14 May 2011

The Truth About Using A Computerized Accounting System

There are many versions of accounting software available to small business owners, but accounting is only one aspect of recordkeeping. Word processors, databases, spreadsheets, and all sorts of graphics can aid you in managing the financial and clerical aspects of your business.

There is probably no area of greater confusion to the self-employed businessperson than the true costs and benefits of installing and using a computerized accounting system. Such business owners frequently have an inflated picture of the benefits of computerized accounting and an incomplete understanding of the costs. Some computer resellers and systems installers are unwilling to point out these conceptual errors, which often results in some unpleasant surprises and bad feelings.

First and foremost, computerized accounting is not simpler than manual accounting. Even the very best accounting system will not magically convert a clerk into a bookkeeper. In fact, many full-charge bookkeepers insist that computerized accounting requires sharper bookkeeping skills than a manual system. Manual systems generally break tasks down into simple steps. Errors are not automatically carried into other accounts.

Second, if you are going to bring your accounting in-house, you need to realize that a computerized accounting system is not going to straighten out a manual accounting mess. Small, rapidly growing businesses, faced with limited capital and cramped cash flows, often put off establishing proper accounting procedures until a sunnier day. A manual accounting system verging on a bad dream can become an almost impossible nightmare when computerized. To "go onto" a computerized accounting system, your books have to be in perfect order. Accounts receivable and payable have to be exact and up-to-date, and beginning balances must be accurate.

Moreover, where staff is already stretched, part-time help may be required, because the two systems should be run in parallel for at least two months. In this way, mistakes are more easily caught and corrected and the business need not rely on the new system to provide accurate data. Your staff simply must have time to learn the new system. Expect three to six months to return to earlier efficiency. The system you purchase will not do everything exactly as you want it.

Some modifications may be needed to produce the output you need; these won't be free. Plan on involving an accountant in this task. Don't expect the package seller to provide advice only an accountant should provide. And some tasks simply do not lend themselves to easy, efficient transfer to computers. Computers are only tools.

Finally, let's look at the support issue. Support includes all the services necessary to get and keep your computer system up and running and as productive as possible. These services include instruction, education and maintenance both under warranty and other. Some resellers include preventive maintenance to service your computer before it stops working. The accounting package reseller probably captures a gross margin of 20 percent to 40 percent of the accounting package retail price.

Out of that margin, sales commissions and all overhead expenses must be paid. Most support requires not only a thorough knowledge of the package, but a sound grounding in standard accounting procedures. Well-trained and equipped support personnel normally need to charge at least $60 to $75 per hour to make a reasonable profit. Therefore, on average, one should probably not expect more than one hour of qualified support "free" for each $1,000 of purchase price. Free, unqualified support generally costs you more than you can afford.

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