Continuing our series of posts based upon a recent white paper by Geni Whithouse, entitled Charting a Better Course for Your Business: Eight rules for investing in a new accounting system, which can be accessed (after free signup) here. (This is part four of a six part series.)
Business owners need clear insights, driven by underlying data, to guide them safely. Whitehouse suggests (and we do too) that a business might want to create some Key Performance Indicators (KPIs) as a group of non-consecutive (Chart of Accounts) account numbers to form a special report. This requires a strong and modern financial reporting system, one that can, as she states “transform data into operational insights” by…
- Combining statistical and financial information to create ratios and KPIs
- Creating rollups and groups of accounts throughout the system, ensuring that all users have the same insights into key metrics
- Creating budgets, plans and forecasts for both financial and operating metrics and comparing them with actual results
She notes once again that it’s “time to bail” on your old single-ledger system “when an accounting system relies on external tools to capture operational information and has no ability to create Key Performance Indicators or custom metrics. You shouldn’t have to buy expensive data warehousing tools, load external add-ons, or resort to spreadsheets to get the timely analytics you need.”
In a similar vein, Whitehouse points out the importance of adhering to accounting standards or, as she puts it, “abiding by the rules.” This is known as following GAAP (Generally Accepted Accounting Principles) designed to ensure that information and reporting is consistent across industries. It’s difficult to run a business well when the information is not recorded properly.
Here again, she notes the weaknesses of single-ledger systems, like QuickBooks, which “rely on hard-coded accounts, and reporting gyrations to facilitate different reporting requirements, if they even support them. These systems are difficult to audit, require complex reporting and constant maintenance.”
Next up, we’ll look at the importance of internal controls and the challenges of multi-entity organizations when choosing an accounting system.