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Is Technology making accountants redundant?

A recent post on Accountingweb.co.uk pressed one of my buttons.

It was from a business owner who asked if technology was making his accountant redundant. He pointed out that much of what his accountant offered to do for him was now handled quite well by software. He finished up by asking does he need his accountant and does his accountant need him.

I have been thinking about this lately. A lot depends on what the client wants the accountant to do for him. There’s a range of activities that accountants offer from doing the whole book-keeping work to finalising annual accounts and providing business and taxation advice. In my view, the amount of clients who will want basic book-keeping, the number crunching work, will fall off and the accountants will find themselves providing analysis and advice.

It’s more than likely, that once the clients start to take control of their own accounting records, they will start to look for more help with analysis and advice. Their accounting systems will generate information that they simply didn’t have in the past. This information will prompt questions that they will want answers to. So I think that rather than make the accountant redundant, they will simply change the type of work accountants do.

And, I know which work I get most satisfaction from. It’s helping the business owner by providing analysis and advice.

As always, feel free to leave a comment and if you have any questions, email me at jim (at) accountsplus (dot) ie.

Making your accounts work for you.

Are your accounts giving you information that helps you manage your business?

Most accounts don’t.

When I go into a new client, one of the first things I do is to review the existing accounts.

I am looking to see if they could get more information – additional analysis – from their accounts.

The Sales account is the first account I see. Most accounting systems have only one line for Sales. Yet, it is helpful for most businesses to analyse their Sales in more detail.

You can analyse by the type of work, the nature of the assignment, the type of customer, the geographical region or any other way that gives useful information.

For example a business consultant might have once off consultancy assignments, ongoing retainer assignments, training etc. I mentioned this to a client recently who has launched an initiative to win more retainer business. Analysing his sales in this way, will make it much easier to see if the initiative is achieving the results he wants.

An engineering business might work for industry or for building contractors or for farmers. When I worked for an engineering company some years ago, they realised that they were making a lot less profit on their farming customers. The accounts analysis prompted further investigation and they ended up pulling back from that sector with the result that they achieved better profits with lower sales.

A medical practice might have GMS, private patients, occupational health contracts or public body contracts.

Breaking down your sales can help you manage margins. It can help you understand if your marketing is working. It can show you which parts of your business are performing best for you.

Each business is different and each business owner should sit down and ask what information would be useful to him/her. And remember , this analysis can be applied to more than just sales. Any Cost of Sales or Overhead account has the potential to be analysed further. If you find it useful to analyse your sales one way, you will probably find it useful to analyse all of your costs the same way.

Ask yourself if any costs are giving you cause for concern. What additional information would help understand those costs better? Go into your accounts and set up accounts that will help you with this analysis.

Your accounts will still show the same overall result. You will be just making the numbers work for you instead of you working for the numbers.

Some of the biggest improvements I have helped make in businesses have come from using this type of analysis to understand what is happening in the business.

I have been able to show that a business is losing money to one set of customers and subsidising that loss from a different set of customers. The information was there but the system was just not set up to deliver it.

So have another look at your accounts. Is there some other way of analysing the information that would be helpful to you? Go ahead, then, and make the changes.

If you have any questions about this post, feel free to send me an email to jim@accountsplus.ie.

Are you missing out on the benefits of budgeting

It’s the start of a new year and larger companies will have their budgets done, or almost done.

Yet, in most owner managed businesse,s there are no budgets or forecasts. Ask them why and they’ll give you all sorts of reasons. They haven’t got time. The current climate is so uncertain its nearly impossible to get it right. They haven’t got all the information they need yet.

None of these reasons are valid.

If something is important and worthwhile, you make the time for it. If you think you haven’t got the time, that means it’s either unimportant or not worth the effort.

In uncertain times, it even more important to understand your business and to have a reasonable appreciation of how it will perform in good, medium or poor conditions. You should be taking actions that will make your business better able to understand the uncertainty, rather than waiting impotently.

If you haven’t got all the information, then you need to identity the key information and get it. The only way to do that is to starting your budgeting/planning process.

A budget is not about the end document. Yes, thats important. But what’s more important, and more beneficial, is the process you go through to prepare a budget.

You need to understand what the business is selling and what resources are used up making those sales.

You need to know what these resources will cost you in the coming year.

You need to understand what overheads you have and what they are going to cost in the coming year.

You need to be clear on what assumptions you are making and which of those the most critical.

You need to understand your payment terms – both incoming and outgoing – and what effect these have on your cashflows.

Overall, the earlier the warning you have of any problems, the better positioned you are. A good budget or business plan should flag up any issues you need to be paying attention to.

The process of doing your business plan should be looked at as part of your learning process.

You set out your budget or plan that tells you where you expect to be at various points in the year. As you go through the year you check to see where you are and how does that compare to where you thought you’d be.

If the differences are significant, you need to investigate and understand where you got it wrong. Out of this, your understanding of your business will grow and your ability to predict will improve.

Bottom line, budgeting or planning is one of the most important things you can do.

Getting Better information from Computerised Accounts

I attended an Insolvency Update last week and one of my own hobby horses appeared again.

One of the speakers, who regularly works on examinerships, commented on the lack of good accounting information in most of the companies that go into examinership. This really struck a chord with me. In most of the improvement projects I have worked on, the accounting information was either poor or non-existant.

What I find difficult to accept is that, while most companies now use some form of computerised accounting software, very few are getting management accounts. Even where businesses are getting reports from the system, the reports will be either out of date or unreliable.

There’s nothing worse than picking up a report, asking the owner about it and hearing “Ah, sure. That’s not right”. And I’m thinking, “well, if you know something’s wrong, then why haven’t you fixed it?”

But they don’t fix it. They’ve done 70-80% of the work needed to have good accounts but they haven’t finished off the 20-30%. So the information they have is more than likely misleading,

It would only take a few things to make huge improvements in the quality of the information.

  1. Review the setup of the accounts and ask are they designed to give you the manangement information that you need
  2. Check are the opening balances correct. You will probably need help from your accountant here but I think they should be adjusting the opening balances for you anyway.
  3. Sanity check the information that has been input. Prepare bank reconciliations to prove that your bank account is reliable. Review your debtors account and make any corrections necessary for discounts, bad debts etc. Do the same for your creditors – reviewing for discounts and writeoffs etc.
  4. Finally print off a Profit and Loss and Balance. Go through the Balance Sheet first. Is every asset listed correctly? Do the liabilities look correct? If your balance sheet is reliable, then the net profit to date must be reliable. When looking at the Profit and Loss, I like having a drilldown feature. When someone says “whats in telephone or whatever”, you can just drill down on the account to see what transaction make up the figure for telephone.
  5. If you do all of that, you accounts will be reasonably reliable and good enough to work with.

If you have any comments on this article or if there are any areas you would like to address, please do let me know.

Best Wishes

Jim