There was a time when a firm’s books were managed using quills and huge hand written ledgers. Thank God those days are over. Technology has certainly changed things for the good in every aspect of business and in the accountancy sector specifically, to a massive degree.
Computers have revolutionised the way we all work. The introduction of spreadsheets in the 1970s was the first ‘big’ change for accountants. Suddenly, hours and hours of paper based work was eliminated and formulas made consolidating the books quick and simple.
The last 10 years has seen technology advance at a relentless pace. Now we are at the stage where the minutia of accounting has been removed. There is no need to deal with mass amounts of data entry or transactional work as systems have been created which enable data to be posted directly into the ledgers. The accountant is now able to access vast amounts of data quicker and easier than ever before.
The introduction of ‘Cloud Computing’ and ‘E-commerce’ have been the most recent revolutionary advancements in the accountancy sector. The modern e-commerce suites which many online retailers use as the basis of their business, automate the conversion of a customer transaction on a website into a posting on the ledger. This leaves the modern accountant with much more flexibility. Rather than being bogged down in transactions, they can spend their time thinking more strategically for the benefit of the business.
The accountant is no longer a bean-counter
In the old days, an accountant’s daily workload focussed heavily on administrative duties such as managing transactions and inputting sales data. Small, transactional detail is now becoming automated, meaning accountants have had to change the way they provide value to a business. Accountants now have the freedom to take a step back from the daily grind and provide a true strategic service to their clients. Accountants now spend more time being business consultants, providing information to support the decision-makers of the business, and helping to hone and achieve strategies and objectives.
More time is now spent on analysis of the transactions rather than the logging of the transactions themselves. The focus is shifting from recording what has happened to developing strategies to help drive the business forward. Technology has given us the tools to make accurate projections and forecasts and reduce the amount of time we spend actually recording historical data.
Xero: Beautiful accounting software
At Sanders we use cloud based accounting software called Xero. Using Xero means we can seamlessly access our client’s financial information in real time. It provides a totally flexible business platform that can be expanded with over 400+ different Xero add-ons including receipt back, which enables our clients to scan receipts and paper work straight into the platform, saving hours of tedious data entry.
By using Xero we can simply log in to our clients’ accounts and process the end of year adjustments. This is then updated in real time, all with little interruption to the client. Everyone who requires the information, such as the client’s team or book keeper can access the information straight away so there’s no need to send files back and forth. We can review our clients operating results at any time and provide proactive and timely advice on issues impacting the business. This enables us to help our clients keep the business on track and comply with tax obligations.
How technology has improved working methods
• Efficiency: Everything can now be done much quicker. Advancements in accounting software has enabled us to generate strategic financial reports at the touch of a button. The information is presented in a format that is ready to be used, with all the information we need to produce targeted advice for our clients. This is not only more efficient than the old manual systems of paper-based records, but the software itself is getting better and better, giving us more tools, all the time, to improve our service to our clients.
• Accuracy: Automating procedures has eliminated human error which has resulted in far fewer mistakes and discrepancies. Cross-checking is much easier and automated controls can be put in place to make sure the information is correct every time. In the unlikely event that errors do occur, we now have the ability to locate errors automatically to save wasting client’s valuable time.
• Control: More control over a company’s finances is provided to the accountant. For example, purchase ordering systems enable all operational purchases to be tracked. They can be matched to invoices and the subsequent payment, and it is all logged and managed through a central system. This also helps auditors, as the audit trail is readily available and much more accurate than the previous manual systems.
• Quality: Huge amounts of information are now available to the accountant. There is a vast volume of financial data available to us and in minute levels of detail. This means any analysis performed by an accountant can be extremely precise, and trends can be identified.
• Flexibility: The accountant doesn’t even have to be in the building, which wouldn’t have been the case with either paperwork or with a fixed server. This means that businesses can outsource their accounts function much easier to ensure they are receiving the best service at a competitive rate.
• Security: Accountancy software is some of the most heavily protected software available. They use the same hardware and super secure encryption used for secure payments and online banking. On top of that they use uncompromising antivirus and enterprise grade firewalls so you can sleep in the knowledge that you’re completely protected.
• Environmental: The advancements in technology has almost eradicated the requirement of paper based working procedures. This is more secure, more efficient and far better for the environment.
How do advancements in technology help small businesses?
• E-Commerce means that a lot more accountancy procedures can be automated.
• Even the supply-chain can be managed through may modern systems.
• Cloud computing means that there is no need to invest money on in-house servers and expensive equipment.
• Simple daily tasks such as recording expenses or mileage claims can now be done in seconds using various applications.
Small-business owners can now concentrate more on what really matters to them – running the business. They can use their accounting function to add real value in ways such as supporting decisions, appraising investments and improving profit.
A KPI (Key Performance Indicator) is a metric which an organisation will use to measure whether they are achieving their strategies and objectives.
An organisation will create its overall business strategy and set the objectives it needs to achieve for this strategy to be successful. ‘Critical Success Factors’ (CSFs) are then defined. These are things that, should they occur, will lead to the achievement of the objectives. KPIs are the specific metrics used to measure the achievement of the CSFs. They are very detailed, and usually numerical to enable the business to understand the progress they are making in achieving their objectives.
This sounds like quite a complicated system but it is actually quite straightforward and much easier to understand when placed in the context of a real life scenario.
• Overall strategy = Win the league
• Objective = Win enough games to win the league.
• Critical Success Factor = Score more goals to win games.
• Key Performance Indicators:
1. Number of shots on target in each game. (Or %age of total shots)
2. Chances created per game
By reporting on these KPIs, the football team can clearly see their progress in achieving their CSF of ‘score more goals to win games’. If they achieve this CSF they will achieve their objective of winning games, which in turn will lead to the successful achievement of their overall strategy of wining the league.
Using KPIs in business
A board will have a small set of KPIs that will be high-level and linked to the overarching business strategy. Each department will have their own set of low-level, detailed KPIs to measure their individual performance.
In order to be a KPI (as opposed to a metric), there will need to be some form of a benchmark. This could be a previous year’s performance or (if known) the performance of a competitor.
It is also important to have a mix of financial and non-financial KPIs.
Why are KPIs important?
A good set of KPIs will provide the leadership of the organisation with a view of what is happening within the organisation, and the progress the business is making in achieving its strategy. A drop in a specific KPI will also give the leadership the impetus to investigate, and make necessary changes, if required, to realign with their strategy.
KPIs give teams and individual employees a focal point, helping them understand business priorities so they can focus their efforts on contributing to the success of the business. KPIs are also a way for the leadership team to communicate to individual departments the part they are required to play in achieving the overall business strategy. This enables the entire organisation to understand their role in the wider aims and strategy of the business.
How to ensure KPIs are always useful
There are certain things that need to be done to maintain the relevancy of a KPI so that they are used effectively.
1. Review them regularly, e.g. once a week, in order for them to maintain their effect. Any trends, good or bad, can be spotted and opportunities or threats can be reacted upon.
2. Review at strategic intervals, e.g. once a year, to identify if the KPI is still applicable to the overall business strategy, and ensure they are being used correctly.
3. Make sure they are quick and easy to calculate. KPIs that take a large amount of time to calculate will no longer be relevant by the time they are presented.
4. Use software or technology to ensure accuracy and timeliness. This also brings the added advantage of them being less susceptible to bias.
5. Share the results whether they are good or bad. By communicating to the wider company, everyone involved knows whether more work needs to be done, where they need to focus, or if they are doing a good job.
KPIs in Accounting
All KPIs have an effect upon finance. A strong finance department will be aware of the business strategies, and obviously the KPIs, as these are a crucial measures of business performance.
Accounting departments themselves may also adopt KPIs, depending on the overall strategy of the business. This could range from:
• Processing KPIs: Such as the number of invoices processed & cleared.
• Working Capital KPIs: Receivables Days is how long it takes for customers to pay their debts to the company. Plans may be put in place to drive this downwards and improve cash flow. Equally, Payables Days is the reverse: how long it takes to pay suppliers. This needs to be balanced between holding capital within the business and maintaining supplier relationships.
• Budgets: not specifically a KPI, but performance against budget is important for accounting. This may be more of a CSF than a KPI though, and will therefore produce a set of KPIs in itself.
• Ratios: General accounting ratios, such as gearing (how much debt the company holds), gross margin (sales vs cost of sales), dividend turnover (how many times over the business can pay the dividend) are all important measures in accounting, and are generally used to determine the strength of the accounts.
There are many benefits of setting KPIs within your business.
• Goal Congruence: Everyone will be pulling in the same direction, with the same focus point.
• Strategy Focus: Everyone has one eye on the strategy of the business, and how they can contribute to its success. This means less time is wasted on tasks that don’t improve the KPIs, therefore don’t contribute to the success of the business.
• Decision-Making: provides the leadership with a quick overview of the business. This can help leaders make decisions based on the impact on KPI performance.
• Benchmarks: By using a relevant benchmark, the efforts of the business are focussed on continual improvement. If this is an external source, then the business can concentrate efforts on gaining competitive advantages against the market.
To find out more about KPIs, or if you need help developing your business strategy and objectives, get in touch by calling 020 7317 0040 or emailing us at firstname.lastname@example.org.
*The information provided in this blog post is for guidance only and does not constitute professional advice. Advice should be sought from an appropriate professional, if you are considering implementing KPIs in your business.
Amongst a range of other useful features, the Sanders App gives you access to 17 handy and powerful calculators to help you check the amount of tax you could be required to pay or see how you might increase your profits. Choose between your country of business to get specific tax rates, then find out the tax you’ll pay on increased profits, Stamp Duty, company cars, corporation tax or VAT. You can also calculate mortgage and loan payments, the impact of inflation and much more in between.
Here’s an overview of all the calculators available and what each one does,
Quickly and easily work out the standard rate VAT, that has been, or will be paid on the amounts entered.
Work out or convert a nominal rate to APR at the touch of a button.
Use this calculator to work out the Stamp Duty that will be owed on the purchase of shares or land, based on their value. You can find out the most recent tax rates you should apply in our App’s handy tax tables.
This calculator enables you to quickly produce a complete payment schedule for your loan and see how much you will owe at any given time. Work out the interest you will pay and your fixed monthly payments.
Find out how much inheritance tax you are likely to pay if you don’t plan carefully. This calculator takes into account assets such as property, cash, investments and your marital status alongside liabilities on mortgages, loans and credit cards.
Understand what your monthly payments will be depending on the size of your mortgage and the current interest rates.
Work out how much money you could save over a given period by calculating your monthly deposit with inflation and interest rates.
Your company car is a great perk but it can end up costing you as a ‘benefit in kind’ value must be calculated. ‘Benefit in kind’ is based on the value of the car and fuel and whether it is being used for private use. Use this calculator to understand the ‘benefit in kind’ value and also what income tax you are likely to pay on it.
Enter your hourly/monthly rate to calculate your monthly and annual invoice totals. Find out what you are likely to take home after tax.
Dividend vs Salary
Work out the most advantageous method of extracting profits from your business through our handy comparison tool. Choose between a basic salary, dividend, full salary or by operating as a sole trader rather than a limited company.
Designed for both employers and employees, this calculator enables you to check pay slips of those under PAYE. Work out net pay after income tax and national insurance per week or per month based on gross pay and the employees tax code.
Calculate the total corporation tax due on your company’s taxable profits.
If you’re self-employed, you can use this calculator to find out the Income Tax you will pay and your National Insurance liability. Base your earnings on your weekly, monthly or annual earnings.
Use this tool to understand the impact of inflation on prices in any given year since 1949 vs now. You can also find out the rate of inflation in/since, a specific year or between years.
Should I incorporate?
This calculator compares the salary plus dividend remunerations options available to shareholders of a company compared to the option of operating as a partnership or sole trader. It also shows you the tax benefits of incorporation.
This calculator uses figures such as sales, cost of sales, wages, admin costs and other income from your last set of accounts or estimated projections to help you find out ways you could make more profit.
Capital gains tax
Calculate your capital gains tax which will be due on disposals in a selected tax year. The tool considers your other income after allowances and capital losses available at the start of the tax year to give you an accurate and personal projection.
How to download the Sanders App
You can download the App free of charge using the links below.