Management Accounting

How you look at accounting will likely determine the long term success of your business. It can be a real drag, or a critical tool - your choice.

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As a business manager, how do you view accounting systems?

  1. A real drag, but required by the IRS, banks and my CPA.
  2. A useful analysis of how the business has done in the last [month | quarter | year].
  3. A critical "real time" tool for fine tuning daily operations and improving responsiveness to market trends and customer needs.

If you chose #3, you understand how accounting can be expanded into a full fledged Management Information System, and what that can do to help a modern business thrive in today's marketplace. Real information - in "Real Time".

If you chose #2, you are an accountant at heart. Financial Accounting has served business well for centuries, but good as it is, it's no longer enough. In today's hyper-competitive markets, "after the fact" is synonymous with "too late".

If you chose #1, you'd better start taking a good look at #3. Your competitors are, and some of them are way ahead of you. Don't just take it from us - here's what someone we almost never agree with has to say:

"How you gather, manage and use information will determine whether you win or lose. Information technology enables you to act quickly. It provides solutions to business problems that simply weren't available before. Information technology and business are becoming inextricably inter-woven"
- Bill Gates, Business@the Speed of Thought - Warner Books, 2000.

Management Objectives

The reasons for deploying a Management Information System are obvious.
  • Respond to trends faster
  • Reduce costs.
  • Improve customer relations
  • Reduce inventory
  • Buy smarter
  • Improve marketing
  • Control the money

Great objectives, but is achieving them through an information system really practical for a small business?

Yes! The advanced software and networked computer systems available today make "big company" information management economical and practical - and today's markets make it essential.

How can we do this?

A modern small business information system delivers many kinds of useful information in "real time" to the people who are generating revenue - to help do their job better, faster and easier.

  • Cash Flow: Effective use of limited cash resources can be a major key to profitability.
    • How much money do we have right now.
    • What's coming in, from who, and on what date?
    • How much do we owe to who and on what date do we have to pay it?
    • Do we need to rob a bank this week?
  • Customer Relations: Customers are the single most important factor in the success of your business. Treat them right.
    • Quickly presents, in usable form, complete information about every contact you have had with customers.
    • Maintains scheduled "tickler file" for efficient customer contact.
    • Provides timely information to assist in targeted mailings and advertising campaigns.
    • Customer relations features are particularly important in a retail setting (see our Point of Sale article).
  • Sales Analysis: Knowing what is selling, to who, and how profitable it is is critical information needed to avoid losses from overstock or not having the right products in stock.
    • What's moving and what's not? Tracking by product line, product categories, etc.
    • What's profitable and what's not (even though it's moving pretty well).
    • What are the trends? How does this year compare to last year? This quarter with last quarter?
    • What are the differences in buying patterns in different regions? Different customer groups?
    • Who's generating the most profits?
  • Sales and Order Entry: Control needs to start while the customer is still on the phone.
    • Orders are entered directly into the system, not scribbled on paper to be entered later.
    • Pricing is immediately available, as is inventory, reducing sales errors.
    • Contract pricing for a particular customer, volume level pricing for groups of customers, stepped discounts, limited time specials and other special pricing schemes are automatically handled, eliminating errors by sales persons.
    • Prices can be updated automatically for single products or whole product lines.
    • Picking lists are printed to allow the warehouse to build orders and report shortages in a timely manner.
    • Some systems can print picking lists in location order to minimize time to pick.
    • Picking and pricing can be made faster and far more accurate by use of bar codes.
    • Invoicing is done from the Order, no reentry, just check against the returned picking ticket for shortages
    • Backorders are automatically maintained and purchasing is automatically notified of shortages.
    • Sales Commissions are calculated automatically - based on total sales or profitability.
  • Shipping / Receiving:
    • Shipping labels on demand.
    • Packing lists can be printed.
    • Product and pricing labels for products can be printed automatically at receiving to reduce labor and errors.
  • Purchasing: If you don't maximize your buying efficiency, competitors will be able to underprice you every time.
    • When to buy - just in time - so you aren't out of stock, but don't have too much inventory either. The system's shortage reports will tell you.
    • How much did we pay last time, for how many and to who? Can we negotiate a better deal?
    • Where are the quantity breaks and what is the discount?
    • What about delivery scheduling?
    • Payables checks are printed automatically and accurately.
  • Inventory: If your business carries inventory, you know how important it is. Inventory that is lost, stolen or simply not in stock can hurt sales, and the bottom line.
    • Perpetual inventory is maintained. When an item is invoiced or committed, it is automatically deducted from the count. When an item is received, it is automatically added to the count.
    • Entering an order commits inventory items and flags upcoming shortages, even if the order won't ship for weeks. Available, on-order and committed counts are kept.
    • Physical inventory worksheets are provided to aid in periodic physical counts. Expected quantities are included so misplaced items will be looked for.
    • Variances and shrinkage are easily identified. Employee theft is detected and reduced.
  • Manufacturing:
    • Inventory is extended with BOM (Bill of Materials) builds. When an item is ordered into production, both Purchasing and Manufacturing know exactly what will be needed.
    • A WIP (Work in Progress) module helps you keep control, and helps you comply with tax laws.
    • MRP (Material Requirements Planning) pools inventory, BOM and purchasing information on all jobs and coordinates with WIP / Job Cost to allow the most efficient purchasing and precise scheduling of the manufacturing process.
  • Job Cost: Not every business needs it, but for Job Shops and Contractors, Job Cost Accounting can make the critical difference in whether there will be profit or not.
    • Job shop manufacturer need to know how much each job actually cost, really. It's a huge help in bidding accurately for future work. For "cost plus" jobs, accurate tracking is absolutely essential.
    • Contractors need to do progress billing. It needs to be accurate to satisfy the customer and assure that cash doesn't run out.
    • Contractor Job Cost can be tightly integrated with Payroll.
  • Financials: Yes, all the stuff the accountants, bankers and the IRS want to see is provided.
    • Journals
    • Income Statement
    • Balance Sheet
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How Do I Select Software?

Naturally, at Automation Access we hope you will select one of the packages we support, like Vigilant, Appgen or Inmass, but if our packages aren't right for your business, we'll help you evaluate and implement one that is.

Caution: The Devil is always in the details. A package that seemed wonderful in the brochures and in the demo may have features that can't adapt to your business methods. You really do have to pay attention to the details.

You have to work with full function demo versions, and it helps a lot to talk to someone who knows the product inside and out. Your decision will have a critical impact on the future of your business.

To complicate matters, publishers of most of the financial packages have tacked on management features like Point of Sale and Job Cost to build up their "check list". Tacked on is not the same thing as built in by design. Features are often overly complex and difficult to use, incomplete, or may not present information in the most timely and usable format.

Another important question is, "Who's going to support it?" Software is not perfect, nor is the ability of employees to use it, and computers sometimes crash. Support really will be needed and should be economical, and it's best found locally.

"Will it run efficiently on our equipment and our network?" Some software that demos really well bogs down badly with real data on a real network. Packages based on a general purpose database like Microsoft's SQL Server or Oracle are often offenders here. Packages that were originally DOS single user, and got networking and Windows tacked on over the years, can perform poorly on networks.

If you need, or are even contemplating the possibility of a multi-site structure, that is an exceedingly important consideration. Many Windows based packages are all but unusable over remote links (7 minutes to print a payables check in one instance we looked at). Unix / Linux based packages are naturals for multi-site, but Windows based "Client Server" packages can also work (but tend to be a lot more expensive to implement).

Businesses that are very specialized can find leads to "vertical market" packages in trade publications catering to their specialty. Effectiveness can be confirmed by talking to other people in the same specialty. Automation Access works in cooperation with a number of specialty software vendors.

Some businesses just aren't going to find an efficient fit in "shrink wrapped" packages. For them, a highly customizable package like Appgen is appropriate.

I wish we could make it easier, but it's just not easy.
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eCommerce & Internet Selling

It came as a horrible shock to many (mostly now defunct) "new economy" businesses that selling on the Internet requires more, not less infrastructure than selling from a store or sales office.

Not only do you need all that Web site infrastructure, but you need the same sales support, inventory and back-end systems as a "brick and mortar" operation - and then you have to integrate them with your Web site infrastructure.

Amazon.com used to boast of the low cost and efficiency of its "new economy" model - until they realized they really did have to build warehouses and distribution systems to stay in business. Now they just hope to be profitable some day.
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Software Complications

  • "My bookkeeper knows QuickBooks and insists that's what we should use. She says everyone's using QuickBooks, and it has all that stuff we need for management information."

    Yes, bookkeepers like QuickBooks - it's made for bookkeepers - but ask her if she's willing to be responsible for the profitability of the business. Yes it has some of "that stuff" - as add-ons and accessories, not as "core competency".

  • "Our CPA wants us to use his package"

    Your CPA's recommendation carries considerable weight. S/He is supposed to have special insights into the running of your business - but confirm the appropriateness of the recommendation yourself.

    Most CPAs prefer clients to use the same accounting package they do - it makes their life a bit easier - but the needs of an accountant and the day-to-day running of a business can be very different. Does it make your life easier? Are management information features really effective, or just tacked on "check mark" items. It's the profitability of your business that's at stake.

    Caution: Many CPA firms are resellers for one of the "big name" accounting software publishers. These publishers apply a lot of pressure on CPA firms to increase sales. The publisher's objective is make sure the CPA recommends their package, whether it fits your business or not.
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Automation Access

Automation Access, with 18 years experience bringing technology to small business, is your ideal partner in your efforts to gain the advantages of Management Information. See Accounting & Point of Sale Systems & Services for a complete discription of how we can help you achieve your goals.
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©Andrew Grygus - Automation Access - www.aaxnet.com - aax@aaxnet.com
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