The news about the recent economic problems and the looming double dip recession has been tough. The on-going Eurozone economic concerns have triggered a complete collapse in consumer confidence not seen since the original 2008 recession. The consumer confidence collapse coupled with the growing anxiety around global debt has led to a restriction of credit made available. Small businesses were impacted the most as worried banks reduce their perceived risk to bad loan repayments. With consumers keeping hold of their money and credit becoming harder to access it is no wonder that small businesses are struggling. This article discusses the important role accounting software can play in allowing small businesses to navigate through hard economic times.
How can accounting software help small business?
Business must be lean and financially sustainable to survive through the current business climate. Small businesses with large overheads and complex financing structures should work on re-organizing the business to regain control of their long term economic futures. Now is not the time for reckless investment in the pursuit of growth that only adds increased debt and inflexibly that could ultimately lead to the businesses downfall. Now is the time for prudence and tight financial management that allows a business to be financially independent. Accounting software can be central to supporting small businesses become financially independent and below investigates how.
1) Complete focus on cash flow
A business owner should be 100% focussed on the financial health of their business. This means having a thorough understanding of the businesses cash flow position. There is nothing more important in a small business than its cash flow position and should be very tightly managed. One of the difficulties for small businesses keeping on top of cash flow is the organization of receipts and invoices. An accounting software package easily compiles all of the relevant financial information and presents easy to understand dashboards and reports of company performance. Appropriate action can be taken to improve the company’s performance, once cash flows are established.
2) Focus on customer satisfaction
In times of economic hardship competition is notably increased in every sense. As customers are more considered with their buying decisions. Small businesses need to ensure that every aspect of their proposition is appealing to the customer. Margins are widely squeezed across all industries in the hope of enticing hard-up customers and therefore the only real differentiator to attract business is customer service. An accounting software package does not only improve business productively it also helps structure all customers and suppliers into an easy to manage database. This structured knowledge allows staff to provide a more tailored service to clients.
3) Look for ways to cut costs
In this economic climate any investment that doesn’t directly add value to the top line should be cut. Accounts Payable features with an accounting software package detail every penny that is spent in the business. This allows a thorough review of expenditure to take place to ensure that savings can be made where appropriate. For example costs could be cut down on paper, postage, transitioning to direct debit payroll. These cost cuts would allow the business to reduce its operating cost without cutting expenditure that generates income into the business.
4) Consolidate Suppliers
Businesses can also use accounts payable features within their accounting software package to streamline its supply chain. Many businesses needlessly have similar supplies from a range of suppliers. Buying in bulk is always a more economical way of doing business. Condensing suppliers with larger orders is more commercially viable in reducing supply costs. Generating reports by independent supplier will provide valuable information regarding the profitability of each supplier contract.
5) Negotiate better rates with long standing suppliers
In addition to the consolidation of the supply chain there may also be an opportunity to renegotiate rates with long standing suppliers. The longer the relationship between a business and a supplier, the more likely it’ll qualify for a rate that reflects the loyalty of the relationship. Reducing the costs of the supply chain can make a significant and welcome difference to a small business P&L during tough recession times.
6) Continuously look for ways to reduce non value adding admin work
In any small business the time of employees is one the company’s biggest assets and therefore spending time on non-value adding activity should be minimized wherever possible. An accounting software package ensures that people are not tied up managing basic bookkeeping tasks and completing quarterly and end year financial reports. Managing a business’s financial affairs can be very admin heavy if not managed in the correct manner. Having efficient software to automate these admin tasks allows staff to focus their attention on growing the business and generating income.
7) Streamline payroll and human resource management
As already discussed, people are a huge asset in any small business. An accounting software system can help provide detailed information about staff, hours worked and absence information. Having detailed information about staff costs allows a business to more accurately plan for the future and correctly budget for human resources. Also from a financial perspective large fines are imposed on businesses that make mistakes on Tax and National Insurance contributions. Having automated software negates the risk of mistakes occurring.
8) Streamline billing and invoicing
Not being on top of your receivables can literally be the difference between success and failure in today’s challenging business environment. An accounting software package allows a business to fully manage and organize its invoices and payments deadlines around the businesses bills and costs. Having invoice payments get received in advance of bill payments, ensures cash flow is never a problem. Having effective and well organized billing and invoicing ensures that a business income remains consistent.
9) Assertive debt collection techniques
Even if a business has streamlined invoice and billing processes there will still be some customers that do not pay on time. All of the structure and process in ensuring invoices are aligned with business costs will have been wasted unless good debt collection processes are adopted as well. Businesses should know when to make phone calls and send written communications. Knowing when to work with debt collection agencies in order to optimize income collection, is also a key skill.
10) Know you financing options
Accounting software packages allow a business owner to have detailed forecasts of predicted income and expenditure over the short, medium and long term. Having a longer term view of capital expenditure allows more intelligent decisions to be made around company financing. Last minute loans tend to be expensive as owners run out of time and simply need to pay bills. All forms of business financing such as structured loan agreements should be reviewed in line with long term accounting forecasts. Doing so ensures that the best suited finance is in place at the best possible price.
It has never been more relevant for a small businesses to invest in an accounting software package. Benefits run much deeper than simply allowing businesses to keep accurate and timely financial records. Accounting software enables a business to self-analyze every business process in the eyes of profitability and business return. Businesses that adopt the mind set of accounting software by definition embrace the notion that all company expenditure should be controlled and used to drive additional revenue for the business. Lean businesses will be financially sustainable and able to withstand hard economic times.