Digital Accounting And Information, A Four-Step Process That Will Change Your Life

When is information relevant and useful? How can accounting boost the company’s performance and hence its value? Is it possible that by changing the processes of accounting the management of the company might have access to vital information for the performance of the company? You will get the answers to these questions and many more in this article as we look into the beautiful world of digital accounting and information.

A lot of entrepreneurs consider accounting to be merely a cost function, like a necessary evil. However, their competitors might know better. When accounting is properly applied, the company’s management is exposed to a vast amount of informational opportunities.

Transforming a cost center into a function that adds value to the organization sounds like a great idea. How is it possible to make this transformation? This is a process that requires a lot of steps that must be carefully planned and accurately implemented.

Digital Accounting and Information: The Right Process

#1 Closing time and timing of information

The central point is the effective management of closing time. What is closing time and why is it so important? Closing time refers to the point in time when the accounting department reconciles all accounts. This is a time and energy consuming process that requires paying attention to the details. Assuming that professional accountants take over the process, then it should be straightforward.

The accounting department books all expenses, selling invoices, purchases, while cross checking that all provisions are updated or reversed when appropriate. For sure reconciling bank balances and cashiers goes without saying.

However, what is not straightforward is the timing of the process. High performing accounting departments proceed to weekly or even daily closing. This means that every week or every day the company has reconciled accounts, hence they can provide to the management of the company with all information required on a weekly or daily basis. In order to visualize the magnitude of this effect, you should compare the effect of the information provided on a weekly basis, versus the information provided on an annual basis from typical accounting departments.

On one side, the management has accurate and prompt information regarding all aspects of the company’s operations. Growth on sales, receivables, cash flow forecast, profitability and investments to be executed until the end of the year. All this information could be available on a weekly basis. Once a year the management of the company is being presented with the accounts of the company, that is the company’s performance. In such a case how would it be possible for the management to take corrective action when presented upon a bad scenario?

#2 Digital accounting and closing time

There is no objection regarding the usefulness of appropriate closing time. However, the question is at what cost may a company manage to reach a level of weekly closing? This is when digital accounting comes to play. Despite the fact that many entrepreneurs are not familiar with the concept or usefulness of digital accounting, it is a simple process that requires specific steps to be implemented.

Firstly there is problem recognition. Why is the process stalling? Who is the player that does not perform? At this stage we have to go through all areas of accounting. Bank reconciliation, purchases, sales , inventory, procurement, receivables, payables, payroll, fixed assets and provisions. We have to visit all major areas of accounting to find out which step we lack the prompt action. Is it that suppliers do not send their invoices on time? Could it be that the warehouse places the goods within the warehouse but does not send the documents to the accounting department promptly? Every company, regardless of size, has its own culture of communication and collaboration. We have to work within this framework, identify the pitfalls and provide simple to use, inexpensive corrective action.

The second step is to implement technological solutions. It is possible to combine different systems in order to extract data from one system and use it as data entry to another. This can be the case when using software “A” for warehouse inventory, booking purchase invoices and invoicing customers, while using software “B” for accounting purposes. Using proper technology, the company will save enormous resources by extracting data from “A” and entering them into “B”. With the proper parameters the accounting entries could be automatically done. Similar technology could be used for other time-consuming processes, such as payroll booking, or bank reconciliations. As a matter of fact, many companies use such technology when reconciling accounts with customers. So, they spend less time preparing and contacting the customer, while at the same time gaining time when collecting. So, from decreasing costs the company decreases order to cash cycle as well. Another time-consuming task is fixed assets reconciliation. Many companies use software “C” for fixed assets. A software designed to follow up on fixed assets, make calculations on depreciation and net book value of each item. However, in many cases these systems do not relate with “B” that company uses as its main accounting software. Once again, tremendous effort might be saved when using the appropriate technology.

#3 Application of digital processes Despite the fact that we are referring to digital technology, this step mainly involves the colleagues. Building strong teams is vital for the overall performance of the accounting department. We cannot overstate the significance of building a strong accounting team. Each person must know the objectives, the deliverables, the quality, the quantity to be delivered and of course the timing of each deliverable. However, this is hardly enough. Building such a strong team is a necessary but not sufficient condition.

If you want your company to grow to the next level, you must ensure that the accounting department has strong ties with the other departments. Once you have created open channels of communication within the departments, accounting personnel will feel comfortable enough to start raising questions to other colleagues, regarding the approval of each invoice, the details of the supplier, the (new) customer’s address and so on.

#4 Re-evaluation of the process You must always have in mind that your company must perform 8% better than the previous year to remain competitive. In doing this, you must set at least 8% target to every department, so they are all aligned. Clearly this applies to the accounting department as well. You must follow up on the deliverables of the accounting department, ensuring that the processes are updated. As soon as new problems appear, then they are tackled as well.

Digital Accounting and Information: Key takeaways

In conclusion, there is no doubt that the accounting department is not a sunk cost. If you think so, then you should worry, as some of your competitors have a different point of view on this matter. Fortunately, the war is not lost yet. You must set up the right processes for the accounting department. Then you receive the information necessary to help you make proper decisions on time and move your company to the next level.