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For more than two decades now, we've watched many entrepreneurs and companies struggling with computerization. None of them needed to be persuaded of the benefits; but too many were hobbled by misconceptions and mistaken beliefs. These made their computerizing experience more difficult and more stressful than it needed to be. Here, in Q & A form, are the strange beliefs we've had to address most frequently. We hope this discussion will help companies roll out their own computerization more smoothly.
1) When is the best time to computerize my company's accounting?
Anytime is a good and valid time to start computerizing your accounting. Anytime.
Regardless of what many people may think, no month is inherently better or more convenient than another as a starting point for computerization. November or August or February is every bit as good as January.
And regardless of what many may think, you don't have to start with the first day of the month either. November 22 or April 27 is just as good a starting point as June 1 or February 1. Or January 1.
Yes, all of this sounds counter-intuitive. Hold your horses, because there's more on this below.
2) We have this vague, half-formed conviction that it's necessary to capture the entire first year's transactions in the computer. How true is this?
This question is related to question #1. Short answer: it's not necessary.
Many people who don't think things through assume January is the only time you can start your computerization, because only by starting on January 1 can you capture every transaction of the year, which (they assume) is essential for a computerized set of books. To this way of thinking, therefore, you can only start computerizing in January.
When you see it put down on paper like that, it's easy to see that this can't be right. Surely, even an inexperienced person will see that companies all over the world don't computerize only in January.
Unless the voice of common sense intervenes, this is where a lot of companies go astray and make the wrong choice.
The simple fact is, there's no need to obsess about inputting every single transaction of the year, because in accounting practice, balances can be forwarded.
Therefore, the ending balances of the last day of your manual-mode accounting can be brought forward as the beginning balances of your computerized-mode accounting. And because this accounting technique is freely available to all, it's not necessary to capture every transaction from January 1 when you are starting a computerization project.
All well-designed accounting applications have provisions for accepting beginning balances. Therefore, if you want to start your computerized books on, say, 17 March 2011, no problem. You can simply input your accumulated ending balances as of March 16th, then be encoding all transactions into the computer starting with March 17. And forever after.
So, for the rest of 2011, and beyond, your company is computerized. Done; wonderful.
Now, what about your transactions for those first 10 weeks of the year - January 1 to March 16? Simple; for that ten-week period, your company's financial records remain in old-fashioned paper form. And you should be OK with that.
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And this is precisely the big stumbling block for so many people. What? they gasp. We spend all that money and effort to computerize, and then [ insert number here ] months of our transactions are not captured in the computer?! This is the time when someone, somewhere in your organization will succumb to temptation and say, "People, shouldn't we input our transactions for January 1 to March 16 into the computer, so that we can have complete data for 2011?"
Sure, the idea sounds so reasonable at first blush, but it's actually insidious. Bordering on sabotage, even. Why? Because the fact is, real life never stops unfolding for you and everybody else on planet Earth. Business gets done and transactions get transacted every single hour of unfolding time. When are you going to have time to input the transactions of January 1 to March 16?
And unless the voice of common sense intervenes here, this is where a lot of companies go astray and make the wrong choice.
The honest truth is, you won't have time to input those two and a half months of old transactions, because you'll be busy dealing with the inexorable onrush of new, oncoming transactions. Your desire to include old history in your records clearly takes second place. And you'll just give yourself an organizational hernia if you try. And sadly, many organizations do. Give themselves a hernia, that is.
The voice of common sense says, So what if your January to March 16 transactions are not in the computer? This will only be true for 2011, and will be a non-issue thereafter. Soon, as time's winged chariot whooshes us all into the inescapable future, 2011 will be a mere memory, and your company is firmly in the binary world; and by 2012, your non-computerized fragment of 2011 is no longer a concern. Most receivables from that period would have been long since collected, most payables long since disbursed. Remember how you managed your books manually for 10, 20, or 30 years? So, what's wrong with managing part of your 2011 manually for just nine more months? So, by mid-2012, how much did not starting on January 1, 2011 hurt you?
The important thing is to attain breakthroughs in productivity; and you'll attain those only when your computerization i on-stream, not in a perpetual state of almost-but-not-quite-ready-to-go-live. And it doesn't take much insight to see that insisting on perfectly complete data for the year is an obstacle, not an aid, to that goal.
Therefore, if you look at the big picture - and where your true interests lie - you'll see that there are much more important things at stake than the anal-retentive insistence on starting your computerization on January 1. Don't worry about capturing every single transaction of the first year of your computerized accounting. Trying to do so will only delay and endanger your computerization project.
3) What if our fiscal year is not the same as the calendar year?
What if your fiscal year ends on March 30? or June 30? It doesn't matter. You can still start your computerization any day of the year, as explained in #1 and #2 above. Fiscal year, calendar year - the reasoning is the same.
4) We need to start with absolutely perfect beginning balances, right?
Again, here's another paralyzing misconception. Paralyzing, because it makes it very hard for you to get up and running. No, counter-intuitive as it may seem, your beginning balances don't have to be perfectly accurate when you launch your computerization, because in accounting there is such a thing as adjusting entries. You can always adjust your beginning balances later.
The important thing about computerization is to get it on-stream. That's difficult enough in itself, and therefore should be your main focus when you embark on a company computerization. Your concern now is to get the process established, and not to distract yourself polishing details that can be polished later.
Insisting on perfect beginning balances will make getting on-stream much harder than it already is, because getting perfect beginning balances consumes time and effort. Before you know it, another 20 days or 120 days have elapsed since your target cutoff date, and your "perfect" beginning balances have become 20 or 120 days obsolete. And at this point you dither again, because your beginning balances have become, through the mere passing of time ... wrong again. Again, as stated in connection with an earlier question, there are much more important things at stake than the anal-retentive insistence on starting out "perfect."
So... no. Get the computerization started with reasonable beginning balances. Get the computerization process on-stream. Then adjust your beginning balances later.
Shake off the superstitions - about starting on a certain sacred day, or capturing every single transaction of the year, or getting your data absolutely perfect before encoding it. Shake off the imaginary restraints, and you'll computerize sooner, more smoothly, and with a lot greater likelihood of success. -rsr
Questions? Reactions? Write to balmori@balmorisoftware.com.
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