By Serena Humphrey, owner F Word Training

There was a story in the press recently about a local company that really grabbed my attention. It was about how a twenty-eight year-old business had failed and gone into administration after making losses of over half a million pounds in just six months. And how it was all the fault of their new accounting software. Somehow the system had allowed them to build up a significant level of stock that caused a fatal cashflow position.

I just want to make this clear - you can’t blame your accounts system for your financial problems.

I hear this a lot from business owners, how the problems in their business are down to their accounts system, and it’s usually when they don’t really understand their own numbers. Most company owners have an instinctive grasp on their financials and yet often allow their gut instinct to be over-ridden by the accountants because “that’s what the system says”

Of course accounts software is an essential part of running a business and we do rely on it for the management information we use to run them, but we have to understand enough to know when things aren’t right. And that means knowing enough about finance, and in particular our own finances to know how things should look, and what could go wrong.

I wonder if the company in question had noticed that stock was piling up around them, or that cash was going down before it became a problem. Didn’t all this excess stock show up in their margins, or on the balance sheet? You should look at your key financial information every week to make sure that any dangerous trends are spotted and fixed immediately.

It’s worth making the point that your accounts information or the software is only as good as the people operating it, and the information that’s going into it. A massive problem for small companies is that very often the “book keeper” is just in effect a data entry clerk with no knowledge at all of controlling a business’s finances.

Now obviously I don’t know the exact circumstances of this business; to be fair the more complex accounting systems can be really horrible to implement, and in this case the software may truly be to blame. But I bet there were plenty of signs that things weren’t right.

If you’re putting in a new system here are a few things to bear in mind:

• Do your staff know how to use it?
• How much training will you get?
• Is the package well known enough that you’ll be able to find staff in the future to operate it?
• Is it overkill for your business? Many packages are way over the top for what a small business needs.
• Talk to people who have already implemented it.
• Don’t under estimate the time it will take to put in place and how much business resource it will eat.
• Allow plenty of time and resource for dual running and make sure all the niggles are sorted before you go live. If you’re a manufacturer make sure the stock and costing modules are rock solid before you let go of your old system.
• Make sure you’ve got enough key measures in place that you’d know if something was wrong in your figures.

Accounts information can be, and is often wrong for lots of different reasons in small companies, most of which are about a fundamental lack of financial knowledge by the “book keeper” and the management team, so it’s vital that you understand what to look at, what it means, and develop your instinct for when something doesn’t look right. Oh, and don’t let the accountants shout you down or blame the accounts package!