Maximising the benefits from your accounting software

In the modern competitive marketplace, businesses need to have the tools to make appropriate and timely decisions in order to survive. If they wait until the end of the financial year to review performance and then react, it is usually too late.

Over the last few decades, huge advancements in technology have improved our lives in many ways. For business owners, these advancements include quick, easy access to up to date financial information through modern accounting packages such as Xero or MYOB. However often valuable information is being ignored, or even worse, in some cases decisions are being made based on inaccurate or incomplete financial information. And when the information is correct, are decision makers getting the most out of their information?

The accuracy of information is vital to any business as the decisions being made can be the difference between success and failure. Obviously the accuracy of a financial report generated from any system is only as good as the accuracy of the data entered to it. But it is not just errors that can have a significant impact on the accuracy of reported financial information.

One common oversight we see is using a cash basis report and assuming this closely mirrors profit. Business, and in particular pharmacy business, often have large payables, receivables and movements in stock balances and if these are not adjusted for, the actual profit for any given period can be significantly different to the cash profit.

With modern accounting software packages such as Xero or MYOB, it is a relatively quick and simple process to make the appropriate adjustments and record profit and loss accurately. In some cases certain information can easily be broken down into different business units as well.

Once a business has some accurate data to review, it is then important to analyse that data. Profitability should regularly be compared against previous months and forecasts and where the data shows any unsatisfactory variances or potential improvements, business decisions can be made to rectify the situation promptly to get the business on the desired track. Comparing against industry benchmark data can be particularly important in a competitive industry as well and should also assist with identifying key areas which the business is doing well and others that it could improve on.

A business should also monitor its cashflow and have an up to date balance sheet to reflect all of its assets and liabilities at any given point in time. A common misconception is that the profit a business has made should be sitting in the bank account. However other transactions have an impact on this for example debt repayments, distributions to shareholders, tax payments, purchases of assets, movement in stock holding etc. All of these things and more impact on the cashflow and need to be taken into account when making business decisions because it is all well and good having a plan, but key to success is the business having the financial ability to execute the plan.

Contact your local Moore Stephens Markhams advisor if you want to get more out of your accounting system.

Prepared by Jonathan Roberts, Moore Stephens Markhams Auckland, for The Pharmacy Guild – Contact magazine 2018.