Using Accounting Software

5. Monitoring Performance

Using accounting software makes it easier to see how well your business is doing overall, and how well individual parts are performing.

5.1 You can establish a monitoring system to show how well each individual area is performing against budget, or against other comparable periods.

• You will be able to identify problem areas and probably pinpoint the reasons for poor performance. For example, if your sales are falling short of forecast, or short of last year's performance, you may be able to trace this back to an underspend on marketing.
• You will also be able to take remedial action sooner, rather than later. For example, if your production costs are over budget, you may need to improve efficiency, increase prices, or switch to more profitable lines.

5.2 You can use the software to determine the real performance of different parts of your business.

• The software should allow you to break down your costs for different departments, products and individuals. You can match costs with income to determine what each activity earns you.
• More advanced software will allow you to integrate information from different parts of your business to determine the real costs of a project. For example, you may buy in a product at low cost and sell it on at a high price. But if you have to run an expensive marketing campaign, the product may not be worth selling by the time you have allocated the real costs.
• The software should allow you to measure the worth of a product or division, in terms of its ability to generate cash.

5.3 The software should help you produce management accounts, which will enable you to see how well you are doing overall.

• If you produce management accounts on a monthly basis, you will have a good idea of how well your company is performing against budget and against other comparable periods. Some fast-moving companies may want to produce them more often.
• The accounts should cover the latest accounting period, and also show the picture for the year to date.
• The software will enable you to check the performance of each part of the company, and produce a 'profit and loss' account, summarising overall performance. Check that it can handle non-cash items, such as depreciation, and pre-payments and accruals.
• You may use it to produce a cashflow breakdown by division, especially if there is more cash going out than coming in.
• It should also permit you to produce a 'trial balance', totalling all debit and credit balances. It should check for any mismatches.
• You may want to use it to produce a balance sheet showing your assets (what you own) and liabilities (what you owe), particularly if you want to borrow money or raise capital.

5.4 If you need to do so, the software will permit you to update your budgets and forecasts during the course of the year.

• You will be able to feed in the performance to date to amend your forecast for the year.
• You will be able to use the information entered in one report to amend that contained in another.