If you’re running a small business, then you’re probably only too familiar with the difficulties of keeping track of your finances.
In theory, it’s all really simple. Just write the invoices sent in one book, the payments received in another, keep a list of bills to pay and payments actually made and hey presto – your accounts are under control.
If only it were quite so easy in reality!
Manual Systems
If you’re a small business you may be tempted to think it’s possible to maintain all your accounting on paper that’s stored in files and folders. In fact, you may be right because clearly up until the middle of the 20th century and the days before Information Technology, even large businesses managed their accounts entirely by hand.
What this argument overlooks though is the fact that in the past this was only manageable because labor was relatively cheap and plentiful. Even relatively small business could often afford to employ a person or two as ‘bookkeepers’ and many medium sized concerns could hire someone to look after invoicing, another to look after receipts, yet another to keep an eye on the payables and so on.
Today this isn’t really a viable model. The largest overhead many businesses have is their labor. So unless you have a really tiny business and can ‘do it all yourself’, the idea of hiring and paying people to do nothing but try and keep old-fashioned ledgers up-to-date is now largely unthinkable.
Spreadsheets
Although computers started to make a significant impact in many businesses from the 1960s onwards, as did the large accounting systems that started to appear with them, in reality the accounting systems remained the domain of major corporate enterprises for around 20 to 30 years.
In the early to mid-1980s, the first business PCs started to make an impact as they arrived in the domain of the small business – and with them came the very earliest forms of spreadsheet.
Many braver smaller businesses decided that they could automate their accounting systems and tried to do so based on ‘do it yourself’ spreadsheet design. This tendency can still be seen today in some small companies.
The problem was that just about everyone used different approaches and often tried to push the spreadsheet way beyond its basic capabilities. Vast numbers of linked spreadsheets were (and still are!) put together in an attempt to create some form of automated accounting systems. The result was frequently vast complexity, a lack of control and ‘auditability’ and all too often, chaos.
Basics
The accounting needs of a small business are, for the most part, relatively simple.
It needs to be able to record and track its receivables, payables, assets, cash position (including bank reconciliations) and existing commitments. These individual components need to be summarized in something called a General Ledger. Standard summation and tax reporting can easily be produced once these things are in place and linked together.
Ideally these elements should be updated automatically from other small business systems so that if, for example, the purchase order system is used to order more raw materials then the financial commitment position should be updated automatically to reflect the fact that an invoice will be arriving shortly.
Today’s Position
The days when a small business had to try and turn itself into a programming shop so as to cope through its own spreadsheets are now long gone. There is a wide variety of professionally designed and robust small business accounting systems on the market that can do all of the above things and more.
The real question today for the small business is, where to source them from?
The two main sources
The small business is typically faced with choosing between two generic options:
· Freeware available on the Internet
· Small packages purchased from a supplier.
The Pros And Cons
It is beyond the scope of this article to conduct an in-depth review of any package of even a generic source! What’s best for you will depend upon a number of factors not the least of which is the complexity of your business and its accounting requirements.
Yet there are a few general points worth making.
Freeware
There are now dozens if not hundreds of such packaged offers available on the Internet. Many provide or say they provide, support for a wide range of integrated double-entry bookkeeping and other accounting functions.
The good news is that they cost nothing (some may only be free for an initial period) and the days when they were usually fairly un-robust systems that had a reputation for poor quality design and function are now history – well, more or less!
It may be advisable to investigate and trial them thoroughly to make sure they meet your needs before you move all your accounting onto one of them. It’s worth checking to ensure that they have been around for some time and what support is offered in the event that you encounter difficulties.
They may also have a tendency to be slightly ‘bespoke’ and perhaps produce reports and summaries that are unfamiliar in style and format to some auditors, accountants or tax authorities.
As with all freeware downloaded from the Internet, it would be prudent to be extremely cautious when downloading and to ensure that you have a good virus checker in place and a suitable security firewall. If in doubt, contact an IT professional for advice and guidance.
Accounting Software
Some computer software companies that developed small accounting systems some decades ago have gone from strength-to-strength. Some have become almost household names such as Sage instant accounts.
The obvious disadvantage of a packaged and branded solution is that you’ll have to pay for it. You may also find that you become ‘locked-into’ a specific solution format.
On the plus side, you should be purchasing at a modest cost and for that you should also be buying a visible and verifiable track-record together with the high probability of a solution that will be supported by expert staff both today and in the immediate future.
The major packaged solutions may also offer additional functionality not available in some freeware systems such as multi-currency support. They also should produce their summaries and statutory reports in a format that the regulatory authorities and accounting professionals will be very familiar with.
Summary
Small business accounting systems have come a long way in the past 20-25 years. They could revolutionize the way your business manages its books and checking them out may be a smart idea.
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