Managing Finances & Resources

'To err is human, but to really foul things up requires a computer'. Anon.

Running a business is really all about managing resources, whether they are financial resources, assets like computers and stock, or people and their different capabilities and strengths, or any other resources. 

This article examines how small or start-up businesses can use different resources, and the pros
and cons of varying approaches in a number of areas.

Computers
Most businesses use computers for some part of their operations, with varying degrees of success. A properly installed system can add major efficiencies to the operation of a business, but an out-of-control system can wreak havoc.
 
In the small business arena, the typical areas of possible computer use include:

• Bookkeeping
• Customer/prospect databases
• Word processing
• The Internet
• Other applications

Bookkeeping
There are literally hundreds of accounting packages available today, and it's a minefield for the uninitiated. Which package should you use?

Like most software packages, accounting packages can give the user a lot of power, offering every conceivable feature. (It has been said that the 80/20 rule applies to software usage - 80% of users only use 20% of the package's features).

With some software packages, this is okay. You can readily produce a nice looking document from a word processing package, even though you don't understand most of its features, the fact that you're under-utilising the software doesn't affect its usefulness. However, with other applications, this might not be the case. Take for example CAD packages, used by architects to design buildings. With limited skills, you could probably use CAD software to design a building, but if you lack engineering knowledge, would the building stand up?

The same applies to accounting software. You could install a package that does everything your accountant does. But if you don't understand bookkeeping principles, how much reliance could you place on a balance sheet or income statement produced by that package?

The key to using accounting software successfully is to find a package that matches your level of understanding where you understand the significance of what you're keying in, and where you understand the reports that are produced.

For some businesses, a fully integrated general ledger accounting system is the answer. If you, as the user of the system, understand debits and credits, and can interpret a balance sheet, you should have a full accounting system, because the information it generates can be very useful.

However, most small business proprietors lack detailed bookkeeping knowledge, and have neither the time nor the inclination to learn it! For these businesses, a fully integrated general ledger system is not the answer, and may even be potentially dangerous. The inherent complexity of such a system may lead to errors, as well as require a lot of time in trying to learn how to use the system, and in coping with the frustration and expense of trying to sort out any problems, either by the owner or their accountant.  Furthermore, without a detailed knowledge of accountancy, proprietors would not be able to make use of many of the features and reports anyhow.

If you fall into this latter category, the answer is to use a package that gets you involved in the bookwork to the extent that you can understand, and to produce reports that are useful, and relevant to your needs. Equally importantly though, these reports must be useable by your accountant as a starting point in reviewing your business performance and in finalising your annual accounts.

Most fully integrated systems incorporate most, if not all, of these sub-systems. Ideally, sub-systems should be able to be activated and de-activated as required, so that if de-activated, all aspects of that sub-system become invisible.

It is important to remember that a computerised accounting system doesn't do anything new with your books - it simply automates a task that would otherwise have to be done manually. 

Figure 3 illustrates a simple accounting system model which users with limited bookkeeping skills could adopt. Under this model, any or all of the sub-systems could be computerised. For example, if you computerised the Customers and Cashbook side, customer payments would flow automatically to the cashbook as you bank the cheques. You could operate the Suppliers side manually (as many small business prefer), whereby you would enter supplier cheques directly into the Cashbook.

Figure 3: A simple accounting system model.

How do you find a software package that suits?

The first thing to do is ask your accountant. With your level of bookkeeping knowledge in mind, they will be able to recommend something appropriate for your particular business needs.

They may also know of packages that let you give them your data on a CD or other removable storage device, or by email, so they can 'import' all your transactions to their own computer package electronically, making their job quicker and easier, and so helping minimise the fees they charge you.

You should also ask business colleagues what they use, but remember, their accounting skills and overall requirements may differ from yours. Contact your trade or professional association, to see if there are any packages that have been designed especially for your industry. These may offer extra features not found in mainstream packages.

Computer retailers have many accounting packages on their shelves. However, consider the skill and knowledge of the retail salesperson before you accept their recommendation, and also think about the after sales service - will they be able to help you set it up? It's not uncommon for small businesses to end up paying three or four times the cost of complex software for someone to come and set it up for them.

Although price will undoubtedly affect your choice, cheapest is not always best, and nor is the most expensive always the most suitable. If you save a couple of hundred dollars on the purchase, but it takes your accountant an extra few days of work every year because the reports aren't in the right format, or important details are missing or recorded incorrectly, you'll be well behind before long.

If the package you finally choose is not the one your accountant recommended, let them know what you've decided, and let them look at the package and/or its specifications. There may be some aspect of the package that perhaps you didn't notice or consider. Remember: your accountant is the best person to know what your accounting software should and shouldn't do.

For anyone starting a new business, it's also wise to choose an accounting package which is not only easy for a layman to use, but which also incorporates access to any training or other support needed.  If you strike a problem or have a query, you really need a quick answer to avoid possibly long delays while a call centre on the other side of the world puts you in a queue of possibly thousands of other queries. The more local support you can get, from people familiar with New Zealand business needs, the better off you will be.
    
Ideally, you also need a package which is flexible, starting small initially and then, as your business grows over time, so can your accounting system, adding extra modules or features as and when that extra cost is warranted. 

Customer/prospect databases
Computers can really give small business marketing a shot in the arm. Before the computer age, many small businesses found it uneconomical and time consuming to engage in direct marketing campaigns, but simple database packages with mail merge bring direct marketing to the smallest business. We will look at direct mail in more detail in a later chapter.

Figure 4: Database terminology explained.


The remainder of this article has been divided into chapters. Click on a link below to view a chapter (PDF):

Database Packages

Other Applications

Business Insurance

Business Security

Employment