Articles

Hidden Risks & Opportunities in Your Accounting System

October 21st, 2010

This article is supplied by Gavin Welsh from Simplify . Simplify specialise in streamlining accounting and management systems to provide businesses with accurate, timely and useful information on performance.    They will help you interpret the information and use it to make positive changes in your business.

Many businesses run their own accounting systems such as MYOB, Xero, Accredo, Moneyworks or Quickbooks. These systems bring with them significant risks and opportunities.

Most businesses fail to control the data adequately and thereby unwittingly create risks to their business. For example last year one Hastings business was reported as losing $460,000 to employee fraud over an 18 month period (an average of $25,555 per month).

What are the risks?

Unintentional errors leading to:

  • Tax penalties of 20% to 40% plus interest
  • Poor decision making resulting in financial loss
  • Failure to secure finance
  • Failure to bill all costs to customers

Also:

  • Theft or “shrinkage”
  • Failure to identify negative trends or issues early enough

Ultimately these lead to financial losses and, if of sufficient size or frequency, can result in business failure.

Most businesses only use a fraction of their software’s capabilities. The average salary for an Accounts Clerk (per Hayes Salary Survey) is $46,125 so by saving just 1 hour per week you would save $1,153 per annum. How many hours could you save just by better use of your systems?

More importantly if you were able to save 1 hour of your time each week what could you do with it? If it takes you 4 hours on average to secure a sale that means you could generate an extra 13 sales each year. If each sale was worth say $2,000 that would be an extra $26,000 of revenue. Your other option is to spend that extra hour playing golf, sailing or relaxing!

A key advantage in having your own system is being able to identify trends, problems and opportunities at an early stage. Author, entrepreneur & business coach Brad Sugars has stated that the majority of the most profitable and highest growth companies are those that know their numbers well.

What are the opportunities?

  • Saving time through better use of system features and elimination of double handling
  • Focus on higher profit customers, products etc
  • Elimination of unprofitable customers, products etc.
  • More time to focus on value adding tasks
  • Ultimately these opportunities lead to better profitability with less stress.

What Can Be Done?

  • Reconcile your Balance Sheet each month
  • Review your Profit & Loss monthly
  • Prepare a budget and monitor actual performance against it
  • Investigate any issues or unusual items
  • Compare your business performance against other similar businesses
  • Review your accounting system and processes
  • Utilise the features in your system to reduce data entry and improve accuracy
  • Ensure your system is configured optimally for your business
  • Institute appropriate internal controls

(Note: Gavin is using his skills elsewhere & Simplify is no longer in business – however the comments are still very relevant!)

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