By Jordan French, CIO
Every now and then your assumptions can be challenged by an unexpected dose of reality. For example, a recent accounting study by Viewpost revealed that over a quarter of SMBs have no plan in the near future for a streamlined, end-to-end payment process. Even more surprising, this poll of 5,000 U.S. decision makersrevealed that 18 percent of SMBs don’t use accounting software at all and that only one in five (21 percent) have integrated their accounting software with an invoicing and payments product. While one in four businesses plan to integrate their accounting with invoicing and payments by the end of 2017, over 27 percent have no plans at all for integration.
The findings illustrate why small businesses that do not have an accounting tool electronically connected to their invoicing and payments tool have real difficulty understanding their own bottom line. Today’s reality is that small businesses are highly dependent on spreadsheets, manual data entry and postal mail to ensure that they can collect money and pay vendors. Once sent, paper invoices can disappear into a visibility-free “black hole” with no assurances that a responsible party even got the invoice or that it has been approved or scheduled for payment. Failure to be connected to trading partners--combined with the time-sapping lack of automation to help reconcile and understand cash flow--puts millions of entrepreneurs at a big disadvantage.
We stick with what we know
Starting and running a small business is hard enough, and knowing when, how and even if you are going to be paid makes growth and even survival more difficult. Accounting isn’t a core competency for most small business owners, and accounting work is often handled by the owners themselves, after hours. In addition, many SMBs don’t use true accounting packages because they perceive the software as being cumbersome, instead finding it quicker to use a spreadsheet or other manual process — even though there are easy-to-use accounting solutions that could save them time in the end.
The gap in technology adoption also applies when it comes to integration of accounting and invoicing systems, with survey data showing that 68 percent of companies have concerns about integrating their accounting software with an invoicing and payments product, noting security as the greatest concern (38 percent), followed by the cost (35 percent) and the amount of time required to learn the software (18 percent). This data emphasizes the perception of accounting and invoicing software as being complex and difficult, even when significant gains in efficiency and productivity could be realized via software automation and with minimal setup requirements.
The failure of SMBs to understand and leverage the benefits of accounting and invoicing software actually hurts them in the end — preventing the real-time understanding of their incoming and outgoing cash flow, as well as making payroll and setting aside appropriate cash for taxes. Above and beyond this baseline level of financial knowledge, small businesses need to have clear and accurate financial statements that are critical to establishing credit and securing financing for expansion.
What's the hold up?
Uncertainty about the status of invoices can be harmful to a business. Was the invoice received? Approved? Paid? Often, the business owner doesn’t know when invoices will be paid until the check arrives. And even then, the funds aren’t available until the check has been deposited at the bank and cleared. To contrast, modern systems send invoices electronically and ensure that they’re correctly routed once they reach the customer, alerting both the sender and the recipient that the invoices have been received, approved and scheduled for payment. Guesswork and time-consuming phone or email inquiries are eliminated. Having confidence in when to expect payment empowers small businesses to act decisively on new opportunities.
Understandably, accounting software complexity and time away from core competencies are concerns for small business owners; however, the best accounting and invoicing systems reduce that complexity and actually free up time. Once set up, the most effective software is easy to use even for non-bookkeepers. The simplest and most effective metaphor is one that enables software users to think of their bank statement, with “cash in” and “cash out” as fundamental concepts. For non-accountant, non-bookkeepers, this approach is easier to visualize and comprehend and enables them to leverage automatic updates and follow a process that frees them up from daily updating of Excel spreadsheets or ledger books, doing back-of-the-envelope estimates, or, worst of all — doing nothing.
Especially important as we enter tax season is that small businesses consider their taxes and what benefits invoicing and accounting systems offer. In particular, accounting tools can help ensure that sales tax is collected and remitted correctly, and these systems can assist with payroll taxes, too. And when it comes to tax preparation, companies can save time and expense by providing accurate information to their tax return professional.
The bottom line is that SMBs need simpler solutions for the administration of their business. A clear view of cash flow is the first and most critical need, because greater visibility into invoicing and payments facilitates more effective accounting, setting the stage for long-term stability and growth.