In Moldova, some companies still keep their records in Excel. Why is it unprofitable?
Automation configurations in companies significantly simplify the life of operators, improve the quality of accounting and the efficiency of the company as a whole. This applies to both accounting and management accounting. Automation allows you to get rid of routine, repetitive operations, reduce rejects and generally relieve 1C operators of their workload.
There are no doubts about accounting configurations, almost all companies in Moldova already do accounting in specialized software products (mainly 1C). But the situation with management accounting is quite the opposite. A huge number of companies still either do not keep management accounts at all, or do it "on the spot" (at best in an Excel spreadsheet).
Usually, entrepreneurs who refuse to use specialised management accounting software refer to the fact that it is an additional cost for the company. But in fact, non-automated management accounting costs the company considerably more. And in this article we want to argue why.
For a start, why do we need management accounting at all?
Company managers are faced with the need to make decisions every day. Should they buy new merchandise? Is it worth taking out a development loan? Reduce or increase the marketing budget? Hire new specialists or, conversely, try to optimise the cost of the team? As well as many other questions. The only way to answer them unambiguously is by knowing:
- The amount of liquidity available.
- The situation of accounts payable and receivable.
- Turnover of goods.
- The length of the operating and financial cycle
As well as many other key indicators. Effective management is simply impossible without accurate figures. If they are not available, you have to rely only on the intuition and memory of the decision-makers.
What kind of efficiency can we talk about in such a case? The manager has to see:
- Which marketing channel gives the best results at a lower cost.
- Which commodity items provide better profitability and which are more liquid.
- Which client, for how long and how much is owed.
- What about inventories, which goods need to be purchased and which can be postponed so that money does not get stuck in unsold stocks.
It is also important that this information is literally at the manager's fingertips. It should be possible to sort the data by time period and other parameters. The more detailed data a manager can get, and the quicker he or she gets this data, the better the quality of the decisions he or she will make.
Therefore, in today's competitive environment, it is almost impossible to run a successful business without management accounting. Your company will always lose out to your competitors in performance.
Why is it really not profitable to keep records in Excel?
1. Increased pressure on staff
If records are kept in Excel or by other manual methods, employees need to transfer information into a spreadsheet about literally every transaction in the company. Every sale, every movement between warehouses, every transfer of money to a supplier.
Every time you carry out a transaction, you need to transfer the information about the action to an Excel spreadsheet. Imagine that it can take less time for an employee to carry out a transaction than it does for it to appear in a spreadsheet.
The more detailed manual management accounting is, the more staff time it takes. You could, for example, only keep a record of receipts and disposals from the warehouse and limit your management accounting to the warehouse. You would need less staff time, but is that detailed enough? Will it give top management the information they need?
The manager in this plan is literally trying to strike a balance between the detail of manual accounting and the time it takes for employees to maintain it. You might think that time spent on manual accounting is not a loss to you, because the employee has to be paid anyway, but this is not the case. In fact, if management accounting is automated and routine activities are removed, a lot of time will be freed up for employees.
- This time can either be filled with other useful tasks that make the company profitable (lost profits are the same expenses).
- Or you can reduce the number of staff and lower your wage costs.
In a business in the literal sense of 'time = money', the less routine mechanical activities employees need to do, the more they can concentrate on complex and creative tasks. They bring more value to the company than simply transferring data to a spreadsheet.
If an enterprise simultaneously implements both accounting and management 1C configurations, data exchange between them can be set up so that the operation entered into one system is automatically reflected in the other. This synchronisation alone cuts the workload of 1C operators in half.
2. Errors and inconsistencies
Another notable problem with manual accounting is data entry errors, omitted transactions and typos. Human error in manual accounting cannot be completely ruled out. Anything can happen, an employee makes a typo, or he/she works too hard and forgets to enter the information into an Excel spreadsheet. But these small mistakes actually lead to noticeable problems:
- The accounting table has incorrect or irrelevant data. And they will be relied on by management to make management decisions. What quality of management can we talk about when using incorrect information.
- Inventory and operational problems. Errors in manual accounting are almost inevitable, we have found this out. In the end, this necessarily leads to different information in the accounting and management accounting spreadsheets. This, of course, can cause problems and misunderstandings during inventories. In accounting the figure is one, in Excel it is another, but in reality it is a third. As a result, it takes an obscenely long time for employees to take inventory and look for errors.
It is even worse when erroneous data is used in the work of responsible employees. They may, for example, accept an order for an item that is not in stock (it only exists in the accounting system). The result is returns, rejections, reputational losses, etc. (and this is just one possible situation).
The human factor can only be completely eliminated when management accounting is automated. When information is not entered into the system manually, but, for example, automatically downloaded from the accounting configuration, the risk of typos and mechanical errors is completely eliminated.
3. poor management quality
You may think that you have nothing to lose from this. Especially if you have been working in business intuitively for a long time without access to detailed analytics. You may think that there is no other way, and that management analytics won't make a serious difference.
But in reality, ineffective management and a lack of analytical data are huge losses for a company.
We already talked about this at the beginning of this article. Without accurate and detailed data about the company's performance, a manager cannot make effective decisions about
- Which products to keep and which to get rid of? (because he does not know the exact profitability and margins of the goods).
- How can costs be optimised? (he does not know the exact costing, the division into fixed and variable costs, the percentage of rejects and other unforeseen losses).
- Whether the company needs to borrow, and whether the loan will be profitable (because it does not know the exact duration of financial cycles, return on funds turnover, capital adequacy and other key financial indicators).
And these are just three examples. The same can be said of any management decision. Based on accurate and objective figures, these decisions are much easier to make. Managerial mistakes that were made due to a lack of data are tangible losses for the company. Although the size of these losses is difficult to estimate without trying a well-developed accounting system in the company.
In this text, we have shown 3 objective advantages of 1C management configurations compared to 'out-of-the-box' accounting in an Excel spreadsheet. In fact, trying to save money on automation leads to even greater losses.
If you are planning to automate your company's accounting or want to optimise it, you can get a free consultation from our experts on how to do it better. All you need to do is leave a request in the feedback form on the homepage of our website.