With their multiple moving parts, inventory and manufacturing systems seem to get all the attention. But the core of any self-aware business is its accounting system. Accounting software is the spine that other programs branch out from. It gives structure to all the shifting pieces, allowing them to take a variety of independent actions while remaining unified in purpose. In this first installment, we present some things to consider when organizing this most critical of systems.
- How should my chart of accounts be structured?
If your accounting system is the spine of your business, your chart of accounts is the heart. The information collected here by your software feeds your financial statements, which it turn indicate the health and viability of your company. As you develop your chart of accounts, make sure it logically reflects the way you view your organization with regard to department, division, and/or branch reporting. Also, keep in mind that your chart of accounts should be flexible enough to allow for future expansion. There are some general principles that can help as you formulate your chart of accounts. If this is all new to you, you might consider consulting a CPA, who can assist you in matching an accounting structure to the inner workings of your particular business.
- Should customers and vendors be grouped together by type, product, or any other category?
By establishing logical groupings for your customers and vendors when you organize your business, you can maximize efficiency in your processes and empower your reporting. You accounting system and the employees who use it will benefit from an elegantly defined and clearly identifiable set of structures in you Accounts Receivable and Accounts Payable sub-systems. The easier it is to grasp the organizing principles behind these modules, the more effective people can be when manipulating them. Furthermore, the information derived from the data will be all the more direct and meaningful to your decision-makers.
- How will your business receive cash? What types of payments will you process both in cash receipts from customers and payments to vendors?
Understanding how cash flows between you, customers, and vendors will allow you to manage that cash as effectively as possible. You want your system to post cash transactions efficiently so as to maximize its use and advantage. Carelessly configured software can result in costly delays that have a negative impact directly on your bottom line. Emphasizing accuracy when establishing your payment terms will allow you to maximize the software's efficiencies in keeping the debits and credits moving with as little manual intervention as possible. Your reports and cash projections will also be reliable, so that your decisions are based on current facts rather than question marks.
- What sort of taxes will your transactions be subject to?
Reporting on tax obligations and reconciling taxed transactions are some of the least appealing responsibilities business owners engage in. Even less attractive than doing those activities, however, is re-doing them because your system wasn't configured to automatically handle them correctly in the first place. Worst of all is the hassle of an audit just because the information wasn't cleanly reported. Getting the right system in place for your needs can help alleviate much of the worry. Depending on your business's tax requirements, that system might be part and parcel to your accounting software. On the other hand, more complex scenarios may require a sophisticated third-party solution that specializes in tax automation.
- Do you sell to national customer accounts such that you ship to multiple locations but invoice a central billing office?
You want to avoid unnecessary delays in receiving payment from your largest customers. If you take orders from and ship to sites that are geographically spread out, but you bill their headquarters, you'll want to be absolutely certain that those parent/child relationships are accurately specified in the Accounts Receivable portion of your accounting system. Precision in this area will ensure that your invoices are received promptly and interpreted easily so there's no confusion about paying for your products and/or services.