What is “Workflow” and Why It’s Important?
Designing the Accounting Information System
Today we are going to “level up” from the day to day minutiae of bookkeeping to the broader scope of accounting information systems design. I have a saying I’ve enjoyed using for the last couple of years as I continue to meet more freelancers and consultants across various industries – “is everyone a designer?”
This is usually in a joking manner to play on how many freelancers market themselves. However, I think at a certain level, many people truly are designers in their own fields if they take a systematic approach to their deliverables. A landscaper may come up with drawings for a client’s yard, a bill of materials, and a step by step plan. This is design. A marketer may come up with a turnkey marketing plan for a client, choosing the proper channels and tools to achieve the client’s marketing goals. This is design as well.
Systems and Savings
In this context, a system is a set of inter-working elements that cooperate to attain a set goal. The designer orchestrates these elements in the most efficient and effective manner he sees fit, working within the constraints of knowledge, technology and budget. In our world, we wear the hat of accounting information system (AIS) designer every time we take a consultation. It is my favorite part of the work that we do.
The first part of designing an AIS is to understand the client’s business, and their current financial workflows. A workflow is the flow of financial data from capture point to the accounting software, how it moves (manually or automatically), and how it affects the resulting financial statements.
From here we can answer the next question – can we improve the workflow in terms of accuracy or efficiency? Accuracy is most important. As the old saying goes, “garbage in, garbage out”. If the capture points are corrupted or capturing the wrong data, if a manual workflow is inconsistently applied, or the chart of accounts is just wrong, this has to be fixed first. All of these will result in incorrect financial statements. The result is bad business decisions, and potentially negative tax implications.
Simplify, Simplify, Simplify
Next is an evaluation on efficiency. Does the client use her resources well? Is she paying for a manual process that can be automated? Does she use too many apps, or apps that increase complexity unnecessarily? One common theme I see is the use of too many bank accounts and/or credit cards in the business. Someone needs to reconcile these accounts, and if there is no good reason to have more bank accounts or credit cards, then less is better.
Some business owners focus on points and credit limits and use 5 or 6 cards in their business to artificially get a larger line of credit and more rewards. This should not be the main priority in a cash flow company. It is an indication of excess leverage. If the company has strong cash flow, then it should have sufficient bargaining power to get a single card with a reasonable interest rate, a suitable limit, and a good rewards program. The main cost driver of maintaining an accounting system is reconciliation. Less cards and banking accounts = simpler workflow and less reconciliation. This is one example of improving a workflow.
Lazy Design and Bad Apps
Business owners often pay for bad apps promising integration with a chosen accounting software. One particular integration I’ve seen cause headaches promises automatic accounting record syncing when payments are collected through stripe or square. This integration creates an invoice and marks it paid for every payment made through stripe. However, the integration has no way of knowing how to properly categorize the income, and creates invoices with the catch-all account “stripe/square income”. This is hardly usable information. If my client made a single payment for three separate services, how would I know which income accounts to allocate those payments to, and in what amounts?
Such is the problem with apps touting Xero or Quickbooks Online “integration”. Technically an app can just have the ability to sync your contacts to your accounting system and say it can integrate. What good is this if you are seeking to make your accounting system as efficient and streamlined as possible?
First you must understand your workflow, and then compare apps you are considering to your actual needs to see they will work for your company. Skepticism in this area will save you headache and money down the line.
Starting From Scratch – The Preferred Method
On many occasions, we have the opportunity to start from scratch and create an AIS on a blank canvas. This is one of the best ways to go about this. It starts with choosing the correct accounting software for the company. We often choose Xero because of its flexibility and ability to integrate with other apps we may need to use. Then we evaluate the goals of the client, and the systems they use or should use for other parts of their business. Here is where we decide on Customer Relationship Management systems, Project Management systems, and the like. We can potentially integrate all these apps into the core accounting system, although custom programming may be in order.
Next, identify areas for automation. Never push an automatic task to a human being. It’s not a nice thing to do, it’s not cost effective, and you open your system up to human errors. Instead, train your people to take on higher value tasks.
Once the system is designed, implementation and testing is the next phase. Here you almost always find issues that pop up. As these issues are corrected, you end up with a stable system that costs less to maintain over time. More importantly, it provides you with valuable information you need to make important daily decisions that make you more money. As a bonus, you also get clean financials to pass off to your CPA come tax time. This makes tax season smoother for all involved and cheaper for your company.