Accounting reports and queries need to be accurate. That accuracy can be achieved only when the data received from sales and inventory systems are timely and correct. Using software automation to do this is not giving up control, so much as regaining control over the data.
To see this, let’s review some of the typical ways in which inventory and sales information gets into the accounting system to begin with:
Updating by hand. This is the most time-intensive process, and the one most prone to error. Works only with very, very small numbers of items and infrequent transactions.
Uploading some common format (Excel sheets, for example). Somewhat surprisingly, a large number of companies export data from one system in some common format, like an Excel spreadsheet, and then import that data into their accounting system manually. Not only does this create a potential bottleneck as data waits to be loaded, but errors can creep in when the exported file is not set up in just the right way, as dictated by the accounting software.
Scheduled FTP. Some automation can be had by programming an application to run an FTP on schedule. The FTP application can place exported files from inventory software in a predetermined location for the accounting software to “find.” While this does eliminate some of the human error in the process and guarantee some level of integration, the process does not yield anything near real time data.
Direct integration. This is the ideal situation, where one system has been integrated with the other to the extent that data can be pushed (or queried when needed). This eliminates any steps that a person must do, and so also cuts down on human error (not to mention the time saved). Most direct integrations these days are done with APIs, which enable the highest degree of integration in real time.
So there are two factors here: Time, and the possibility of error. These two factors are correlated in that the same automation that makes real time reporting possible also removes human involvement. (This makes sense, as people tend to be the bottleneck in any business operation.)
Still, many accounting professionals are wary of using automated systems to make entries, generate reports, and so on. Why? Reasons vary by individual, of course. But often the issue comes down to one of control. With a less automated method, accounting professionals feel they have more opportunity to look at the data, make corrections where needed, and generally have a “common sense check” on everything being reported.
This approach makes sense…if one were doing their accounting with the software of 30 years ago. Not only have software packages become more sophisticated, but so have the networks they run on. Indeed, relying on them offers more control than would otherwise be possible. For an analogy, look at how much more control you have over your television via your remote control, compared to the manual channel-changing of a generation back. Both the TV and the remote control are much more sophisticated, but this just gives you, the operator, more control in the end.
How do accounting integrations offer such increased control?
- Better reporting with real time data. Will inventory levels be enough to support sales until the next shipment arrives? Was the most recent Cyber Monday promotion worthwhile? Are units moving quickly or slowly in North America? Are returns eating into the bottom line? There are countless reports that one might want access to, and these reports need accurate, up-to-the-minute data. By integrating inventory software with accounting systems, both goals can be achieved.
- Real time inventory reporting and purchase decisions. Along with better reporting, there are several operations that will need to trigger at appropriate times. For example, if inventory levels for an item get low, a purchase order will need to be generated and sent well before the stock runs out. If this process can be automated (with appropriate checks, of course), it reduces the chances that something gets missed.
- Real cost of goods calculations. The true cost of an item to a company far exceeds what the company pays for it. Items also cost insofar as they must be shipped, received, organized, stored, and insured. These might include straightforward dollar costs, and they might include labor costs as well. When inventory software is integrating with accounting software, calculating the real cost of the goods in one’s inventory is easier—and makes for….
- More accurate profit calculations. Having the “true” cost of goods sold is the first step to getting accurate profitability data. And while sales data are the main part of any profit calculations or forecasts, so are things like returns, shipping costs, warehousing costs, and so on. Finding these costs allows for more accurate calculations; isolating them and doing something about them is another part of cost control.
- Better audit trails. Reporting is extremely important during tax time as well—both for reporting and for possible audits. Using automation software to generate real-time audit trails gives a better, more accurate picture of your tax liability. It also puts your organization in a more charitable light, because audits would be more systematic, more open, and easier to follow.
All of these benefits assume, of course, that your systems are appropriately set up to implement the integration. This means that general accounting ledger codes must be entered accurately into the inventory management system, for example. Costs for each item must be correct as well. Reconciliation must be done at a time that makes most sense, given the business (for example, a monthly roll-up by product line might make more sense in some cases, whereas a reconcile-per-order might make sense in others).
Given the benefits of accounting integration, however, it is well worth starting the process—and doing it correctly. If your organization has questions about integrating your accounting and inventory management software, please reach out. We have done a number of integrations, and we know what questions to ask to get you on the right track.