Accounting System V/s Business SystemDo I Need a Business System. Is my current Accounting System Inadequate?

Typically it’s a general practice that an accounting system is considered as a business system by number of businessmen. But both of these systems have differences just as there is difference between stick and carrot. The business system embeds the accounting functionality but an accounting system cannot have the results like a business system.

There is a major difference that exists between these two categories of software. It starts with two things: what computers are good at, and what is the goal of accounting?

Accounting System Software

In simple words accounting system software is application software that records and processes accounting transactions within functional mod-ules such as accounts payable, accounts receivable, payroll, and trial balance. So, the accounting system is aimed to create some discipline.

The goal of accounting is discipline by providing an accurate track of ev-erything that happened from financial perspective. The list of reason why accuracy is important is endless, and it includes knowing how much we owe others, how much others owe us, how much taxes we need to pay, where do we stand financially in general, etc.

The very principles of accounting as it is mostly used today (double-entry accounting) is centuries old but at that time also accuracy was not the problem. Mostly, it was the volume of information. The data entry into the books, and then consolidation across the books was frightening. The problem is not just to track the events accurately, but to consolidate this information across various books, or ledgers as accountants call them.

An invoice is an excellent example, because an invoice may actually result in entries being written into a bunch of ledgers simultaneously. If the invoice is of the goods being sold then its entry should be made into the customer ledger and in the inventory ledger. Accountants had to do all this integration manually, entering information into one ledger, then another, then another. This adds extra labor.

First accounting software applications didn’t bring any new brains to the business, so they simply helped accountants do more work in the same amount of time, but most of accounting software, even today,

have all these ledgers as separate systems, into which information must be entered separately, therefore not addressing the problem of error, which could still occur as much as it could when all the work was done manually. Now the accounting system are being made more integrated to overcome the above problem and with this feature the purpose of accounting system of tracking accurate financial activity information is over.

So, why then do we really need all of this information? If companies don’t keep track, or don’t keep accurate track, ultimately they will catch trouble. But keeping track, and keeping accurate track alone, won’t re-ally bring carrots, or at least won’t bring as many carrots as it would bring sticks.

What is the true value of accounting software? Where can this kind of software really bring measurable, justifiable value to a company using it? Knowing your financial situation, balances of your customers and sup-pliers, knowing the amount of inventory you have, making good-looking P&L statement for your shareholders, well, is it the real value you can get from the system?

Accounting is the very basic need, but companies soon get to another level, where they don’t just need software to keep track of financial ac-tivity, they want to manage it financial and business activities. This is something accounting system software normally can’t handle, and it is also not something for which it is made for.

In order to manage business activity you need the help of a system which records the nature of your business not just the track the activities in finance. This is completely another category of software, called Busi-ness systems and accounting is only one part, it goes way beyond.

Business SystemA system which facilitates a business process, manages key resources and carry out administrative functions efficiently and effectively. This is the simplest of all the definitions. But is it s better system to run a business and has an edge over the accounting system?

Running a business using only accounting data same as driving a car by using rear-view mirror only. The purpose of accounting is to provide accurate and reliable overview of financial situation to interested parties. What this financial overview consists of is the stuff that has happened in the past not present. The history is an important facet for the business. But there are many drivers of business success other than just history of events that contributed to wherever you are at the moment.

Consider the example of a ware house business. The flows of goods in and out are important for business. The most avoidable situations will be: The goods shouldn’t be in the ware house for the long time since it is your in-vested money and holding the goods is not generating any profit. The older the item, more difficult it will be to sell.

Another important situation is to avoid about goods flow is to have a con-tinually empty warehouse, which can easily happen if you don’t make sure you have always enough inventory to satisfy your anticipated demand. If the warehouse is empty, you are having wasting cost, because running a ware-house costs. The warehouse should contain enough goods to satisfy current and imminent demand and to cover for any fluctuations that may occur in demand volume.

This is the one of the many situations where business system helps. Ac-counting software in general can tell, how much goods you have, what is their current value, even how the value went in and out of the inventory over time, but they are not capable of giving you any useful information on how to really optimize the goods flow. But how to optimize the goods flow is not a single question. You need to find out the answer of several others to reach to the final conclusion. It involves questions such as, what goods you need to fulfill the demand, how much of these you need, and when exactly do you need them etc.

Imagine the kind of mess created when there are hundreds of customers with thousands of different items. Imagine kind of planning you need to maintain the fluctuating levels of demand and supply. The financial transactions here fail severely and this reaches beyond the limits of the accounting system software.

In all aspect a business system is more advantageous than the accounting system software.

When should you consider a Business System?The add-on modules are certainly a quick and inexpensive fix. When companies are relatively small, the accounting centric systems are both relatively affordable and easy to implement. Usually they will meet the basic needs for years.

Once it becomes obvious that additional system needs are required, it is financially logical to review the add-on modules first. You will not disrupt your financial staff by forcing a new system on them, the add-on modules will be comparably inexpensive and easy to implement. However it is easier to implement the new processes and procedures a business system will provide when your firm is still in its infancy and can adjust easily. If the information required to run your business efficiently is not available to your staff, the concern of short term costs and disruption may be holding your company back.

Some indicators that indicate it maybe time for Business System

• Users complain about system performance • More in-house databases and excel spread sheets are being used to compensate • Better control of operations is apparent • Inventories are getting too high or too less• Competitors appear to have an advantage regarding service provided and value • Maximum time spent on meeting government regulations • Shop Floor control data is lacking • Purchasing costs are too high • Customer complaints about service • Data access is just not sufficient and not correct• Current IT supplier doesn’t understand your business

Business systems do appear expensive, but if you take into consideration how much you have spent over the years with

• “band-aid” add-on solutions • The islands of information you have evolved into may require more labor to maintain than a fully integrated system. • Realizing what you have doesn’t provide the information you need.

With improved customer service, inventory control, costing, quality, the cost of business system will be justified. At this point, a busi-ness system could be necessary and mandatory to maintain your current business health.

Remember: “Accounting is a requirement of business, but it’s not the reason for doing business.”

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From small to midsize to large business who can best judge IT objectives and invest-ment with business goals and requirements are best positioned to achieve sustainable and profitable growth in this new competitive world. By working with Novoally and our experience partners in your local market, you can get the support your company needs with a solution specifically designed for your business requirements and your budget.

Our fully integrated and configurable, on-demand business system can help you op-timize your business by enabling better collaboration, coordination, productivity, and efficiency across your operations. It’s no wonder that we are adding more and more customers on daily basis in small and midsize companies and helping them to get the best out of their business.

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