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The Entrepreneur As Controller: Software Makes It Easy

Accounting used to be commonly considered the dreary chore of
tracking what has happened. Now, with the help of versatile and
easy-to-use computer software packages, it has become the
demanding art of predicting what is to come.

“Almost all small companies used to have to handle their
books manually,” prefaces Virginia Halcomb, president of
Financial Systems Consultants in Corona, California. “They kept
their ledger sheets and then sent them to CPAs for review.”

Even larger firms were limited by the constraints of their
clunky early computers, which required teams of programmers to
produce inflexible, sometimes impenetrable reports.

The explosion of computer accessibility and processing power
has brought with it a revolution in bookkeeping and accounting.
What was once a burdensome and arcane process has become almost
painless — and now possesses the power to be a strong management
tool as well.

The Question: What’s Right for You?

Currently the question is not how much of a burden an accounting
system will be, but rather which of the many tools available can
bring a small company the most benefits. Hundreds of software
packages are on the market, running the gamut from checkbook
programs appropriate for households or home-based businesses to
custom-designed programs for a particular industry or firm. In
between are systems designed for specific markets, such as:

* Retailers – with cash drawer, bar code and inventory functions
built in.

* Manufacturers – with enhanced inventory, value-added and cost-
per-unit accounting.

* Consulting and service companies — with job costing,
estimating and tracking functions.

A very small business can obtain a suitable accounting
package for less than $200. Larger firms, however, have more
extensive needs and will require more expensive programs. If you
can’t find an affordable off-the-shelf package suitable for your
specific needs, the next step might be a package designed for
larger, more complex operations. Packages created to meet the
needs of specific industries aren’t usually found in computer
stores because they are big, complicated and expensive — ranging
from $3,500 to more than $22,000.

The decision on when to graduate from a small package to a
large one can be difficult. Generally, however, your system
should be able to stay ahead of your company’s increasing size
and complexity — it’s better to upgrade sooner rather than later.
Keep abreast of new versions or add-ons to your current software
and determine whether they will be sufficient for your future
business needs. For example, if you are a retailer and plan to
open a second location, perhaps all you need is an upgrade to the
network version of your existing program. On the other hand, if
you are expanding overseas, you will need something that is able
to account for different currencies and tax structures.

“With careful consideration and planning, accounting
software packages can substantially improve the efficiency of
business operations,” claims Craig Castanos, a certified public
accountant in San Diego for 15 years. Paper ledgers, the process
of looking for addition errors, and trying to make schedules
balance have given way to automated systems that can handle much
of the routine work.

“In the old days, this process was a nightmare,” Castanos
adds. “With computers we’re certainly more organized and
productive. It’s hard to imagine in retrospect how we were able
to get along without them.”

Generally, a small firm will want an integrated accounting
package — one that processes transactions, supports reporting
and control, and provides information for strategic planning. In
addition, specialized systems are available for planning, taxes,
payroll and other functions.

Virtually every software system on the market can produce
income statements and balance sheets, accounts payable reports,
and accounts receivable reports. That’s nothing, contends Bob
Lofgren of Goodsell, Morris & Lofgren, a San Diego accounting
firm, who says the key to getting value out of accounting
software is generating reports that help you manage a business.
Software can monitor accounts receivable aging (to see who is
late in paying you) or payables aging (to see if you are keeping
current on your debts). It can also generate key ratios and help
you keep tabs on profitability.

“These statements can mean a lot to your business if you
know how to use them,” explains Lofgren. Talk to your accountant
when you are evaluating software and get a list of the kinds of
reports that would be most useful for your business. Then you can
determine how easily each software package being evaluated can
deliver the desired information.

Do Your Homework

There’s more to the purchase decision than just window shopping,
however. Review the sales material available from the software
companies, and – if feasible – visit their World Wide Web site on
the Internet. Many firms offer free or low-cost demonstration
disks that let you try out the software at your desk before
deciding whether to purchase.

Castanos recommends that smaller operations look first at
inexpensive off-the-shelf integrated programs that suit their
needs — and then interview other businessmen and women who are
using these systems. “Call three or four companies,” he suggests.

Friends and colleagues, trade associations and software
vendors themselves might be able to give you names of people to
contact about both the quality of the software and the
effectiveness of customer service being offered. If you are
converting from one system to another, it is particularly
important to ask about technical support; often it will take
several calls to a technical service representative to get all of
the initial bugs worked out.

Your accountant can also help you shop by suggesting the
kinds of information that an ideal software package will be able
to process. A fast-growing company will want a system that can be
expanded, and perhaps can record financial information on a
department-by-department or store-by-store basis. Some businesses
may want specialized reports, which an off-the-shelf package may
or may not be able to deliver.

Getting Up and Running

Perhaps even more important than selecting the software is the
decision as to who will be operating it. “The best accounting
package in the world isn’t going to be much help unless the
person operating the program has the necessary accounting and
computer skills,” Castanos emphasizes.

“Often the entrepreneur or the secretary is responsible for
operating the accounting software,” he adds. “What can happen is
that deposits and checks are routinely entered into the system,
resulting in a profit-and-loss statement that appears to be
correct. But the balance sheet often doesn’t make sense. The
result can be frustration when a banker or accountant is trying
to review financial statements for loan or tax purposes.”

A business with accounting software has three basic options
for producing financial statements:

* Preparing your financial reports in-house, a process that
requires good accounting and computer skills.

* Entering the data in-house but having an accountant available
to “clean up” statements by providing monthly adjusting
journal entries.

* Providing organized information to the accountant for
professional preparation of financial statements.

“There is no right or wrong answer here. It depends on who
you have available,” maintains Castanos.

Even with the appropriate accounting skills, it will take
some time to become familiar with new software. “Installing the
software is the easy part. Then the real work begins,” Castanos
notes. He recommends scheduling a three- to six-month phase-in
period with both the new system and the old operating side by
side. “Don’t expect a perfect fit,” warns Castanos. “Chances are
that only an expensive customized program will provide that.
Instead you should understand the most important features you
need and make sure the system can handle them.”
_________________________________________________________________

GETTING STARTED: DETERMINING WHAT YOU NEED

To decide how elaborate an accounting software system to
purchase, start by evaluating what you need. The primary
difference between basic and sophisticated systems is flexibility
— their ability to accommodate your specific situation. All
software packages can produce income statements, balance sheets
and basic reports on cash, checking and accounts. Most can also
generate lists of outstanding invoices, outstanding payables and
missing checks. But do you also need to track sales by store or
by product line? Figure out the profitability of a particular
project? Track billable hours of employees or keep records for
commissions and bonuses? If so, you may need something more
powerful or specialized. Here are some things to consider.

What Kind of Business?

Accounting needs vary greatly by industry and type of business.
What elements do you need to track to stay on top of your
financial situation? How much flexibility do you require?

* Manufacturing companies need systems capable of tracking
purchases, value-added processes, inventory and shipping.
They should be able to generate reports on costs and
profitability per unit produced.

* Retail and distribution firms require different kinds of
inventory management, tracking such things as inventory
turnover. They might also want to be able to track sales by
department, store or even salesperson.

* Service and consulting businesses must be able to track
billable hours and expenses by client or project.

What Kind of Reports?

Beyond the basic reports, needs depend on the nature of the
business and your style of management. Some ideas include:

* Forecasts on an annual, month-by-month and quarterly basis.
* Actual results versus budgeted expectations.

* Detailed comparisons such as the sales of a particular
product in a particular period versus the year before or, for
a seasonal business, sales in a particular month over the
course of several years.

* Some spreadsheet tools, making it possible to forecast the
effects of changes in price, distribution or accounting
practices.

How Much Software?

Prices vary from less than $100 to more than $20,000. Once you
have assembled a list of criteria, start by looking at off-the-
shelf systems, talking to other business owners, and consulting
with your accountant about what might accommodate your current
and future needs.

Determine whether the software being considered can run on
your current computer system. Also review how much training will
be necessary for you and your employees to operate the new
system, and how much that training will cost.

If you conclude that you need a complex, expensive system,
consider hiring a consultant to help with selection, installation
and customization.
_________________________________________________________________

ARE YOU READY FOR THE BIG LEAGUES?

When Laura DuDell started her public relations firm in 1982, she
needed only the basics to mind the money. The Northern California
company relied on Excel, Quicken and other separate components to
manage accounting tasks.

“In essence, we were using a manual system on a computer,”
DuDell explains. As tedious as the system was, however, it got
the job done.

Now DuDell & Associates Inc. has a dozen employees and $1.5
million in annual billings – and its accounting system has been
transformed to keep up with this impressive growth. In 1994,
DuDell took a big step forward by switching to ADMARK Financial
Management Software (FMS), a complete accounting package designed
for her type of firm.

FMS, from ADMARK Systems, Inc., is the software used by many
of the world’s largest advertising firms. It was a big investment,
but one that definitely paid off, DuDell emphasizes.

Powerful software packages, while expensive, are only part
of the expense of upgrading. DuDell paid $11,500 for the multi-
user system, including software and hardware — then hired a
consultant to install it. She also sent her business manager,
Setsuko Kimura, to ADMARK’s Tennessee headquarters for a free
training program. It took DuDell & Associates several months to
get the setup ironed out, and about six more months before
everyone in the firm became comfortable with the new system.

“I’m not going to pretend it was easy,” DuDell says in
retrospect. But she is convinced that the conversion was well
worth the effort and expense entailed.
_________________________________________________________________

GO SOFTWARE SHOPPING AND TAKE A TEST DRIVE, ALL FROM YOUR DESKTOP

Accounting software packages come in two primary types: basic and
complex. Any business just starting out is likely to be satisfied
with one of the smaller systems, typically designed to run in
Windows or on Macintosh, standing alone or networked. Larger and
more specialized companies might need more complex and expensive
systems.

Business magazines, computer publications and trade journals
frequently review new accounting software or sometimes run side-
by-side comparisons of the various products on the market. If you
get a trade journal specific to your industry or subscribe to a
magazine whose advice you trust, use these as your guide. You can
also do some investigating on your own with a few phone calls to
colleagues or connections to the Internet. Many companies offer
low-cost trials of their products, and several have forums on the
Internet or through such services as CompuServe or America Online
that provide information.



Administrative Marketing Consultants
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