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Being in control of your business – accounting software?

Posted: 22 Apr 2013 in Blog

accounting-softwareI believe that in business if you don’t measure you don’t know how you’re performing.  You must keep track on your performance and compare yourself to other benchmarks - your business last month, last year or against externally available data. Now available with accounting software.

As well as bench-marking yourself - set targets. Comparing yourself against benchmarks and targets lets you see how you are doing against:-

  • you should be
  • where you want to be

What is the difference betweentargetsand benchmarks? My view  - atarget is a goal you set yourself whereas a benchmark is a comparison with existing achievements in your business or another’s.

But do you need a budget or forecast? The main reasons given against are that they are:-

1.    out of date the minute you have completed them
2.    the eventual outcome will never be the same

The answer to (1) is do they reflect your goals.  If so keep using them – easy to achieve when using accounting software.  

To (2) - that they are never achieved – is correct. My 30 years’ experience shows they are never hit –performance is either under or over-achieved.  But, with accounting software, you have a way of measuring how you are performing against your target.

The idea that you can run an organisation without targets is like flying an aircraft without any instruments.  Using accounting software to compare a plan against performance tells you are things better, worse or just different from your goal?  It helps you understand why you have achieved a different result than expected. Use this information to change what you do; re-focus on those that work and de-emphasise those that don’t.

Bench-mark yourself

Against internal data to see how you perform historically.  “If you do what you did last year then the results should be the same” is not always true. Things often change and understanding why you are doing better or worse is critical to your understanding of your business .

The first step in dealing with this is identifying that you have a problem. Then once you understand why things have changed, focus on what needs to be done. Business and competition moves ever faster and you need to do bench-markingtimely and regularly.

Timely is essential. Waiting months after your year-end for your accountant to tell you how you have done is ridiculous. It will be too late to address many issues. Ensure you get the relevant information regularly - not more than 4 weeks old. My experience in preparing monthly management information is that they can be produced within four weeks irrespective of company size or complexity. When I had to produce management accounts for a $1 billion corporate we could produce reasonably accurate management accounts and key performance indicator (KPI) information within three weeks of the month-end. This company had nearly 100 subsidiaries, 20+ factories and operated in 25+ counties.

Compare yourself against your competitors or industry standards. The internet has data for almost every industry. As an accountant I benchmark myself against other firms in terms of income growth and revenue per partner to see how we are performing against our competitors and industry.

Unfortunately, we all believe we are unique and so don’t match industry norms. The reality is often not that we do not meet these standards because of our own failures rather than any uniqueness. If your performance is not in line with your competitors, I believe this is a sign that not all is right in your business easily seen using accounting software.

What information should you track on how your business is performing?  

This can be split as follows:

Historic

Quantitative

Future

Qualitative


Accountants’ focus has mainly been on historic quantitative information – accounts. These are backward looking and numbers - a mistake. Collect data and information to cover each of the above four categories data.  But what are “quantitative” and “qualitative”?

Quantitative
•    Numbers.
•    Measurable data.
•    Length, height, area, volume, weight, speed, time, temperature, humidity, sound levels, cost, members, ages, etc.
•    Quantitative → Quantity

Qualitative

•    Descriptions.
•    Data that can be observed but not measured.
•    Colours, textures, smells, tastes, appearance, beauty, etc.
•    Qualitative → Quality

You will need to decide what are the correct KPI’s for your business. It’s hard to give specific guidance. Here are some tips, KPIs need to be:

  • Measureable
  • Collected regularly
  • Relevant to the performance of your business
  • Limited to less than 15 (6-10 is ideal for a small business)
  • Comparable to historic or external information
  • Compared to a good, average and poor performance and ranked accordingly


This change towards a focus on all these data streams can be daunting but with accounting software, historical quantitative data can be gathered and many have done it so don’t despair.

Also insist that if information is produced consider it as information produced but not reviewed is a waste. Make time!

Is this necessary in the smallest businesses involving only one person .Yes. Every business needs to understand how they perform even if it is only how much you invoiced each month and a comparison to your target and last year.

Each business is different and dependent on your needs and where it is in its lifecycle. My advice would be that it is better to measure and check than not to do anything.

If you want to know more about how to control your business using accounting software or what information you should collect please just click here .

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