Guest Post: Bruce Wulfsohn
When a company is just starting out, it will usually have very few employees, a limited amount of inventory and relatively few transactions. Most of these companies are small enough that they only need entry-level software that can keep accounting records and possibly rudimentary inventory management. Most business owners don’t care what kind of software they are using as long as it gets the job done to some extent. What owners must keep in mind is as the business begins to grow, the software you use becomes increasingly important.
Certain pitfalls come with the use of Introductory Software and the growing pains of a business, but with the right plan in place and tools, you can avoid these pitfalls as your business grows.
Inadequate Information
In order to grow, information is key. Knowing what is on sales orders, purchase orders, where inventory is located, and accurate live inventory information can give you insight into your business operations and efficiencies. This helps you understand where in your business you need to pay more attention. Depending on the rate of growth, limited access to information can very quickly become a problem. Without having the information at hand, it is difficult to make budgeting and inventory decisions. To get the best understanding of your financial health, you must review and analyze information on a continuous basis.
Poor Record Keeping
At the entry-level, record-keeping sounds trivial, however, it is the legal foundation for every company. Knowing exactly what was done, when it was done and why it was done is imperative.
The more practical reason for clean and precise record-keeping revolves around what is required by various government and state (Provincial) authorities. We have corporate taxes, sales taxes, employee payroll deductions, and licensing fees that must comply with the various requirements. Every business has the potential of being audited. This might include government bodies, investors, banks approaching for loans, or potential buyers for the business.
Introductory Accounting
While numbers are important, and introductory software will usually keep accurate accounting records, there is far more to consider when analyzing performance, budgeting, and planning for the future. Some software will use cash accounting while the more accepted method is accrual. The accrual method matches income and expenditure with the period in which they occurred, while the cash method only considers the date of the cash transaction as important.
When planning and budgeting it is important to know the company’s actual position, taking into account purchases not yet paid for and sales where the income is not yet received. This also holds true when applying for a loan or line of credit. The accrual method of accounting is also Generally Accepted Accounting Principles (GAAP) and is accepted by auditors and banks.
Introductory software often allows the user to delete entries and no trail of edits are kept for management. With more sophisticated software, transactional integrity is key, management is able to see who and when someone has made alterations. This can help with inventory or cash shortages and allow management to analyze where these inaccuracies came from.
Inventory Inefficiencies
Sales are the mainstay of every business, so managing the inventory well and efficiently is critical. Inventory is what drives sales so ensuring you have enough on hand and are able to find products easily in the warehouse, ensures that you can deliver products to customers in good time.
Think to yourself: Where is the inventory in your warehouse located and is it able to be located without much effort? Are your aisles, shelves and bins labelled? If the software being used doesn’t have the functionality to record the location, it can pose a problem as the warehouse grows and gets busier.
All businesses small or large have to make the same inventory decisions :
- What products do we need on the shelf?
- What quantities do we need on hand?
- Which are the best vendors for our products?
These questions can be answered by analyzing details of sales in previous periods by using an inventory-centric software solution. Here’s how a more advanced software can help answer the above questions:
- Provides reports including history of products sold, so you can estimate sales in the next periods
- A seasonal business will be able to understand if certain products are more popular in the summer or over the holidays
- Can tell you which products are most profitable to help you phase out certain products if they can’t generate sufficient profits
- Can tell you what you currently have on purchase orders so you don’t overorder inventory
- Can tell you what you have on sales orders that you do not have in inventory. You need to satisfy the customer’s requirements and waiting for inventory might be detrimental to the customer relationship.
Download our Software Buying Guide to help you determine the best software for your business.
