I have talked previously about the importance of having up to date and regular Management Accounts where there are fundamentally two options for producing them: either doing the data entry, bookkeeping and accounts in-house, or outsourcing all or part of the work to a specialist firm.
Related to this is whether certain services are outsourced, such as Year End accounts, tax returns, payroll and pension administration.
Hybrid options should also be considered such as data being entered into the accounts by in-house staff with external bookkeepers or accountants doing more advanced work such as bank reconciliations, producing VAT returns and producing management reports.
If any of the work is done in-house, then suitably trained staff will be needed as will having access to the right accounting packages.
Considerations when looking for an accounting package
There are several accounting packages that might be considered where the main factors are choosing one are whether it produces the reports you want, does it have the functionality you need, is it appropriate for your business, its ease of use and cost.
Most packages are now cloud-based so you are likely to pay a monthly fee. Most also provide scope for upgrade and adding functionality depending on the size and complexity of the business and its requirements but for smaller businesses it makes sense to start with a basic package.
Among the best-known for SMEs are Sage, Quickbooks and Xero and all of these are flexible with scope for adding more functionality and reports.
The basic requirements will be to produce standard reports including: profit & loss, balance sheet, trial balance, aged debtors and aged creditors. These should also allow for reporting by period such as last month and year-to-date figures and the ability to compare them with the same period last year.
They should also make it easy to produce and file VAT returns, do invoicing and produce account statements for reconciling accounts and chasing payments. Additional functionality could include daily reports of key figures, monitoring dashboards, links to bank accounts, managing and online filing of payroll, pension auto-enrolment and, if relevant, the tracking of stock and order processing.
A package that offers all these options can be used for monitoring efficiency and business processes, for monitoring cash flow as well as producing Management and Year End Accounts, but remember, the more sophisticated the package, the greater complexity and higher the monthly fee. Do remember when producing reports based on data, “rubbish in, rubbish out”.
Backup, security, reliability and update of the software are also factors.
Related to the package decision are controls which might be done through the package such as of purchasing decisions to issue and approve prices and orders, and cash flow management to make and authorise payments. I advocate that these should be separate from those administering accounts and done by different people.
If all of the above are outsourced, then a business doesn’t need its own accounting package as the outsource supplier will use their own. However, if any of the work is done in-house then one will be required. Some outsource suppliers use several packages and can be flexible, however most use a preferred brand so you won’t have a choice and you should check it can be tailored to suit your business. You will also need to check if you need your own version for them to access and work on or if you can have access to theirs.
If you do decide to do all or any of the work in-house, then in addition to choosing a package you will need to consider the cost and overheads associated with both employing staff to carry out the work and training them on how to use the software.
There is no doubt that a comprehensive and detailed accounting system is needed to monitor productivity and cash flow, and the right one can save time and cost, but clearly considerable research and thought is needed before choosing the appropriate accounting package for your business.
Your accountant, providing they know and understand your business, ought to be able to help you choose the right one.