Are you taking the opportunity of using digital accounting software to improve your business performance? Making Tax Digital requires you to use digital software to maintain and submit your VAT records, but if you set it up and use it well, it can do much more for you; providing you with information and tools to improve the performance of your business.
TOP TIP: Record your transactions promptly.
You will get the most value out of your accounting software if you enter your transactions promptly and keep up to date. If you leave processing your transactions until the end of the quarter you will still comply with HMRC’s requirements, but the software won’t be able to help you to manage your business. If you record your transactions promptly you can get all sorts of useful real time information about your business which you can use to improve performance, and the software can automate some tasks for you, as I explain below. Its also much easier to remember what you need to record if you do it as you go along. We all know how frustrating it is remembering and looking for old invoices and receipts that you haven’t recorded for months.
Invoice your customers promptly from your accounting software.
If you can’t record all your transactions promptly, then at least:
Use your accounting software to invoice your customers, and invoice as soon as you finish the job or deliver the product. The earlier you invoice, the earlier you will get paid.
Most of the digital accounting software systems are cloud based and have apps that will enable you to create and email an electronic invoice from your phone or tablet, so you don’t even need to wait until you return to the office to send an invoice.
Set up automatic payment reminders to your customers.
With your invoices promptly created and recorded in your accounting software, most of these systems can be set to automatically email payment reminders and statements to your customers. This saves you work and will help to bring in cash more quickly.
HOWEVER; don’t just rely on the automated system. Review the list of open invoices on your system regularly and still phone up customers who owe larger amounts or are slow payers. Its easy to ignore an email; its harder to ignore a phone call.
Create quotations and sales orders in your accounting software
Many problems with late payment of invoices are caused by disputes over the amount charged. If you create quotations and sales order confirmations in your digital software, you create a clear contract with your customer before you start work. Having a sales order in your software will also make it quicker and easier to create a sales invoice once the work is finished.
Automate recording of bank transactions and expenses
Most digital accounting software will allow you to automate the recording of some transactions:
- Set up a Bank Feed – save time entering bank transactions and always know how much cash you have in the bank.
- Use an app to capture expenses – photograph and upload receipts straight into your accounting system from a phone or tablet. If you have staff who incur expenses look for a system or an add-in that will enable your staff to photograph and upload receipts too.
Both of these tools save work and make it easier to keep your system up to date.
Forecasting your cashflow
If you record your transactions promptly you can see how much money you are owed by your customers and how much you owe to your suppliers, so you know if you will have cash coming in or going out of your business. Some of these digital accounting systems will create a cashflow forecast for you. HOWEVER; these software generated forecasts assume that everything is paid on time and they can’t include transactions that are not yet on the system, so they are not completely reliable. In a later blog I will explain how you can create a reliable cashflow forecast, based on the information from your accounting system.
Record costs against jobs and projects
If you have a project or job-based business, recording costs against your jobs will help you to understand which customers or projects are most profitable. If you are charging your customers on a time and materials basis, or even if you are only recharging some travel expenses, using the software to record costs against your jobs reduces the risk that you forget to charge for something, and helps to create an audit trail if your customer queries a cost on your invoice. Not all digital accounting software has the same functionality, so if this is important for your business, select software that can record the details that you need.
Track your inventory
If your business holds inventory, you can use your digital software to track and manage your inventory. This will help you to ensure that you have the items available in stock that you need to supply your customers, and it will help you to understand the margins
Once again, not all digital accounting software has the same functionality, so if this is important for your business, select software that can record the details that you need. If your inventory management needs are more complex, you might need an add-in to work with your accounting software to help you to manage inventory. In a later blog I will explain in more detail how to track and manage your inventory.
Create Management Reports comparing results against Budget
With all of your transactions recorded in your digital software, you can generate a regular profit and loss account and other management reports for your business. Most of the digital accounting software systems will allow you to upload your budget and report against budget as well. If you have set up projects, or tracked your inventory items, you will be able to generate reports of your sales and margins by project or product.
If you would like help and advice on improving your business performance get in touch.