Accounting software is a great resource to manage the everyday financial details for your business, but is it enough to help you make big financial decisions?
By Tammy Whitehouse
When Jennifer Miller decided to make the leap and start her own business, she knew she would need some good resources to help her get started, especially with managing money.
“I’m great at what I do, which is sales, but accounting is not my forté,” says Miller, founder and owner of Printing & Promotional Partners in Jacksonville, Fla.
She settled on QuickBooks as a software package that would help her set up the books and manage sales figures, inventory, invoicing, accounts receivable, customer data and other concerns.
“QuickBooks is very informative,” she says. “It gives a lot of information on sales and costs.” With a boatload of charts, graphs and reporting options, the software would give her a good handle on what she was doing and what she needed to do.
Or so she thought.
It wasn’t long before Jennifer found herself fumbling through the software and spending a lot of time trying to understand it.
“It was hard getting the chart of accounts set up and getting the items listed,” she says, so she decided to enlist the help of an accountant who could take a look at what she’d accomplished so far.
Turns out Jennifer set up her chart of accounts the hard way—item by item, with every last pen, hat, coaster and keychain entered separately. Way too tedious, her accountant said. Just call everything a “promotional product” and save the details for the description entry.A More Integrated Solution
Joe Kennedy, author of The Small Business Owner's Manual, runs a Southern California bookkeeping and accounting service that would spare business owners like Jennifer the same headaches. He supplements his accounting software with the expert advice of a living, breathing accountant. “There is a difference between understanding the software and understanding accounting,” Kennedy says.
Small business owners usually don’t like giving up control of such a key part of the business, or they want to save money by doing it themselves, he says. But they typically only get 70 to 80 percent of the entries right on their own.
Paul Brazina, interim dean of the School of Business at Philadelphia’s La Salle University, says even if small business owners can keep the books in order with programs like QuickBooks or Peachtree, those programs won’t help them make big decisions—like how to achieve a growth target, whether to add staff or whether to meet staffing needs by hiring employees or contractors.
“If you expect the software to take the place of human intelligence, it’s not out there,” Brazina says. “If companies believe they can replace people with software, it could turn out to be a disaster for the business in the long run.”
The Big Picture
An accountant can help you better understand the big picture, says John Barsella, a partner with Blackman Kallick in Chicago. That’s especially important in a family business, where sometimes “emotions and other intangible factors come into play,” he says. “An accountant can quickly identify nuances in both the business environment and books to advise owners on the best paths to take in different situations.”
Basic tax compliance is an obvious area where business owners routinely hand the books over to an expert. Beyond filling out and submitting the paperwork, though, an accountant can help a business owner make decisions about the best avenue toward retirement planning and estate planning based on all sorts of issues: the nature of the business, the company’s performance, the owners’ needs and objectives, their tolerance for risk, for starters.
Barsella says business owners may be unaware of things they can do to improve their financial positions, things the software likely wouldn’t point out, such as adjusting an individual retirement account or speeding up and slowing down certain expenses and deductions to help them steer the company into a desired tax bracket.
What You Need to Know
A business owner trying to decide whether to hire an accountant or go it alone with a software package should ask two basic questions, says Christopher G. Gamble, a certified public accountant and certified financial planner with Kroner Gamble & Company CPA, P.C. in Rochester, N.Y.:
1. Which accounting software will provide the most useful information?
Some businesses that maintain inventory are required to report income and expenses on the “accrual” method of accounting, meaning income is booked when a sale is made and expenses are booked when merchandise or services are received, regardless of when the money for those sales or services actually changes hands. For that kind of business, accounting software needs to be able to track inventory, create purchase orders, and record and manage accounts receivable and accounts payable, Gamble says.
Other businesses may prefer to use a “cash” method of accounting, meaning sales and expenses are booked based on when payment is made, or when the check is deposited or cut. That means the detailed tracking features may not be needed, he says.
2. Do we have the financial background and time necessary to ensure we will have accurate accounting records?
"Ignoring for a moment whether or not the owner has the financial skills to maintain an accurate set of books, we often find that the business owner is so busy running the business that they do not have the time to devote to the accounting function,” Gamble says. “Quite frankly, most owners add more value to the bottom line by not performing the accounting function.”
For the business owner who still wants to work on his or her own, however, another new software model is gaining attention: renting software online. OpenAir, for example, is a Web-based financial service that business owners use online and rent month-to-month. The company says it’s “like Excel on steroids.” It appeals to small businesses, consultants, professional service groups and others that need to track projects and labor hours for billing purposes.
Whether buying software or the services of a live accountant, Gamble says the most important thing to assure is accurate information. “The adage of ‘garbage in equals garbage out’ definitely applies in accounting systems,” he says. “The more detail that is input into the system, the more detailed reports and analysis the business owner can utilize.”