Whether a business is landing new clients, managing daily finances or preparing for the next growth stage, it requires a central accounting information system to streamline its processes and provide important insights across its teams. In these scenarios—and many more—an accounting information system can help businesses stay organized, add structure to finances and enable employees to work efficiently together with data. The most effective system will evolve with the business to meet its unique needs at each stage in its journey to scale.
All businesses use an accounting information system
Every business uses an accounting information system (AIS), whether it is made up of simple Excel spreadsheets or a fully integrated ERP (enterprise resource planning) system. The crucial difference is that some systems allow a company to function, while others allow a company to optimize their processes and look to the future. Does your current AIS do the latter, and if not, what is missing?
A successful AIS simplifies your business’s growing complexity
An AIS collects, stores and processes accounting and financial data related to a company’s transactions and financial decisions. Data can be entered by different departments and financial professionals, such as CFOs or auditors, who will help keep the data secure, retrieve it and process it to make strategic decisions, to understand cash inflows and outflows or to diagnose the health of the business.
Consider a large retailer that sells t-shirts. Their sophisticated AIS allows their sales team to manage and input new t-shirt orders. Accounts receivable records the invoices. Inventory is updated to reflect t-shirt counts in the warehouse and the cost of goods sold. Supply chain management tools determine disruptions in supply or demand, such as a shortage of materials or change in material prices. Accounting uses all of this data in the AIS to create important financial reports, such as a balance sheet or cash flow statement, that the CFO will then use to determine the company’s strategy moving forward. In addition to these capabilities, the retailer may also use the AIS for payroll management, project management, human resources and other processes that allow the company to run cross-functionally.
Not all companies of a certain size will use the same AIS. Your system’s level of complexity will depend on your company’s goals, stage of growth and specific business needs.
The business AIS roadmap
An AIS comes in all shapes and sizes. Businesses may initially use one type, but as they evolve, so will their AIS needs. As you think about your AIS, you should consider whether or not you are using a system that allows you to effectively manage and analyze your company’s data.
Basic systems allow business owners to operate at low cost, but with a price
For a new or very small business, accounting is typically processed manually through paper-based accounting records, such as a general ledger or source documents through Excel. For a small company with a business owner who wears many hats—and may not have a finance background—this method offers an easy interface and lower costs; however, these methods are more likely to foster the potential for human errors.
Employees recording, classifying or reporting financial information will find an AIS is faster than doing these tasks manually. This gives them back time with less errors. An AIS also increases the reliability of a company’s data as the system follows a predefined set of instructions, decreasing erroneous information and inconsistencies. With more accurate and readily available information, business owners can have more confidence in their decisions for the future.
Accounting software provides affordable improvements, less integration
As a small business works to correct errors and decrease time spent managing data, it may transition to accounting software to help with its accounting needs. Out-of-the-box software like Quickbooks is a little more expensive than Excel, and it can lack flexibility, but it can be upgraded in small steps to remain scaleable through some stages of growth.
Traditional accounting software packages, however, are not as comprehensive as ERP systems, which provide functionality beyond financial operations, such as human resources, project management or eCommerce tools. For companies that wish to keep these functionalities separate, accounting software may suffice. However, for companies looking to fully integrate all of their operations with real-time data across functions, then upgrading from accounting software to an ERP system is optimal.
Fortunately, newer accounting software packages are closing the gap and offering additional functionalities, or bundles, that businesses can add on, such as customer relationship management (CRM), inventory management and advanced reporting. These software packages are also less expensive to implement than traditional ERPs.
But despite growing capabilities, accounting software still limits businesses from seamlessly scaling in a number of ways:
- Decision makers can’t see real-time data across all operations, which means that they can’t evaluate all of the factors influencing their financial data.
- Without this real-time data and agility, financial forecasting is more difficult, and future decisions may rely on limited or even inaccurate information.
- Information is often siloed, making it more difficult to connect and integrate data.
Considerations for moving to the cloud
A majority of businesses today are moving to the cloud in order to keep up with the changing tech landscape. A business of any size dealing with technological advancements or a remote workforce will benefit from a cloud-based system. Any data stored in the system is updated in real time, and updates and data backups are automatic. This system requires less hardware, saving companies money and adapting well for remote teams. Employees can access and monitor financial data from anywhere, and stakeholders can retrieve information online rather than from a single desktop location.
However, there are important considerations at this step. Cybersecurity is especially a concern, as there is higher risk for malware and ransomware attacks. In order to protect financial data, companies should work with cloud providers and with their team to develop cloud security best practices. This is especially important when a company starts to hire remote professionals who have various levels of access to data or remote workers who may not be working from a safe internet connection.
Legacy systems inhibit growth
Many older businesses may already be using an AIS, known as a legacy system, which is a system implemented before today’s modern systems became available. Often used in manufacturing and retail companies, legacy accounting systems tend to use older computer language and often unsupported software or hardware. These outdated systems make it difficult for businesses to evolve, as they are no longer competitive, cannot integrate with newer systems and are costly to maintain.
A growing business may find it useful to upgrade to an AIS that can integrate seamlessly with another system. Though there may be hesitance to change an established system, businesses that do not upgrade their legacy system run the risk of compliance issues, security breaches and the inability to take advantage of new, competitive technology. Planning ahead of time for an upgrade can help make this an easy transition and potentially save money in maintenance costs.
Migrating to ERP systems and beyond
As businesses evolve, they eventually need a comprehensive and integrated system to connect all of their data in one place, ideally serving as a company’s financial and operational “hub.” Businesses looking to effectively scale will migrate to an ERP that allows for this type of agility. Initial outlays to implement an ERP, including employee training costs and software, can be costly. In the long-run, however, businesses see a return on their investment by improving efficiency and productivity.
ERP systems can come out-of-the-box or be customized from the ground up. They include the functionality of accounting software with the additional functionality for managing customers, projects and their workforce.
Complex businesses will require a custom system. These bespoke options meet a specific need that can’t be met by other software or systems. For example, a midsize company expanding globally will need an AIS to support different currencies, languages or features that translate to global audiences. These changes can help with reporting to the home office and keep journals localized for different accounting standards, including US GAAP or J-SOX.
As technology rapidly advances, ERPs can also be updated with the latest functionalities. Modern ERP systems may incorporate artificial intelligence and machine learning to work with larger data sets and more accurately conduct financial forecasts.
Like any AIS, an ERP must be updated to maintain compliance under regulatory changes, to keep up with new software requirements or to meet changing business needs. The evolution of your AIS should coincide with the evolution of your business and provide you with the tools to scale, remain competitive or simply run your business more efficiently.
Is it time for an update to your AIS?
When migrating to a new system, outsourced specialists can help businesses through AIS transitions by facilitating a smoother process, offering expertise and answering questions.
As you evaluate your current AIS, consider the following questions:
- What is currently working in your system?
- Does your AIS match your business’s size? Is it scalable?
- Does your AIS have elements customized to you?
- What do you wish your system could do that it can’t currently?
- What criteria did you first use to pick an AIS? Do you have the same problems then as you do now?
- What trouble regularly comes up? (Efficiency? Processing data into information? Shareability?)
- What kinds of information do you need to make your best decisions?
Implementing a solid AIS can help you overcome obstacles that limit your growth. Whether you’re a small business ready to build an AIS or a growing business taking accounting to the next level, Paro’s financial controller services can help you optimize your accounting information system and make the transition easier.
