8 Reasons to Ditch Your Shoebox Accounting System

In dealerships around the country sits shoeboxes or file folders full of business receipts, invoices, and accounting data. As the months roll by and the data accumulates, your business is sitting on a growing problem. Learn before it's too late why your accounting system can cost your business and more.

For many dealerships, the shoebox or file box was a temporary fix prior to setting up an accounting system. But with procrastination the box can become the nemesis of your small business.

What is an Accounting System?

An accounting system for your business is not as simple as a shoebox or file folder.  A good accounting system will collect and organize your important business information and will then act as the basis for analyzing the success of your business through the  financial data it provides.

financial-planningIn some industries like the Automobile business, an elaborate accounting system is provided by the manufacturer.  Ford, GM, Chrysler for example, all have their own accounting systems that their dealers must use.    This has never been the case for the Marine and Motorsport industry.  Due to the fact that most dealers are multi-line, manufacturers have never been in a position to dictate the accounting system you will use, consequently you are left on your own to search out and find a system that will work for your business. 

An accounting system will take your business beyond record keeping and provide important financial indicators. An accounting system will have the following parts:

  • Data Collection: Includes business transactions and operations data.
  • Data Organization: A method of sorting data by date and transaction type.
  • Data Recording:  A recording of transactions in individual GL accounts.
  • Accounting Database:  The accounting software program will form the basis of translating the accumulated data into generally accepted (CCAA) accounting practices.
  • Financial Statements and Reports: Balance sheets, income statements, budgets, and timetables comparisons will aid in running your business.
  • Analysis: Regular review of main controls to avoid problems and capitalize on opportunities.

If your small business accounting system is not producing usable information for the analysis and control of your business then it is time to look for an alternative system.

8 Reasons for Accounting System Upgrade

  • Expense Creep: It starts off innocently as you begin to add more regular expenses to your operations. Without monthly tracking of expenses and costs, you cash flow can quickly dry up.
  • Overdue Accounts: Ignoring the need for an accounting system can make tracking accounts receivables a guessing game. Don't be in the business of bank lending. Misplacing a 90-day overdue account is costing you money.
  • Cash Flow Crunch: Every business will experience the highs and lows of cash cycles. To overcome periods of cash shortages or to get needed funding, an accounting system will help you identify who owes you money and places for expense cuts. Create a full financial summary every quarter.
  • Lack of Data Security: How safe is your shoebox? Is it reinforced steel, fireproof and waterproof against major disasters? Important financial information needs to be stored on a removable disk and on a secured offsite location. Never take a chance assuming it can't happen to you.
  • Added Costs: Having an accountant or bookkeeper organize and compile your accounting data at year end can be costly. Organize your invoicing, accounts payable, accounts receivable and most important know your cash flow.
  • Audit Risks: Surviving a government audit can be easier if all financial matters of your small business are in order. Providing an auditor with financial statements, organized files, and well tracked transactions will make everything easier for all parties involved.
  • Bankruptcy: With the majority of businesses failing in the first 5 years, poor financial management remains one of the top reasons for failure. It is your responsibility as a small business owner to maintain and regularly assess your financials. Not putting an accounting system in place early during your startup can mean the end of business. Proper accounting can help you see money losing strategies before it is too late.
  • Financing Difficulty: Don't bring a shoebox of invoices and receipts to your banker or investor meeting. The professional appearance of your company's books is part of a winning strategy to financing.

The price of business ownership comes with the responsibility of establishing an accounting system. On the plus side you feel more control over your business, less stress, and better profitability.

Take your time and do your research to find the right system for your business.  Talk to your fellow dealers and see what systems they are using and which one is the most user friendly and produces the best information for analysis of your business.  If you have a system that you are not happy with, it is never too late to change.  It can literally be the difference between success and failure.  Need help understanding what is best for your business?  Contact me.

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