TRUST

Perhaps the winner for accountants when assessing systems, is that Greentree is easy to use – you don’t need an IT expert to set it up to deliver the information you want.

“Accountants are always very suspicious of IT people,” Norman says. “That’s why I think a lot of accountants are reluctant to change systems – it works for them even though it doesn’t do all the modern things, and they’re so frightened to change because they’ve got to re-learn the way that a new system would work.”

Equipped with a truly integrated system that delivers information on a daily basis, rather than just gathering it and leaving the accountant to assimilate it, a business is better prepared for those monthly reports, quarterly audits and annual tax returns. The book-keeping is shared between the various modules, delivering data as and when required, and alerting about discrepancies promptly.

“You just cannot afford to make a blatant mistake when you buy a system, because your whole business depends on it,” says Norman. “It’s essential the people who are trying to buy a system are aware of how much a problem it is if you do make a bad choice.”

A sleep-deprived accountant would only be the start of the problem!

ABOUT NORMAN TOUGH

Norman Tough is the Director of Scottish firm Caletech International, which has been implementing accounting and business intelligence solutions since 1991.

Norman is a fully qualified accountant, and since 1982 he has had his own accounting practice. He lectures in accounting at Dundee University, so he is very well versed in “counting beans”! Norman has successfully sold business solutions throughout the UK, USA and Canada, ranging from medium size companies to huge multinationals. When not crunching numbers and selling solutions, Norman indulges in his twin passions: music and sport. He has had his own band for 30 years, playing lead guitar and keyboards. He is a BIG football fan and an avid Scotland supporter, attending all home and away games.

 

Find out more about Caletech here.

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