Digital Accounting And Automation, Setting The Path To Efficiency

How can I take my business to the next level without investing a huge amount of capital? How can I bring my business in front of my competitors’? How can I make minor changes that have an enormous impact on my business? These, and many more are questions that entrepreneurs ask as they crave for efficiency. Little did they know that the secret recipe to efficiency involves digital accounting and automation.

Digital Accounting and Automation: Are you team manual or team digital?

Many entrepreneurs regard the accounting and finance function as a sunk cost. But the reality is that accounting and finance function is a field with many hidden gems. The real question is how to find them and make use of them.

Most probably you are using accounting software to book invoices and prepare tax filings. If you are at this level, then you should consider that you are at beginners’ level. Regardless of the software that you use, which is only one more tool, you must consider digital accounting as a basic transformation drive.

Digital accounting may lead your company to the next level, transforming it to a digitized managed company. When properly adapted, a digital account may save you thousands of euros (or dollars) in cost and countless labor hours. When you have that number of resources free, then you may devote them to other more productive functions, such as marketing or sales. So, how do we get to that point? You are about to find out.

Improving Your Efficiency

As earlier stated, digital accounting and automation can lead to efficiency, what are the processes involved? How can you leverage them?

(1) Digital accounting: This has as a prerequisite that you have standard processes. This in turn, requires that you have highly trained collaborators (either employee or third-party professionals), who know exactly what to do at each part of the month, week, and day in supporting your business.

So, the first step is standardizing the operations of the accounting and finance function. This goes to all processes, at all levels of the function. It involves routine tasks such as bank and cash reconciliation, sales reconciliation, booking of expense invoices

(2) Automation: Having set standard operation procedures for the accounting and finance function, you may start working with technology. Which are the types of transactions with the highest volume? How can you automate their transformation from a transaction to expense / purchase and liability? On the other hand, how can you automate the sales invoice from a transaction to a receivable and revenue?

Considering that you are selling products, this requires that you buy raw materials, which you process and then sell. So, you have suppliers, an internal warehouse and / or manufacturing process and then a sale. Throughout this chain you must update the inventory values, so it represents the correct quantity, so that you would know the availability of the stock when preparing sales quotations to your customers.

- Inventory is the first place to begin with automation. Can you set up an EDI platform with your suppliers? So that they post their invoices, and your software can easily transform them into goods in transit or purchases and update the inventory as well? Considering that you have a good knowledge of the costing systems, could it be possible to create automated entries that transform raw materials into ending inventory after each item is ready for sale?

Many business owners consider that it is easier to ask a supplier to collaborate in creating an EDI platform than it would be for customers. Well, working closely with the marketing or sales department can prove to be of tremendous value. Your company’s product might be your customers’ raw materials, so they would need to have an EDI system in place to control their inventory and costs. Starting a collaboration towards this perspective might be advantageous for both parties, while building the foundation for more sales in the future. The first step in this process is the automation of the sales invoice.

- Sales Invoice Automation: The company must have a process where the salesperson might transform a sales quotation to a picking order and then a sales invoice, and / or packing note depending on the legal requirements. Once the sales invoice is issued, then it must be transformed into an accounting entry updating receivables, inventory, and sales. Moreover, a digital file must be created and sent to the customer to book it as a purchase or goods in transit.

Digital accounting and finance involve more than the function itself. It involves all processes and flows of a company's operations, helping build stronger ties within each department. Moreover, it involves the value chain of the company, from the supplier to the customer.

Running automatic updates on inventory quantity and costs, makes it easier for the sales department to make sales quotations that are updated and provide a healthy margin to the company. Furthermore, the company can decrease the cash cycle, as it is easier to reconcile balances with customers and supplies, thus decreasing the time to make collections. From automatic email reminders to digital accounting entries when booking cash or bank collections, all steps make the company more efficient and more profitable.

Going through all other areas of the company, you will find opportunities for efficiency, by applying digital accounting. Working with the HR department, it will be easier to set up a system that measures the overtime or days of absences. So, it will be easier to create the journal entry for the payroll, calculate net payment amount for each personnel, submit tax filing and do every other preparatory work. The business owner must add up all the work hours that are spent in such trivial activities, which can now be done easier, faster, and more precisely, to understand the amount of savings.

- Fixed Assets Automation: Many business owners do not consider it important to track. However, as fixed assets are corporate (and not their personal) property, they might find themselves in serious problems if a physical countdown takes place and there are items missing. So, a digital process must be in place, where each fixed asset item is counted, labeled, and booked in the proper accounting entry. Calculating depreciation expenses might be a task that requires a lot of time and energy. On the other hand, it might not be done through a digital process. In fact, we run monthly depreciation expense schedules for our customers to provide a clear position regarding the net book value of the company’s assets.

- Contractual financial liabilities, an area which also demands a lot of workloads. In cases where the company applies digital accounting, this process becomes routine with a minimum expense on labor. The bank institution (lender) must submit to the company a copy of the contract, so the financial controller might be able to produce the forecasted payments. Each payment has a part which is the interest expense and the capital repayment. Furthermore, given the point in time, the same loan might by short term or long term. All these details must be properly depicted in the accounting books. When applying digital accounting, then all these entries are calculated beforehand and booked accordingly. If a term changes, such as interest rate, then the controller re-produces the forecasted payments and updates interest expense.

So, with a fraction of cost, the company has booked the forecasted expenses and cash liabilities. This moves the company to the next level of forecasting or budgeting sales, expenses, and cash flow. This moves the company to risk management, a topic that we will shortly discuss.