One of the most important decisions to make when starting a new business is what kind of financial information system to purchase. There are basically two types: the off-the-shelf package, which is ready to use, and custom scalable packages that require considerable expertise to install. The latter are much more expensive than the off-the-shelf packages. One thing is certain, you need to accurately track your key financial information in order to maximize profitability and to reduce overhead expenses. It is extremely important to pick the right system for your business.
- Most new businesses can start with an off-the-shelf, all-in-one, ready-to-use accounting package like QuickBooks or Peachtree. For around $250, you can have a powerful financial information system that is capable of providing you with a full set of financial statements and many other types of reports. But this is not true for all new businesses, for example, if you were opening a car dealership with new cars, used cars, a repair/serve shop and a parts shop, you would need a specialized financial information system for car dealers. You would need a system capable of handling all of your billing issues with multiple insurance companies for a medical practice or a dental practice. Again, a specialized package would be needed. Law firms and accounting firms would need a system capable of tracking billable hours by client. You need to carefully assess your needs, and if there are special accounting and reporting needs, find a system that can satisfy those needs.
- If you determine that you need a more elaborate system than an off-the-shelf system, there are many scalable systems to choose from, for example, Microsoft has several midlevel packages in their Microsoft dynamics series. With a scalable system, you start with the core modules; they provide you with the basic financial statements and financial information. Then, as your business grows, you add modules for your expanding needs. Later, you may need a customer relations module (CRM), a payroll module and a human resources module (HR). These types of systems are much more expensive than off-the-shelf packages and would require a certified installer to set them up, which is in itself expensive. You should do some thorough needs analysis and have a CPA assist with choosing such a system. You want to make sure you buy what you need but not more than you need.
- Some key differences include departmentalization that is the tracking of revenues and expenses by cost center; the ability to handle more than one business entity, including transfers between multiple entities (i.e., subsidiaries); integration capabilities, the ability to import and export data between modules, systems and spreadsheets; and most importantly reporting, the quality and quantity of reports varies widely between packages. Make sure the system will do what you want and need it to do. Report creation is critical for financial analysis and management.
- Your financial information system should provide the information you need quickly, that is on demand. You need a financial information system that allows you to quickly identify the critical issues that require your immediate attention: customer satisfaction, cash flow and cash needs and trends that you don't expect. This type of information is critical to keeping the business running smoothly, and it comes from your financial information system.
- The system should provide on-demand ability to determine where the company stands in relation to profit goals and break-even points and also to determine where changes and/or adjustments are needed. The system should provide continuous compliance with industry or governmental accounting standards so outside entities can rely on company financial information. There should be an increased understanding of the financial health of both the company as whole and individual business units. If any of these benefits are lacking, the system is not providing you with everything it should.
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