Tag: accounting

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Predicting Outcomes and Providing Guidance | Being Nostradamus| Proformative.com

I have a gripe with the accounting profession.  My gripe is with the fact that accounting information delivered to most business owners is old news.  Stuff happened, the professional properly recorded it and reported on it,  you paid your taxes, and that’s that.  Game over.

Once upon a time, accountants had to work with book ledgers, pen and pencil (mostly pen, putting that single line through incorrect entries), and stacks upon stacks of paper documents.  Just keeping up with the process of recording transaction information, adding it all up (and making sure the footing totals jibe), and then summarizing the information into usable form took all the time available, and the focus was on the accuracy of the work – not necessarily the timeliness of it.  With the advent of computers and computerized accounting systems, the process of creating and storing the data became easier, but the volume and nature of information increased and thus the complexity and time to process increased (the “everlasting gobstopper” problem.. it never really goes away).There isn’t any argument over the critical value and importance of that work.  Every business owner understands that not properly accounting for business activities can mean increases in tax burdens, penalties and interest, and more.  It’s good work… but what do you do with it?  My intent is not to try to diminish the value of today’s approach to accounting.  Rather, I’m trying to point out how the accounting profession could make a huge impact in today’s pathetic economy, help businesses get financially healthier, and help put the small/medium business market on a path to growth and success.  It involves seeing into the future.

These days, technologies exist which facilitate acquiring the information (even in paper form), converting that information into digital data, and then actually interpreting the data to arrive at a transaction.  Traditional software and cloud service providers alike are recognizing that mechanical data entry is passé, and do-it-yourself solutions for accounting and bookkeeping will rely upon “smart” engines which can read and properly understand what each scanned document means.

So – once the accurate data entry problem is solved… what’s the next logical step?  Analytics!  It’s only really possible now that online solutions have brought the business information to the accounting professional in real-time, and have allowed the accounting professional and the business owner to collaborate and share data faster than ever before.  If information is power, we have a lot of power in our hands… but do we really know it?  This is where BI (business intelligence) and analytics come in, and where the opportunity exists for the accounting profession to become a guiding force in rebuilding our economy.

What if an accountant could not only tell his client that the business lost money last year or last month, but that they’re going to lose money through this month and year if they don’t change their behavior?  And, what if the accountant could run a variety of scenarios which would help forecast the most positive business outcome based on certain choices which could be made, or certain activities which could be handled in different ways?  What if the accountant could help his client peer into the future, and get an inkling of what the business could look like if certain economic or business conditions continued… changed… ?

Maybe I’m a little overzealous when it comes to believing that the accounting profession could have recognized the economic trauma which was coming, or that they could have prepared their business clients for it.  But I don’t believe I’m very far off the mark in believing that not nearly enough “analysis” occurs in the typical public accounting engagement, and even when it does… is the suggested path the right one?  I would submit that BI is new enough to so many people that it may not be.  Learning what the numbers are telling you is one thing… staving off disaster is quite another.

I would encourage all BI and Data Analytics fanatics to check out an article on CFO.com on this subject:  That New Big Data Magic  http://www3.cfo.com/article/2011/8/analytics_that-new-big-data-magic

A few memorable takeaways from the article:

“you may be spot-on about a problem, but the solution doesn’t magically appear out of the data.”

“what you do with [data] is a people-based activity, a skill base you have to mature.  And it doesn’t come quickly.”

“CFOs have a gut sense that there’s money out there in all that data… The challenge is how to turn that data into new opportunities.” The good news.. is that new technologies are making it more economical to make sense of Big Data… The caveat is that those technologies will not provide those opportunities. That’s still up to the people who make business decisions.”

jmbunnyfeetMake Sense?

J

reblogged from Proformative.com  Being Nostradamus – Predicting Outcomes and Providing Guidance

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Financial Literacy and Small Business Success

Businesses and individuals alike must make complicated financial decisions throughout their lives.  Sadly, the volumes of research which explore aspects of financial and debt “literacy” among individuals and small business owners reflects that a growing portion of the population lacks the understanding to make these decisions.  Questions surrounding this issue often focus on the educational aspects, and the positive impacts which might be created through greater levels of understanding of accounting fundamentals and the basics of financial management.  Particularly in smaller businesses, where there is a much closer relationship between business and personal finances, understanding even basic financial concepts is likely to lead to “better financial decisions and household well-being”.

a strong relationship between debt literacy and both financial experiences and debt loads[1]

Because many educational offerings tie to specific training approaches and methodologies, it becomes very difficult to measure the usefulness of the skills developed separately from the effectiveness of the training methodology.   Trainers may employ specific devices or tools which facilitate their delivery, and often times these tools become more of a focus than the actual educational content.  On the other hand, a program might provide a great deal of information in a fairly raw form, yet this information is unlikely to deliver a useful result if the participants do not understand it or cannot grasp the concepts introduced. The challenge is not only with providing the education, but finding a balance with the information and the outcomes; understanding how basic the training might be and still provide a measurable, beneficial impact.

In the study Keeping it Simple: Financial Literacy and Rules of Thumb, the authors discuss the benefits of teaching small business owners a series of fundamental “rules of thumb” for management of the business, rather than delving into the complexities of comprehensive business accounting and finance.  Teaching participants about the basics of double entry bookkeeping, cash management and investing, and then coupling that information with instruction on essential processes to follow resulted in significant improvements in financial management and improved the accuracy and consistency of reported data.

the rule-of-thumb training changes actual business management practices[2]

 

Outcomes show consistently positive when a simpler approach to developing “financial literacy” is provided to small business owners, and particularly when the training and content is oriented towards the characteristics of the participants.   The highest level of result was achieved with business owners with a low level of financial “sophistication”, with a limited interest in financial or accounting training, and with limited baseline business practice structure.  These were the participants who were found to be most likely to implement what they learned in the “rule of thumb” training.

The conclusion drawn from these discussions is that financial education and basic accounting training can become a key factor in helping business owners not only account and report better for their businesses, but provides an essential foundation for understanding how to grow the business and create profitability.   Accounting professionals working with small business clients should recognize that an effort to provide a level of education to clients is likely to not only help those clients make better business (and personal) financial decisions, it will also increase the chances that the client will keep better books and provide the accounting professional with more consistently useful information to work from.

After all, the goal of the accounting professional working with small business clients is to help those small businesses become successful businesses, isn’t it?

Joanie Mann Bunny FeetMake Sense?

J

[1] http://www.nber.org/papers/w14808.pdf

Debt Literacy, Financial Experiences, and Overindebtedness | Annamaria Lusardi and Peter Tufano| NBER Working Paper No. 14808|March 2009

[2] https://www.poverty-action.org/sites/default/files/kis-dfs-march2013_0.pdf | Keeping it Simple: Financial Literacy and Rules of Thumb | By ALEJANDRO DREXLER, GREG FISCHER, AND ANTOINETTE SCHOAR

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Accounting Professionals, Software as Service, and DIY

Joanie Mann Bunny Feet

The question begs to be asked “how did we get here?” (with “here” being the current state of information technology and the accounting industry). There is confusion in the market; there is still significant debate as to the underlying value of Internet technologies and online application services, and the “managed enterprise approach” has yet to return the benefit and cost-efficiency that is expected.

The accounting industry is experiencing continued change, and understanding the progression of events and technology developments can provide significant insight into where the industry is today and where it will likely be tomorrow. Most professional accounting firms recognize the need to implement technology and solutions that will help the firm and its clients compete in today’s market. Understanding the options available and imperatives that drive the need is key to making the right choices

Technology to manage general business and financial processes has evolved tremendously in the past 20 years, and history clearly reveals that those who have successfully adopted such technologies have done so in stages. Bridge technologies and services (which I fondly refer to as “tweeners”, like cloud hosting of legacy applications) provide a means for safe and low-risk adoption of online working models and managed IT services.

Application hosting solutions have achieved a high level of acceptance in the market, and these are the services that have assisted in garnering online users for the purely Web-based (SaaS and cloud) applications. Providers delivering their “legacy” applications using terminal servers, Quest, Citrix and similar technologies offer the full capability of the Windows application along with the rich Windows interface, as well as the benefits of ASP service and Internet accessibility similar to the Web- app (e.g., the “software as a service” model). This familiarity in functionality and presentation has made adoption of hosted deliveries of these applications a harmless and often seamless transition from localized IT models.

Once a business has adjusted to working online and outsourcing the management of the general IT service, taking the step towards a “true” SaaS solution is much less of a step.

However, trends in the software industry indicate that the concept of “software as a service” has been taken several steps beyond simply providing online access to applications, and are offering outsourced support and finished product deliverables rather than just the software application. For example – an accounting professional may obtain a “finished client tax return” rather than simply purchasing the tax preparation software.

For many emerging Web-based applications, this is the positioning and model which is selected to bolster adoption of the solution.  There has been a great deal of success in offering business users access to a solution, and then providing the actual business service behind it as users find it easier and more efficient than doing the work themselves. This activity has focused on the direct customer and consuming market, where business applications are not sold separately, but as a function of getting the business process facilitated. CRM and helpdesk services are frequently offered this way, as are HR administration and payroll services. The technology has matured to a point where the outsourcer can facilitate the internal business process on behalf of a business fairly transparently, including business bookkeeping and accounting.

All of this serves to devalue the knowledge required to perform the business and accounting processes. There is a belief that has been marketed very well to the small business sector – “if you can write a check, then you can do your own books”. This concept has not proven as realistic as many would choose to believe. But it earned – and continues to earn –  market share. With the trend in software becoming the transparent outsourcing of the processes, is the consuming market likely to recognize the expertise required to manage the outcome?  Retail providers of accounting, tax preparation, and other services (H&R Block, as an example) have quite successfully marketed against the need for businesses to engage with a skilled credentialed professional.  Accounting professionals who do not view this as a threat to their value are simply not paying attention.

Today’s accounting professional must address the realities of Internet technologies, outsourcing, and retail or consumer-direct competition, and the potential impact it will have on the businesses (the client business as well as the professional practice). Recognizing that accountants (by trade) are not typically technologists, it is important to understand that involvement with the financial processes causes a necessary level of involvement with the technology, as well. Professionals who understand and embrace the appropriate use of technology and outsource models are the professionals who will continue to demonstrate their value and expertise to their client businesses and to the market.

With the industry generally moving towards an online, enabling model, those who do not embrace such technologies will rapidly find themselves attempting to compete. As the trend continues to devalue the backoffice processes by essentially hiding them from the consumer (the client business), the position of the accounting services provider is also devalued.

By embracing the technology/enabling model now, the professional service organization positions itself to function as seamlessly with the market as the online service. A clear example of such activity is the emergence of free e-filing of tax returns and the prevalence of low-cost do-it-yourself business bookkeeping and accounting solutions online. Reports indicate that there continues to be a marked decrease in the number of returns prepared by professional organizations as compared to the significant increase in volumes of online do-it-yourself return processing. This has clearly devalued the tax preparation service in the eyes of the consuming market, bringing it down to a level where price is the sole differentiation.

The solution is to fully “enable” the professional services organization, and provide the foundation for seamless delivery of services to the consumer. Once an online working model is adopted within the professional service organization, it gains the opportunity to change and reconstruct internal systems without concern for direct client impacts.

Just as the online application can render the computing platform irrelevant, so can the professional service delivery render the supporting applications irrelevant. This offers the professional service provider the flexibility and freedom to use or develop systems that create differentiation through the underlying process rather than forcing frequent change upon the client.

Make Sense?

Joanie Mann Bunny Feet

J

Have questions about hosting business applications (like QuickBooks)?Are you looking for help developing your IT-enabling model?  Need assistance convincing clients to use the cloud, or onboarding clients to cloud services?

We can help.

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The IRS is Spending a Lot of Money to Make a Lot of Money | cashlessandpaperless

Electronic documents and paperless solutions are supposed to help make our lives easier.  By eliminating the paper documents and working with electronic ones instead, users would be able to efficiently manage all their valuable information in one place.  Even more, this information could be shared electronically (swiftly and simply) with others.  However, as most advancements in technology have demonstrated, every solution comes with its own new set of problems.  Where accounting and taxes are concerned, tax payers and the IRS alike are dealing with the impacts of accounting for and substantiating “cashless and paperless” transactions and other activities.  It seems that the IRS is spending more time and resources (=money), expecting that a frontal assault armed with digital records will provide a basis for improved tax collections.

“If you’ve recently been involved in an IRS audit of a business, you have likely seen the agent enter the room fully prepared with copies (subpoenaed) of bank statements and other documentation. It used to be the tax payer who had to provide all the documentation, and the auditor simply used that material. These days, it has become too easy to falsify or improperly change information in electronically stored files (using Photoshop or other tools), so the IRS has lost trust in the data tax payers provide. Instead, they spend a great deal of time and resources collecting this information for themselves (because they can), and then use their copies of the data to compare the data provided by the tax payer.

The IRS will accept electronic records in lieu of original paper documents in many cases, and this is often because they have an ability to validate the content of the electronic records through comparison. Yes, the IRS can collect electronic banking information from financial institutions and other sources, just like the account holder can. It’s become more of a “guilty unless you can prove you’re innocent” approach, and puts the tax payer in a purely defensive posture. Even more, it assumes the tax payer has the sophistication and tools necessary to access and manage all of that electronic data effectively.”

read more at: The IRS is Spending a Lot of Money to Make a Lot of Money | cashlessandpaperless.

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Accounting Professionals, You’re right – your clients don’t care about the numbers.

Accounting pros, what your clients care about is how they’re doing and if they’re on the right path.  Are you helping them understand that, or are you just the guy who works with the numbers to make sure they’re accurate?

Accounting professionals are having a hard time of it right now, with clients demanding more insight and assistance in helping to build value and profitability in their businesses, yet accounting professionals continue to be mired in the details of the numbers.  It’s like the old saying about not being able to see the forest for the trees.  You spend time in the trees, counting trees and making sure the trees are properly categorized, but are you seeing how this group of trees performs compared to others in the forest?  The analogy isn’t that far off.  You see, if there are other trees in the way, or if it doesn’t rain enough, the tree won’t grow and thrive.

This is what it’s like out in the world, where your business is just one of many.  It’s not like you can grow and thrive no matter what others are doing. If they’re bigger than you and take all the light, then you can’t grow.  If they take all the nutrients and resources, you can’t grow.  If it doesn’t rain, you can’t grow.  Somehow, some way, you have to find a way to stand above the others, get the light and the resources and the rain.  Someone in the business should be paying attention to this bigger picture, and it is often the business owner.  Their accounting professionals, on the other hand, tend to remain in the dark, below the sun, counting numbers because the owner isn’t interested in counting.  The owner is interested in growing.

Accounting is about numbers, but growing a successful business is about numbers and strategy.  Historically, the numbers tell you how the business has performed up to this point.  Adding in the elements which speak to strategy, you can then look at what your potential performance will be in the future, and then make the necessary adjustments to make sure that the potential is realized.  The accounting professional acting as a small business CFO must be prepared to help business clients look beyond the numbers to their meaning and what they say about the business today, factoring in elements relating to business strategy and market forces to reveal what they indicate about the future.

Accountants, it’s time to recognize that you are the only ones really worried about the numbers.  Business owners just want to understand what the numbers mean and what they can do about them.

Reducing costs and managing expenses and cashflow is critical, yes, but how many business owners actually know what they’ll be up against when looking for financing, or a buyer? Or do they even realize that they’re not on the path they wanted… building something valuable they can leave to the kids? Sure, the cashflow may be there, and they’re taking a healthy monthly salary… but does that really tell the entire picture or show them where they’re likely to end up? No, it doesn’t, and every accounting professional knows that truth.

While it’s true that bad accounting data turns into bad decisions really fast, it’s also true that too many accounting professionals THINK their client’s don’t care about what the numbers SAY just because they don’t care about the numbers. I would suggest that maybe small business owners care far more than their accounting professionals recognize… and they care about building value and not just accurate digits.  This is one of the reasons why KPI dashboards, dynamic reporting tools, and business valuation solutions are so popular among small business owners – they are able to have a conversation with their business data that their accountant isn’t having.

Can self-help reporting and valuation tools be useful to business owners? Well, that’s sort of like asking if trying to figure out what you’re worth (or not, as the case may be) will hurt your business.  Information is power, and every business owner wants to believe they have the power to succeed in their own hands.  Just because they’re not having this conversation with their accounting professional doesn’t mean they’re not thinking about it.  Maybe they’re just not asking and the accountant isn’t offering.

Accounting professionals, go ahead and continue to monitor KPIs and crunch the numbers and show cash flow (real cash flow, not just today’s bank balance). But if your client had 1 hour per month to actually spend working ON the business (on the forest), trying to make sure their business is heading where they originally planned to go with it, wouldn’t it be a good idea to show them where to spend that time?  Yes, it would, and adopting the use of realtime reporting and analysis tools for business clients can help do that.

Data dashboards and decision-support solutions are important tools which help business owners understand their businesses better.  Rather than viewing these tools as dangerous or competitive, accounting professionals should view financial analysis, business valuation and KPI reporting tools as something they can use to help build value in the information they develop, rather than trying to convince clients that the value IS the information and not the guidance it suggests.  The data won’t make the tree grow, it’s the guidance that feeds it.

Make Sense?

J

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Bookkeeping and Benchmarks – Getting the Numbers Right

I am a big fan of business analytical and reporting tools.  I very much believe in using industry benchmarks as a means to understand various aspects of business performance as it is compared to others.  I feel strongly that this type of information is essential at all stages of the business, and is useful for planning and forecasting as well as in daily business management.   There are a lot of tools available now which provide KPI (key performance indicator) reporting, dashboards, and industry comparisons.  The thing that none of these tools provides is an assurance that the underlying data is any good.

For data-driven reporting and analytical tools, the reliance upon customer- reported and accumulated benchmark data is both the benefit and the problem.  Drawing upon actual customer financial data is what makes the reporting solution useful – reflecting the realities of the business as they are revealed in the accounting data.  The problem is that the data will often be flawed in some manner due to the lack of accounting knowledge of the user.  Particularly when small business owners take it upon themselves to perform their own bookkeeping work, there is a large potential for the information to be incomplete or erroneous, or at least not truly reflective of the business finances.

It is essential that accounting professionals be involved in the accounting process to ensure the accuracy of the information presented to any analytical and reporting solution, thus improving the quality and value of the information.  Further, I would suggest that accounting and business professionals would look to these types of tools to assist in the identification of issues or conditions which exist in the business requiring attention.  Business owners would get far greater value from the services of their accounting professionals, and accountants would deliver a much higher level of tangible value to their clients.

If the accounting professional is not regularly discussing business issues and conditions with the small business client, the client can use their own tools to attempt to gain the insight.  HOWEVER (note the big letters), any small business owner who tries to do their own books and use their own decision-support tools is likely to run into problems. While it is true that some accounting professionals are not offering the level of guidance and insight (“value intelligence”) that some analytical and reporting solutions might try to offer a small business user, suggesting that the DIY reporting tool is useful when coupled with DIY accounting is questionable at best.  Why?  Because most small business owners and untrained bookkeepers do not know how to perform proper accounting.  And bad accounting data turns into bad business decisions really fast, even with the coolest-looking reporting tool.

badaccounting

What’s the bottom line?  The participation of a qualified accounting professional is necessary to make sure business bookkeeping information is properly accounted for, even and especially when great tools and solutions designed to help small businesses get their work done are being used.  The accounting professional is necessary to make sure information is classified correctly, connected and associated with the proper supporting information, and that the data is complete.  This is a lot of work if done on a regular basis (which it should be) yet many accounting firms don’t even offer the service, or offer it affordably.

Accounting professionals working with small businesses, look at it this way: it makes more sense for you to engage a contract bookkeeper and make a bit of money on the work they do to serve the client than it does for you to

a) lose the client to an accountant offering bookkeeping services, or
b) charge the client to re-write up the information, which isn’t really profitable for you and isn’t as valuable to the client

Serving larger businesses may provide firms with an ability to be more selective of the services they offer, but small business accountants need to take an entirely different approach.  Small business accounting professionals need to be full-service providers and help clients get the complete range of services they need, including daily bookkeeping.

Accounting professionals helping their small business clients get complete service – from basic bookkeeping to insightful planning and advice – that’s the benchmark for high value accounting in the world of small business.  It’s the only way to make sure the numbers are right, and that the business owner is looking at the right numbers.

jmbunnyfeetMake Sense?

J