In-house Accounting Software: The advantages and pitfalls

The advantages

No business is too small to benefit from using accounting software. There are some really superb and relatively inexpensive software products out there and as we have helped design two software products purchased by Sage, you may safely assume we may know what we are talking about. Used correctly, accounting software provides a management tool that will help you run your business more efficiently and profitably.

Maximising your profitability is a pretty fundamental objective for any business. One of the first benefits you gain from using accounting software is access to real time monitoring of yoru business performance. With a little planning, you can often use software to help you identify which parts of your operations are profitable and those which may be less so.

We frequently guide our clients through a restructure process based on software analysis that will see them pair back on low-return activities and focus more on those areas of the business that are more profitable. This can result in a short-term drop in turnover and a modest increase in profitability, but it is soon followed by a very satisfactory period of solid growth in the business by the more efficient use of the available resources as they are applied to more profitable activities.

Looking after you cash liquidity is King and in many respects it can be more important than the pursuit of profits.

We have seen too many very profitable businesses fail because they didn't plan ahead and simply ran out of money. Most businesses face a constant funding gap caused by having to pay their suppliers before their customers pay them. Using a very simple cash-flow model, based on the aged sales ledger and purchase ledger reports produced by all accounting software, it is possible to fairly accurately predict how much money you will have in the bank at the end of each months, after taking into account salaries and tax debts. Such models highlight crunch points when funds may get too tight and give you time to do something about it before it becomes a problem.

We commend any person to consider using accounting software to better the management of their business, provided they understand:

  • Most of the good software products will end up costing you between £25+VAT and £50+VAT a month after your initial discounted trial period offer has expired;
  • You will need to study the manual and learn the basic accounting conventions and controls they recommend to enable you to use the software as intended (taking are no quick-start section that works in practice);
  • Running your own in-house accounting system will take more time out of your working day; and/or
  • Employing competent and reliable accounting software book-keepers command high salaries and won't come cheap.

It is also worth remembering a simple fact. It does take 3 years of study, exams and intensive on-the-job training in a good firm to qualify as a competent accountant. It takes a life-time of experience to make you a good one. So do not believe you can circumnavigate the need to replace an accountant with an off-the-shelf piece of software that costs £25 a month … at least not quite yet.

The Pitfalls

There is a maxim concerning posting data to software of any kind that goes along the lines of 'rubbish in, manure out'.

We mention this because a potential client approached us a few years back having fallen out with his existing accountants when he was told he would be charged twice as much this year because he had decided to start using an accounting software product without first seeking their advice. He was expecting to save on their fees and resented they were trying to charge him more after he had spent so much time posting up the accounts to save them the trouble. We soon understood why.

His business involved making many small purchases each day that were paid for either by a bank debit card or cash. To save time, he posted every purchase to the same nominal 'purchase' account and assumed VAT was always to be accounted for. All transactions shared the same unhelpful default description of 'materials' regardless of what they were, and he had failed to create any kind of audit trail to allow tracing entries in the accounts back to the original paper receipts and supplier invoices. The bank, sales and purchase ledgers had never been reconciled and the year end balances were obviously wrong. Instead of neatly filing the receipts and invoices in lever-arch files as he had done in past years, he just assumed the paperwork would never be needed again after posting it to the software and taken to throwing it loose into several large boxes. Thankful for small mercies, he had refrained from disposing of the boxes to free up space in the office.

We respectfully suggested the doubling of the fee by his existing accountant should be considered a bargain under these circumstances. We felt the cost of sorting out the mess he had created was twice as much again. We thankfully never heard from him again.

To be fair to the gentleman concerned, he was an intelligent and successful businessman. He just made the mistake of believing the marketing hype that the software he had adopted was instant accounting in a box. Had he taken the time to understand the accounting conventions everyone needs to follow to produce reliable accounts, the outcome would have been a different story.

Call us on 01202 482121 if you are looking for some free advice on which software package to adopt. We recommend on merit and we do not accept any incentive to recommend one particular product or supplier over another. We are registered agents of Sage and Quick-books and we can actually save you money if you buy your subscriptions through MAAP.

Client Case Studies

It is important to match your needs with an accounting firm that has experience of dealing professionally with your sector.

Match one of the client profiles below, and you will know we can deliver the service you need at the fee level stated.

Call 01202 482121 for a free consultation.

MAAP Accountants
Sigma House, 44 Willow Way
Christchurch, Dorset, BH23 1LA
Tel: 01202 482121