Why is configuring your accounting software is important

I was involved in a start-up where I was the CFO.  Like most start-ups, no matter how well or how badly funded, money is tight, and accounting isn’t a priority.  I disagree with this premise, and you’ll see how myopia comes back to bite the ownership in the proverbial bottom.

Business Planning

Believe it or not, most companies don’t plan, and then they never plan an exit.  I speak briefly about this in my post “Looking for an Investor or Exit – Start Early”.  But let’s look a little deeper why it is important to not only select the right accounting/ERP software and spend some time on what data you will capture.

Back to the start-up.  We didn’t have the cash to move to a mid-sized accounting system; so, we went to a best of breed entry level system.  We selected Xero, TradeGecko (now QuickBooks E-commerce) and ShipStation.  Each worked as advertised.  Each software talked to the other software.  The accounting controls were in place.

No one in the C-Suite was particularly interested in the software other than that it worked.  They certainly didn’t show interest in any of the data collection points.  Those points would be the basis of the companies KPI’s and be used in many of the accounting reports.

Then of course, since we were using entry-level products, by definition, have limited functionality.  Not to say that the accounting wasn’t top notch.  Not to say our auditors weren’t able to find every piece of information they required and that the audit trails were not secure.  It’s just you can’t do “everything”.

A pet peeve is that there is no field in any of the software packages we used specifically for salesperson.  An important field for commissions.  TradeGecko didn’t segregate returns and allowances from sales.  This was and is a major issue, as it made the process of showing sales vs returns vs allowances nearly impossible, from several perspectives.

Due Diligence Process

Due DiligenceThink about the Exit or Investment due diligence process.  The buyer will want to know the quality of your sales and how and where your revenues have come in (and what percentage of sales that have been lost to returns or allowances/chargebacks).  This means they want to know returns, and allowances by customers, channel, etc.

If your sales data is combined, and not stratified; providing this information is quite difficult and not entirely accurate.  This creates angst on both parties since you can’t run a simple report and provide the data, the drill-down data which would provide the level of trust in the business and the accuracy of the accounting and claims by management.

Back to Planning

So, it is extremely important that all concerned parties be involved in the creation of KPI’s, the Chart of Accounts and how they interact with the company and the sales pitch to sell the company.

Not only can it change your valuation, but it will also change the way in which you manage the company (more information or better information creates better decision making).