Small business owners obsess over the bottom line—and with good reason—a U.S. Bank study found that 82 percent of businesses fail because of cash flow problems. If you’re not acutely aware of how much money you’re making, as well as spending, you won’t last long.
The irony is that in keeping track of their finances, small business owners often make the mistake of doing everything themselves in an effort to save money. They think that by doing their books manually, they’ll save on costs for accountants and related software.
A reliable accounting software solution, however, streamlines operations and provides business owners with the holistic view that they need to save big. Below is a deeper dive into ways accounting software helps businesses save money.
Automated Processes Reduce Errors And Busywork
There are more than 30 million small businesses in America. No matter what industry they’re in, many need to deal with recurring tasks like invoicing, payments, and collections on a regular basis.
These daily responsibilities, although essential to a business, are time-consuming. But if these things are not handled on time, it could end up costing the business down the road. For instance, messy bookkeeping and inaccurate reporting could limit your options for obtaining the affordable business loans that you may need to grow.
Therefore, by keeping your books up-to-date with accounting software, it will be easy to track the financial details that keep your business afloat. There’s no chance that clients will assess late fees on payments because the automated software makes sure you pay your invoices on time. In fact, with automated invoices, you’ll be able to take advantage of early payment discounts more easily, saving a few percentage points on each payment.
On the other hand, relying on archaic excel spreadsheets will have your balance sheets filled with errors and delays. (Think of all those businesses that failed because of cash flow problems!) It takes more than twice as long for bottom-performing companies to correct an invoice error than top-performing companies, meaning they go much longer without getting paid—and they pay more to get that late payment handled.
Insightful Reports Give You Instant Visibility
Think about how helpful it would be to take your financial details and put them into insightful reports—such as your balance sheet, profit and loss statements, and revenue by customer—without so much as a click.
Accounting software can use your expenditures and other financial data to find patterns that will help you make smart, real-time decisions. For instance, knowing your margins, which impact your business’s bottom line, enables you to manage them and pivot quickly, if needed. This is how you get ahead of a costly cash crunch without paying a fortune in short-term loan interest payments, or lost opportunities when you need to spend your nest egg on making payroll.
Because the circumstances of a business can change on a whim, knowing margins (among other variables) creates flexibility for long-term profitability and growth. Having an automated tool gives you the peace of mind and time you need to focus on other areas of your business that require attention.
Easy Access To KPIs Means Improved Performance
Key performance indicators, or KPIs, measure the effectiveness of a specific area of the business. Different teams will use KPIs in different ways, depending on the goal. For instance, the marketing department might use KPIs to track a new social media initiative, whereas the accounting department might use KPIs to see how long it takes for clients to pay outstanding invoices.
Financial KPIs provide valuable information like profit trends, predictions about your business’s sustainability during economic downturns, or even just how your business is performing over a given time period. Common financial KPIs include:
Gross profit margin/net profit margin
Current ratio (assets divided by liabilities)
With this kind of real-time data, your business can make improvements when needed. If you find that certain vendors or processes aren’t meeting your KPIs, it may be time to find more cost-effective solutions.
The benefit of accounting software in this case is that it can collect the data necessary for calculating your KPIs automatically. This way, you can spend your time analyzing and acting on the data, rather than gathering it. Many quality accounting software solutions have customizable dashboards that give you at-a-glance views of KPIs, as well as the ability to drill down on a transaction-by-transaction basis.
The Bottom Line On Accounting Software
No matter what type of business you’re running, one thing is clear: Tracking your company’s finances is vital to long-term financial health. If you’re new to accounting software, consider first trying a free accounting software program (or the trial version of a paid one) to give you an idea of what the service offers and what you need in terms of financial resources.
Whatever you decide, now you know that if your books are chaotic, the rest of your business will be, too. Consider a reliable automated accounting software that can help with recurring tasks, managing margins, and measuring KPIs. With all the extra time and money you’ll save, you’ll be able to invest more wisely in other areas of your small business.
Randa Kriss is a staff writer at Fundera, a marketplace for small business financial solutions such as business loans. Randa writes extensively on human resources and has also written dozens of reviews on payroll services and ecommerce solutions.