I have previously written articles on small business accounting software: http://www.asifism.com/accounting-finance/small-business-accounting-software-quickbooks-vs-sage-vs-peachtree-vs-microsoft-office-accounting-%e2%80%93-part-two/ and http://www.asifism.com/news-about-this-site-and-me/accounting-quickbooks-sage-peachtree-or-microsoft-office-accounting-part-one/.

These articles primarily discussed desktop based accounting software: they pitched quickbooks against sage and microsoft accounting. Clearly, many small business owners and accountants alike preferred microsoft accounting and quickbooks to sage (which sane person wouldn’t, right?). However, in light of the small business accounting market not being so profitable, microsoft has deserted the small business community, handing over the management and future development for microsoft accounting to partners (mamut software) in the UK. We had been using microsoft accounting to manage everything, including payroll, so it was a bit of a pain when microsoft chose to ditch the not so cash rich software over ’some’ of us dedicated customers (or partners, as we’re both).

Now, as an application development company ourselves, we have been integrating with some of the new breeds of accounting software. Since we are now based in the UK, you may see that this article is restricted in its coverage of the US market, but then, I am afraid that was bound to happen at some point. Two of the most successful SaaS (Software as a Service) generation accounting applications in the UK market today are Kashlow and Xero.

The History

I have personally used both, although the pleasure of integrating other software applications with an accounting system has been restricted to Kashflow, and I must say, that it was quite an easy task to do so. Their API is pretty comprehensive and if they don’t have a particular function, they’ll create one really quickly if you need it, unless you’re asking for something too complex. Nonetheless, Kashflow’s customer service is pretty good, with management getting involved actively across discussion boards in the UK to help answer any questions or queries. The owner of Kashflow is one Duane Jackson, a poster child for the Prince’s Trust. Long story short, Duane went from being a not so ideal citizen to building a £10 million company in 5 years or so, with a little help from the Prince’s Trust and one of the UK’s prized lords.

Xero, on the other hand, is a software that originated in New Zealand and has now grown internationally across the UK. We now use Xero as our defacto accounting system, and that is for one of several reasons. The fact that Xero is not UK based doesn’t cause any damage to the actual application; they have an API, integrate with similar products and other applications just like Kashflow and the software complies equally well with UK law. But it is in Xero’s roots that it is the 2nd most successful accounting SaaS in the UK. Their management and sales teams are not as active on UK small business forums, whereas Kashflow, I imagine, picks up quite a bit of business from them. Nonetheless, Xero is a British Telecom recommended product (BT is pathetic, so their opinion only carries political weight, nothing that actually matters) and is also recommended in partnership with some of the bookkeeping franchises across the UK.

The Techie Stuff

I run a software development company in London and our primary area of expertise is SaaS.  It is quite clear (well, at least it is to me), that Xero has been developed by far more capable developers than Kashflow has. Kashflow is build on Microsoft asp, which I am quite against. It’s older technology, although it’s just as functional. Their use of URL cloaking, etc. is limited (which is not a technical drawback) and their interface is very CSS and HTML as opposed to AJAX driven. Now I’m personally against using Jquery and AJAX for functions that are simpler to use with simple HTML. For example, ajax tabs with a submit button on them are plain wreckless because the interface does not work according to generally understood internet behaviour. However, I think Kashflow lacks the use of AJAX even where it would be appropriare. In my personal opinion, I find it a much more soothing experience to use Xero than Kashflow. Xero generally runs faster too (it did for me) and I think it is, from an overall standpoint, a much more thought our application than, perhaps, Kashflow. However, this is probably my tech bias talking and has absolutely nothing to do with the use of the software if you’re an accountant as you’re most likely used to the scum of the earth (also known as Sage) - but I don’t practice accounting anymore (and I’m about a million times happier)!

The Interface

I’ve already covered this above (although the only thing I should’ve said in the techie stuff was AJAX, .Net and ASP). I like the general layout, colours, look and feel of Xero much better than that of Kashflow. They’re both free to try out, so knock yourself out and disagree with me all you want (and see if I care!).

The functionality

This, in my experience, is the same in both Xero and Kashflow. They both have simiar irritating flaws just like Quickbooks, Microsoft Accounting, Peachtree, MYOB and Sage do. There’s no IDEAL way to match off a receivable against a payble without doing credit notes (there really should be, it’s a damn simple journal entry). However, both applications are promising in the arena. A common contacts database which can both become customers and suppliers is a good start, so a secnario where you could simply write off a receivable from the same person against their payable with a single click is fast approaching! One of my favourties with web applications is the flexibility you have of customising your invoices, receipts, etc. within the application and sending them off to customers with PayPal integrated. Both Kashflow and Xero do this beautifully (although more customisation can never hurt), but it saves us from drafting pretty looking invoices on letterheads before sending them out. We can be greener, although British customers tend to ignore email invoices!

Pricing and Cost

Well, I honestly think Kasflow wins here: fair and square. They offer a FULL service demo for 2 months, and then they charge £179 (I think so) a year. That’s not bad, considering you don’t have to worry about upgrades, etc., and everything is always backed up.

Xero, on the other hand, gives you a FREE demo for upto 5 invoices (without a time limit). That’s enough to help you get a feel of the software, after which you have to pick from what i think is a restrictive, almost non workable £12 per month option. In most instances, you’ll have to go with the £19 a month option, which makes it about 30% or so more expensive than Kashflow, but it means you can split the payment out on a monthly basis.

I think Kashflow definitely wins on a pricing model.

Integration with 3rd party applications

Really, both companies have pretty robust APIs and they integrate with virtually all the same applications. I think Kashflow is more aggressive with finding businesses in the UK to integrate with, but if you need to integrate with a custom application, I would think they are both equally good.

So, why did we choose Xero?

OK, this is it. Really, almost all accounting software is the same and other than some of the cosmetic stuff and user interface, they all accomplish the same task. Here is why we chose Xero. I’m involved in one too many businesses, much to the point where this blog has become second priority lately and it has taken me over 3 weeks to complete this article (and it is still mighty hurried). So, as with all businessmen that have growing businesses, you delegate. That’s what I wanted to do with our accounting function, and as an accountant myself (in my past life), I struggled with handing over full control to a third party accountant or bookkeeper. I wanted somebody else to do all the gruntwork, but I still wanted to login and see that things were being done the way I wanted to so the GL reflects what it should for tax and funding purposes. I’m not suggesting that Kashflow can’t do this, but with Kashflow, if I hired a third party bookkeeper, I would have to share my password with him / her. Now I’ve already got 30 passwords (as I’m sure you do) and I like to conslidate them from time to time, so I didn’t want to remember another one for our accounting system. With Kashflow, I would have to. With Xero, I didn’t.

To cut the confusion: Xero allows for multiple users with varied permissions while Kashflow has JUST ONE username/password per company account, so if you’re the owner and hire an external bookkeeper or accountant, you all need to share the same login credentials. To me, that’s what sealed the deal with Xero. I can revoke someone’s access at the touch of a button or limit them to just seeing or using a certain part of the accounting system.

There’s a whole lot more to discuss, but really, I must get down to business. Thanks for tuning in, folks.

As most businesses start to make the transition from a one man show to becoming a growing enterprise, owners are faced with the difficult but crucial task of identifying information systems and processes, a major part of which today is procuring the right software and hardware. Even all large corporations are consistently faced with this task of improving the systems, redefining processes and procuring the correct hardware and software to either support the growth of the business or deliver efficiency in times of downsizing.

1. Planning – Must use external help for this to get a better view of the situation and your business.
2. Analysis – External help over here is a must. It will help a third party clearly interpret what you need, thereby making the requirements of the entire project or solution clear.
3. Design – Contrary to the popular belief that you won’t need this if you buy an off the shelf solution, you will always need this. Software does not design a system or vice versa.
4. Development – For most complex pieces of software that you procure, the will need some customized development. So don’t forget to budget for this whether you’re costing.
5. Implementation – You always need a contingency plan. What if implementation does not go right? What can go wrong and how will you tackle the situation. Not planning for this can be very expensive.
6. Maintenance – You’ve heard that prevention is better than the cure. Well, it’s true of systems and software. Reactive maintenance is very expensive. If you’re proactive and stay on top of this, you’ll save millions in the years to come.

I have long been a critic of British Education. Of course, long is a relative term and here long refers to the last 15 months. My basic education is British.  My University education is American. My professional experience is split between the United States, Dubai and the United Kingdom.

I’ve said it from day 1: American education is by far the best. Why? Because the US education system does not focus on students learning concepts or memorizing answers to questions. It is a system that does not focus on and is not centred around academic knowledge alone. American education gives you the tools you need to succeed in life, in business, and on the job. In this context, I am referring to American education at the University Level, better known as the Undergradute and Graduate programs at universities across the United States.

British University education, well, clearly sucks. With Metro highlighting the launch of a Masters Degree in Facebook today, London has reached a new high in the quality of pathetic intellect and wasteful education; education that represents nothing but a mere high-class insult to the likes of Charles Dickens, William Shakespeare, Oscar Wilde and others from the Golden Age of British education. That said, I understand why the general level of British University education is so low.

The entire system is politicized and is a victim of bureaucracy. Having a University degree means absolutely nothing when you go and look for a job; academic fraud and cheating is at an all time high, and professors boast about their out-dated, memory ridden testing styles that are supposed to prep their students for the 21st century. Specifically speaking, when it comes to business education, more specifically, accounting education, British degrees are about as useful as a second rate high school diploma from China.

How do I know, you ask? Well, I must say with some sadness, I’m an accountant. I’m an accountant educated and experienced in the US, who now has the pleasure of coming to the UK and having to go through the bureaucratic system of so-called professional education, which is, from a learning standpoint, garbage. British degrees in accounting are useless because whether you have one or not, you can sit through a 3 year course with ACCA, CIMA or ICAEW and become a so-called qualified accountant. So then, why would you want a British degree? If qualified and educated means having a certificate, why is a degree needed?  Precisely! That is the stance that Universities in the United Kingdom have also taken. They have totally eliminated the need to learn and enhance one’s skillset from the curriculum; have turned a blind eye to the widespread academic fraud and are simply there to collect money from students.

Enter professional education bodies. Then you have the likes of CIMA, ACCA and ICAEW, who have stooped to the level of every other governmental institution. Britain is a currently that is hard-coded with the problems that make the third world nations of the world today, well, third world.  Bureaucracy is at the heart of such disasters, Britain is fast headed that way. With institutes and certificates for everything, from trash management to facilities management to the auctioneers association to the certified breathing association, the English have developed a certification for virtually everything. The result of such widespread certification is that anyone who pays a fee and memorizes a bog-standard exam can go ahead and get one of these, which makes him/her qualified for a job. However, what most of these certificate holders or degree holders know is of little relevance to their jobs.  That’s if they know much at all.

A little off topic, but Britain apparently came up with a workplace homicide act in 2007. Is it just me, or does parliament have too much time developing crap laws that accomplish absolutely nothing.  Take today’s news: Jacqui Smith’s husband charged 10 quid worth of pornography to the government and half the nation lost it. What are these people, silly? You are worried about 10 pounds when Members of Parliament in England have come up with a second house allowance and other ridiculous benefits that allow them to claim hundreds of thousands of pounds legally every year? Again, is it just me, or is the education of British universities and institutions like CIMA clearly reflective in the populations reaction such news?

So, let’s get to CIMA. Why am I picking on CIMA? Management Accounting has always been a subject of great interest for me. Ever since I took my first accounting course in 1998 (that’s right!), I knew I wouldn’t be going into public accounting. I, therefore, very clearly understand the mission, purpose, goals, aims, objectives and benefits of management accounting. Accountants, in general, are supposed to be trustworthy: that’s why they can notarize, attest documents, etc. Generally, people are supposed to trust accountants. Of course, the likes of Arthur Anderson and KPMG have made headway in damaging the reputation of accountants; probably rightly so.

You see, accounting bodies should never stoop to the level of crappy standard that universities have. However, like every other bureaucratic branch in industry and government, everyone wants to make their own mafia and claim that they have it right, when they have nothing, except for a bunch of illiterate, pathetic, politically connected lobbyists. I’m sorry, did I say CIMA? That goes for all of them: CIMA, ACCA and ICAEW.

Now, since I am settled in the good old United Kingdom, I figured I might as well take a shot at one of these Certifications since according to everyone else who is a ‘qualified’ accountant in the UK, degree education is useless. Not that I really care about what others think, but in the UK bring qualified or certified is necessary, because the level of truth telling is so low that people will generally not believe much of what you tell them on your CV, but they will all buy into the lie of what these ‘professional’ institutions tell them. In essence, it’s an idiot proof system designed by insecure accountants who know they are idiots, and is pushed by a further qualified brand of idiiots.  See how it works? Dumb patting dumber on the back and issuing dumber with a certification that makes dumber dumb.

Well, I’ve been reading up on some CIMA course materials and some of the content published by CIMA and their partners is, well, plain wrong. CIMA, for instance, claims that they offer education that no university offers, thereby offering enhanced professional education which makes it equal to an MBA. I’m sorry, but who the fuck is CIMA kidding? CIMA education is not extravagant, and if you have a degree from any half decent US University, there is nothing new for you to learn here, except for maybe a couple of concepts at the Strategic Level, none of which will be relevant to you in your job.

CIMA examiners and instructors ALSO claim that when grading papers, they are looking for students to use ‘keywords’ in their answers, rather than explain or justify the argument they are making or decision they are supporting. That equates to memorizing and is, well, what you’re supposed to require in 6th and 7th grade, not at a professional level. Not only that, CIMA openly claims that management accountants are not supposed to be systems experts, but must have apt knowledge of systems to understand the ramifications of and be involved in decisions made in companies regarding information systems. Well, if you’re not experts, the wise thing to do is to stay the fuck out of it. Not only does CIMA promote this unhealthy atmosphere in business, but partner Systems Institutes which are also victims of bureaucracy promote their specialty, and neither really give you any practical education, stirring a recipe for disaster. It’s this kind of education that causes the Ministry of Defence to wrongly pay several hundred thousand soldiers. Bad accountants who claim to know it all because they’re certified, and bad systems experts who claim to understand it all because an IS is apparently the be all and end all. It is this kind education that has, over the years, ensured that the UK will never become the leading economy, in terms customer service, innovation or process efficiency.

I don’t have a beef with CIMA, per se. CIMA is an average accounting certification that will not teach the seasoned, experienced graduate (from a decent country and a decent university) anything new. What you need to pass CIMA is to learn how to tackle their exams.  What you need to understand while preparing and practicing for CIMA exams is that many CIMA examiners are not CIMA qualified themselves, which makes for even more of a make belief ‘good’ education and curriculum.

My only problem with CIMA lies in some of the ridiculously incorrect content that is part of their course. CIMA examines some aspects of information systems design that are plain wrong. Not only that, they go on to test some of these CIMA-developed concepts and terminologies, and instructors and examiners who have absolutely no clue about what they are talking about get to grade you on this stuff. As proof, I have a book that is supposed to contain questions and answers from past CIMA exams, and some of the answers have a long explanation of what the examiner is looking for. The answer ends with the phrase ‘powerful software solution’ followed by the examiners comments in parenthesis ‘whatever that means!’  That, ladies and gentlemen, is the quality of education being offered to you by a professional institute that claims to offer some of the most sophisticated business education in the country today.

It is no wonder then, that banks are collapsing and businesses are functioning on non-existent cash. Here’s a hot tip: go nail your educational institutions and education providers, who’ve been teaching wrong information with outdated syllabi that do not give the typical British graduate or certificate holder any ambition or tools to build a career with. What you are stuck with is: get your degree, get your certificate, grow old and get a pay increase with age. That is the path to staying twenty years behind the rest of the world in everything. That is path to killing creativity and promoting uncooth bureaucracy.

Oh wait, I almost forgot. Welcome to Britain. And I don’t hate it; it’s great! It’s just that many of the people are not with it, and that’s highly representative of the population of the planet. It is for the same reason that Americans elected and re-elected George Bush that the British keep following into the footsteps of such brain-dead, mind-numbing bureaucracy with every passing year. I have 100 pounds waiting for someone who can correctly tell me what that reason is.

Go on, have at it.  What have you got to lose?

I completed my first set of US GAAP compliant Financial Statements in 2001, filing my first complete set of payroll, sales, and corporate income taxes that year for a client.  Over the years, I’ve worked for a variety of clients on a variety of accounting related projects, and I can tell you one thing I’ve learnt from my experience:  the goals of financial and management reporting are opposite, and they are in many ways victims of language and ‘political correctness,’ or incorrectness, as the case may be.

Say what you must, the truth is that the goal of businesses and management accounting or financial planning and analysis is to maximize profits.  For most businesses, most SMEs especially, the goal is to minimize profits.  If you’re taught at university, school or professional accounting training that the the ultimate goal is to maximize profits, well, then, you’re being taught wrong.  More likely, you’ve also the heard the statement about watching out for the stakeholder.  Well, sometimes it is in the stakeholder’s favour to not show a profit.  It’s all about perspective.  For many small businesses, a profit means a hefty tax.  A loss means money well spent on your needs and not on paying money to the government.

The fact that financial and management reporting can actually point to opposite things as being beneficial for a business is representative of how misleading accounting and finance terminology and theory can be.  Just take management reporting, and you can read and write books on the difference between a budget and a forecast.  Some have decided, for better or for worse, which is which.  But for those of us who are more open minded, there are questions that lurk around this discussion that really don’t have an answer.

I once told a student that if after qualifying as a licensed accountant, if he could tell me whether a forecast drove a budget or a budget drives a forecast, he can consider his CIMA qualification to be a useful one.  But I can tell you, the chap has no chance of convincing me which should come first.  Some say that a forecast is simply an extension of past activity, while a budget is a defined plan of what the business plans to accomplish, spend, and do within a specified time.  But what really drives this budget?  Isn’t it supposed to be a sales forecast?  Or a forecast is based on the plan of what you can be expected to produce in a certain year.  Would you like to expect sales based on production capacity, or would you like to drive production based on expected sales?  No CIMA, ACCA, CPA, ACA, CMA, CFM or CFA qualification will discuss any of this, because the true, always right, never wrong answer to this question is “it depends.”

It depends on what?  Well, on whatever you want.  The preference, thought and management style of the management of a specific company drives the creation of budgets and forecasts, and there’s really no ‘right’ way to do this.  Yes, there are certain accepted formats to prepare a budget and a forecast, but let’s face it, the integrity of a document such as a forecast or a budget, which really has a subjective head or a subjective foot, is total speculation.  Think of it as a vicious circle.  Once you’ve decided which comes first, either the budget or the forecast, each item has to be revised based on actual performance compared to both budgets and forecasts, resulting in what is termed as a flexible budget.  So, not only can a budget drive a forecast, but a forecast drive a budget, and each figure can change, with the change be driven by actual activity.

Make sense?  Fear not.  The point of this article is not to explain budgeting or formatting.  Accounting, despite what many say, is an extremely inconsistent field, and no amount of experience can make just anything right.  There is no necessarily right process, especially not for all user groups or all audiences, hence the variations in the kinds of accounting you see today:  financial, management, environmental, forensic and systems to name a few.  The trick is to understand your business, and realize whether working on a budget driven from forecast model (a more of a just in time operations management approach) is better than the conventional “let’s churn out as much as we can” ideology, which can be very costly unless you have someone along the likes the Walmart or Carrefoure to forecast the unloading of  your budgeted production.

I’ve written articles before discussing the basics of chartered and certified accountancy, mentioning names of certifications and institutes that issue the certifying licenses, but I’ve never really discussed what the primary difference is between the UK and US certification model.

It is interesting to note that this same difference is also reflective of the general educational ideology of both countries, and pours into the business and corporate culture. That said, it is safe to say that public accounting certifications in both countries, the Chartered Accountancy (ACA) licensed by the Institute of Chartered Accountants in England and Wales (ICAEW) in the UK and the Certified Public Accountant (CPA), licensed by the American Institute of Certified Public Accountants (AICPA) in the US, follow a rather similar pattern. They start with pretty basic level papers and work their way upto technical financial accounting with the ultimate goal of preparing you for conducting audits, and work experience is a requirement before you can even sit for some of the papers.

However, when it comes to management accounting certifications for industry, there is a massive difference in the way the two countries market and manage the qualifications. In the UK, CIMA, ACCA, AAT etc. are all guaged toward accounting and non accounting college majors / graduates alike. They start with the basic, classic, outdated financial and cost accounting concepts, and work their way up to fancy financial and management reporting. The early papers are a waste of time for students who are accounting majors in university, the these certifications don’t give it any value. There are no experience or educational requirements before you can sit for the exam. The exams are driven to help you memorize concepts, rather than understand and apply them. The study material is not very practical in approach, and as a whole, the quality of business relevant financial education you get from these certifications in the UK may not really be that good. However, they are still considered vital to the stamped-paper, bureaucratically obsessed, paper-pushing UK market.

In the US, however, the standard is different. Take the Institute of Management Accountants, for instance. They offer to Financial Management Certifications: the Certified Management Accountant (CMA) and the Certified Financial Manager (CFM). Both Certifications require accounting degrees (like the CPA) or several years of experience in the accounting industry. The reason: Management Accounting Certifications are not geared toward non-accounting majors. The content is technical, and the idea is to further train accountants help enhance their knowledge and application of management accounting concepts and financial accounting regulations. With that in mind, the IMA does not flood you with waste of time, silly, O’Level based accounting papers that discuss the basics of debits and credits. For both Certifications, the IMA has a total of 6 papers you need to pass. However, and this is where the primary difference flows through into corporate America, you need 78% to pass IMA exams, whereas you need only 50% to pass CIMA papers? Why? Well, it would seem like CIMA is just trying to churn out accountants; people who can do the basics of accounting. IMA, on the other hand, is aiming for financial managers: accountants who understand the ramifications of various financial and management accounting principles.

I, personally, have been disappointed with the content of CIMA in the UK. You walk away with very little, and the education is highly impractical for business purposes. IMA, on the other hand, focused on know what you did well, and the exams were based more on your understanding and application of concepts, rules, and regulations rather than committing concepts and definitions to memory. I would say the IMA definitely offers better knowledge in less time and challenges you more to succeed while providing more practical and corporate education. CIMA content desperately needs an overhaul given the state of the business world in the 21st century.

With the global economy slowing down, gas/petrol prices at a new high, and unemployment keeping up with the rate of inflation, businesses are starting to feel the burden of the consumer’s reduced ability to spend. With slumping sales and shying margins, businesses are starting to scale back on what now seems like careless expenditure, which before seemed like tax savings. Funny how a trend in the global economy can put a different spin on the temperament of spending by management on ridiculous items in big business, but then corporate world is full of, well, stupid activity.

With these trends in the economy and businesses, companies are pressuing Finance and Accounting Departments produce more useful, effective, and balanced numbers, that not only help the company look healthy to external parties, but keeps motivation up for the workforce and other direct stakeholders. Pressure mounting on Corporate Finance means that accountants now have to make more more of an effort to make sure the numbers are accurate and look like what management wants to see. That, is where it all becomes hairy.

With pressure mounting in Accounting Departments in Corporations across the United States and Europe, Corporate Finance Departments are increasingly using fancy accounting measures to try and make the situation look optimistic. Controllers and Finance Managers across the globe want to see low DSOs and high DPOs; the trend to track cash flow and cash efficiencies becomes commonplace; revenue recognition guidelines cross over into the gray area, and the hiring and spending on items that were once treated as as an expense are now looked at from the perspective of investments and assets. Such is the nature of finance management: it is driven and managed to please the boards, CEOs, CFOs, stockholders and investors.

But perhaps the greatest affect of Corporate Finance is one that is hardly ever discussed or talked about. In times of slowing global economies, the position of many accountans and finance managers in large corporation becomes a political one, and many will, and have to, for the sake of protecting their careers, venture over a gray area, where reports and numbers are produced that show NOT what the business is doing, but showing what management wants to see the business doing. In effect, this means that numbers are either fudged or presented inaccurately simply for the sake of keeping jobs or moving up the ladder. Let’s be honest: about 80% of all people in the Corporate World go up the ladder not because they know what the hell they’re doing, but because they try and please the boss, whether it’s for the better or the worse of the business itself.

That’s where the problem ultimately lies. It is in these times of recession that Coporate Finance can specifically point out the areas where the business can improve, where efficiency is not acceptable, where improvement is possible, and what things need to be like to maintaining increasing margins and growing sales. But instead of using the intelligence of accounting and finance, many businesses kill this one chance of harnessing the power of Corporate Finance, and kill it with their need to look good in front of a Board of Directors or Shareholders, which eventually kills the business. For this, amongst other things, it is imperative that Corporate Finance and Accounting Departments across Corporations stay focused and produce reports that accurately measure the position of their businesses, so they actually have a chance of riding out the recession, rather than looking to gain a promotion in a business that will shut down in the next five years.

Of course, Financial Planning and Analysis is not an area that many accountants excel in, which is why many may make the mistake of not looking past the next five years.

It is very common for people, even accountants, who haven’t been in the industry long enough, to ask what the difference is between a certified and a chartered accountant. In addition, the question that follows is that is it really useful to hire a certified or a chartered accountant for business, or is it just a waste of money? Well, the answer to the latter, in a nutshell, would be Scott Butterfield’s all fitting answer: it depends. I’ll discuss it in detail later in this article; but first, let’s get to the certified versus chartered.

Really, the difference between certified and chartered is what the dictionary says. However, the difference between certified and chartered accountants, is, well, irrelevant. If you didn’t already know, here’s another interesting one for you: there’s also a group out there called the Association of Chartered Certified Accountants (ACCA). So, one accountant here is both chartered and certified.

I often hear Chartered Accountants picking on all other certified accounts, including FCAs, ACCAs, IMAs and CMAs etc., but there’s really no reason to be doing that. East of the United States, with an exception to Australia, the equivalent of a Chartered Accountant is a Certified Public Accountant. Therefore, the term Certified Public Accountant in the US is equivalent to the term Chartered Accountant in the UK and other countries that follow the UK convention. So, what is a CPA or a CA? Well, basically, if you’re either of these, you can conduct audits, and primarily audits for public, .i.e., stock exchange listed, companies. In a nutshell, that is the difference. Passing the CPA or CA exam is no evidence of an accountant’s technical ability or understanding of management accounting, tax accounting, or financial accounting. For what it is worth, I have met non-certified, non chartered accountants with more accounting acumen than CPAs and CAs alike.

Other ‘Certified’ or ‘Chartered’ Accounting Designations, such as the CIMA, ACCA, IMA, CMA etc. are management accounting designations, i.e., they prepare you more for operational and managing the business kind of accounting rather than the audit kind, which naturally makes them more, shall I say, interesting, challenging, creative, and less dull (if there is any such thing in accounting). Note, once again, that ultimately, a certification is a piece of paper, and you can get horrible qualified accountants too.

In many ways, accounting is a field like law. Just because one holds a license or a certificate, doesn’t mean one makes for a good accountant. Some lawyers are just plain good, and if you’re familiar with the legal system, good trial lawyers don’t really require any knowledge of the law; good public speaking skills here are essential.

Similarly, good accounting, and hence good accountants, is/are not measured by certificates or qualifications. What’s important in the case of a good accountant is the ability to translate numbers, debits, credits into money making business, and vice versa. There aren’t a whole a lot of accountants who can successfully do this, because a thorough understanding of business is required to become a good accountant. I say this, quite simply, because as is the case with public accountants (CPAs and CAs), their primary job is compliance with the law regarding financial reporting, which basically means you have to be able to read and follow instructions. Anyone can do that. It is the application of basic accounting principles across complex business models that can drive growth that separates an ‘accountant’ from a, erm…someone who just has a certified piece of paper.

Bank Reconciliations aren’t something that most management/senior accountants do anymore. They’re more of a check to make sure if everything adds up for compliance, and as important as it is to have to your bank account reconciled with your books, many businesses fail to do that.

I’ve had clients who haven’t done bank reconciliations for years, and truth be told, if you do it after five years, you will practically have to go back the five years to resolve the differences / problems. It’s one of those things which can unnecessarily spin out of control in a short amount of time, so it’s good to do bank reconciliations regularly, and know where your money is, before the gap between your business’ financial statements and your bank account widens.

So, the idea behind a bank reconciliation is basically to reconcile the balance in the Bank Account in your books/GL with your bank statement. Why would you need any such reconciliations? Well, for several reasons:

- At the end of every month, there will be checks (if you’re American) and cheques (if you’re British) that you have received, and booked in your GL, and even deposited in the account, but they have not yet cleared and, therefore, do not show up on your bank statement. The result of this is that your bank statement will understate your bank balance by the amount posted to the GL and not posted to the bank statement.

- Similarly, at the end of every month, there will be cheques/checks that you have sent out to your vendors, but they have not yet cashed or deposited those cheques at their end. The result, your bank statement will be overstated, whereas your GL will be understated compared to the bank statement.

- Bank charges. These are very typical of first world banks. Charges for check books, debit cards, remittances, wire transfers, cheque processing, etc. etc. You do not get an invoice for such transactions (or any others that are deducted from your account via a standing order), and you, therefore, need to book these to your GL when you see them on your bank statement (given that they are valid and that the bank is not ripping you off and somebody’s not having a party with your money that you’re not aware of).

- Compliance. Try and get an audit done without a bank reconciliation; it’s not going to happen. Even small businesses, who may occassiaonally require a financial audit of their books and financial statements for lenders, etc. will need bank reconiliations.

So, what exactly is a bank reconciliation? The goal with a bank reconciliation (or a bank reconciliation sheet, used to complete a bank reconciliation) is to show both the bank and GL transactions, and bridge the gap between the two numbers. At the end of completing such a reconciliation, you will come up with a reconciled balance, which will show entries that appear on the GL but not on the bank statement and vice versa. What you will need to do now is book all those entries which appear on the bank statement but not on the GL in your books. The result of this booking should give your bank account in the GL the same balance as the one on the bank reconciliation sheet.

To make your life easier, I’ve compiled a spreadsheet (which you can download at the end of this article), using which, coupled with the following instructions, you can easily complete a bank reconciliation.

What you need?

1. Bank Statement for the period being reconciled
2. Your Bank Account printout from your GL listing all transactions posted to the bank account in questions
3. The Bank Reconcliation spreadsheet (available for download at the end of this article)
Here’s what you need to do:

Compare the bank statement and the GL printout line by line in chronological order. Your GL printout should be in chronological order just like your bank statement, but if it is not, simply export it into excel and do a Data > Sort by the appropriate column.

So, you go through both the bank statement and GL line by line. Cross out items (identical items / entries) that appear both on the GL and the bank statement. Leave blank, highlight / mark or make note of items / entries that appear on the GL and not on the bank statement and vice versa.

Now you enter these items in the appropriate area in the spreadsheet. If you have more line items to enter than the spread sheet has, you can simply add more rows and adjust the summation formula accordingly. No complex formulas have been used in the making of this spreadsheet.

That’s it, if you’ve entered the right numbers in the right places against the right entries, your bank reconcliation will balance, and you just make the appropriate entries in your GL, entries for items that appear in the bank statement and do not appear in the GL.

Sounds simple enough? It is.

Any problems. Feel free to post them as comments.

Click here to download the Bank Reconciliation Spreadsheet.

There is a reason today why accounting for big business is so complex, tedious, and requires a large staff of people to manage; and you’d be surprised, it’s not because so many people are needed or because the work is too difficult; it is simply because most big businesses fail to utilize the tools available to them and are unable to maximize the efficiency and productivity that they can get out of such tools.

Over the years, I have consulted for several small businesses. Most of them were moving into that phase from a very mom-n-pop setup to becoming an established small business, where they were going to start implementing some formal accounting procedures, have proper policies, and were going to get organized because that it is what it would take for them to be able to keep up with the amount of business they were getting. It is worth saying that even in large businesses, it is the fallacy of management, as it is in some medium and small sized firms too, that each departmental head ends up treating his/her department like an individual business unit, and that’s a big deviation from what the goal originally was when any such department was setup. It is, therefore, imperative that businesses at all times keep in mind that the costs formal accounting, formal policy, statutory compliance, management accounting etc. are all overheads, and if they are not managed, they can seriously cut into the bottom line profit of any business.

So, why is there such a disconnect in accounting; costs are soaring high, compliance is becoming more and more difficult, and every year, the financial statements for public and private companies become more difficult to read and understand. You would think, that with all the state-of-the art software and information systems available to and affordable by such businesses, they can reduce the their costs, drive efficiency into their accounting policies and procedures, and efficiently produce GAAP, SOX or whatever-it-is-that-you-need-to compliant statements, and spend more time and resources simplifying the information for potential investor and outside parties with a vested interest. Of course, the latter doesn’t happen for a multitude of reasons, but we shall steer clear of that discussion. After all, the whole premise of this article is based on the Corporation not being evil, and what changes it needs to go through to harness the power of modern financial information systems.

There several ERP type solutions available to big business today. Oracle, JD Edwards (now owned by Oracle) and SAP are the three market leading ERP Solutions, and if they are used right, a big business can do wonders with it. The problem, however, is that just purchasing any of these solutions is not going to be enough. Hundreds and thousands of hours have to be spent on customizing and developing the blank platform that these solutions provide, and it is in this department that most big businesses fail.

You see, customizing JD Edwards, SAP or Oracle requires:

- Extensive Business Planning
- Serious Systems Analysis & Design Knowledge
- Minimum interference from IT Staff during these two phases
- Input and involvement of Accounting & Finance Staff

I have seen too many businesses that will purchase an expensive, fancy piece of software and pressure their IT Department to get it up and running in a week! It doesn’t work like that, and it will never work like that. Here is how, in a nutshell, an installation:

Once you’ve decided that your business is growing to the point where you need an extensive piece of software, it’s time to get your act together.

Map your business requirements, systems and workflows. This is absolutely the most important part of the process of implementing a massive information / financial system. If you don’t know where your data flows from, WHAT EXACTLY that data is, where it comes and from and where it will go, and how it is transformed from data to understandable information, you’ll never be able to utilize the software the way it was meant to be used. Most businesses that skip this entire process and take a “develop as you use/grow” approach toward customizing and evolving ERP software like JD Edwards or SAP will suffer massive problems, to the point where they will have so much legendary data of one sort, that they will end up hiring an extra person to manually manage every additional feature that they could have initially built into the financial information system.

Systems Analysis & Design. This is where your hardcore IT Department needs to stay out. Might I suggest that the purpose and goal of most IT Departments is to TECHNICALLY do and make possible what is asked of them, instead of taking on a more hands-on approach to changing processes to keep more control in their hands. You see, ultimately, the end user, who in this case is your accounting and finance staff, or sales staff, has to use the software, and the requirements should come from them, and should not be translated to what the IT Department thinks they are. That’s why you need a systems analyst, to map the business requirements with what is technologically feasible, and ultimately, what is more cost effective, letting IT have it their own way and hiring extra staff (and paying for the software), or just paying for the software and making do with existing staff? When I finished as a student and started my career, people used to laugh at the concept of a systems analyst, and the ultimate mockery of the system analyst profession was made of by the Computer Science geeks, most of who make up IT Departments. Although the culture has now changed, I cannot tell you how many gazillions of dollars this lack of analysis has cost Corporations around the globe. Somebody has to bridge the gap between business and technology, and I can assure you, your IT Department will never be able to do it.

Well, I’ve said enough about this, haven’t I?

Yes, please! These are the people who will be using your financial information system. They know what is needed, and they know WHY they need it too. So, when you buy software and develop it for them to use, shouldn’t they be the ones directing the development of such a software. I cannot believe how many businesses simply leave out the end user when planning on making big changes to their accounting and finance software systems, and to efficiently make such a change and plan for growth and more of this tedious accounting work, it would do good to solicit these users for advice before making the blunder and hiring 15 extra staff members!

Remember, the teams that design, implement and support need to be separate from each other, because if they’re not, the on single team will ultimately try to make it’s life easier and profitable in the long run. That means you’ll waste thousands on software, get crappy design, and will end up paying to hire people to do things manually. Might as well skip the ERP software purchase.

The first part of this article discussed the things that needed to be a part of a small business accounting package, and what help the existing software in the market typically needs, and whether or not a small business can actually do without the help of an accountant or book-keeper. Let’s put all of that aside, and now simply talk about the accounting software available in the market as is. The packages I have used, and most of my clients use, and ones that are available almost globally will be the subject of discussion here.
Of the four packages mentioned here, QuickBooks and SAGE are scalable from small business to medium business. So before I dwell into which is superior and which is not, if you think you have a business that will grow or develop at a rapid pace, and will outgrow the circa definition of a Small Business, maybe you’ll have to stick to one of these. That’s not to say that Peachtree or Microsoft Office accounting cannot support medium size business. It can, with intelligent, creative (but legal) accounting.

QuickBooks – The Good

In my opinion, QuickBooks is probably the most comprehensive of out of the four packages (QuickBooks, Peachtree, Sage & Microsoft Office Accounting). It provides relatively efficient functionality, with a standard interface, customizable reporting, and it won’t cost you an arm and a leg. Feature-wise, it probably contains more than any of the other three pieces of software; it will do the basic accounting, invoicing, payroll subscriptions, credit card transactions, GL, PL & SL, prepaid (well, sort of), customer statements, financial reporting, etc. etc. etc. Quickbooks ALSO has some concept of drill down functionality, which can be relatively insightful at the click of a button.

Another area that QuickBooks has a big plus in its wide market area and availability of support. It is relatively easy to find QuickBooks consultants (certified or not). The support network is out there, and their own web site can guide you on where and how to find support. Plus, if you’re in the US, QuickBooks is the software of choice for many US Universities, making most accounting graduates QuickBooks literate, if not experts.
In addition to the friendly interface, QuickBooks is relatively self explanatory. The titles in the menus, the screens, the interface, the ease of use, all makes it a very efficient piece of software, especially if you’re a computer literate accountant. Even if you’re not, the learning curve is not too high.

QuickBooks – The Bad

From my position, I really don’t have much bad to say about QuickBooks. I’ve been using it for several years, and functionality wise, there’s really not much wrong with it (in comparison with other accounting / bookkeeping software in the market). The only possible drawback is that it’s ultra feature richness may make it confusing for the not so computer literate accountant/bookkeeper.

Technically, QuickBooks has one pitfall. From year to year, newer versions come out, and compatibility has been an issue in the past. If you upgrade, you have to convert data, and although it’s not that tedious with the new version, it would be much simpler if Intuit simply made Quickbooks backward compatible, which it probably doesn’t for reasons of profitability.

Sage – The Good

Really, I don’t have much to say here. In the near future, you will see me as both a QuickBooks Pro Advisor and a member of the Sage Accountancy Club, and that’s because it is good for business, and the UK is infested with Sage Line 50. It’s an okay piece of software. The interface is relatively standard, and it can pass off as a bookkeeping / accounting software, although all the others will give it a run for the money, and probably beat it.

Sage – The Bad

There’s a lot to say here, but I won’t bad mouth them too much. No drill down functionality, unfriendly interface, unfriendly usability, restrictive, poor layout, etc. etc. Clearly, you can tell that this is my least favourite software, so I’m going to stop talking about it now.

Peachtree – The Good

Peachtree is a fantastic piece of software. Although I trained on QuickBooks Pro in university, the first piece of accounting software I used on the job was Peachtree Accounting 2006. I was pretty reluctant about it first, but as it turns out, Peachtree is a wonderful piece of software.

It’s a less dull, less serious looking version of Quickbooks, and offers virtually all the functionality of QuickBooks. There’s less gray (unlike Quickbooks & Sage); the interface and layout are very clean, the different templates are customizable (as they are in QuickBooks), and it offers all the supplementary functionality (credit cards, good journal layouts, invoicing, POs, SOs, etc. etc.). All in all, this is a great piece of software, and is a wonderful place to start for any small business. It’s not to heavy on the pocket, and you don’t have to be a rocket scientist to figure out how it works. Oh, and Peachtree offers some drill down functionality like QuickBooks (unlike Sage).

Peachtree – The Bad

Peachtree is only US compliant. The software is not available for purchase or use outside the United States, and it doesn’t support multi-currency. What’s worse is that Sage has bought Peachtree from Best Software, and it has become Sage’s way into the US market. As long as they don’t make drastic changes to Peachtree, it is a fantastic piece of small business accounting software.

Microsoft Office Accounting – The Good

Okay, this is Microsoft’s first step into the Accounting domain. Originally termed Microsoft Small Business Accounting 2006, the software was renamed to Microsoft Office Accounting, and rightly so. It’s a sharp mixture of QuickBooks and Peachtree functionality the Microsoft Way. What’s good here is that this is one of the very few small business Accounting Packages on the market that will support multi currency without any issues, and it can probably pass off as a software that doesn’t necessarily require you to be very accounting literate. Why, you ask? It shares a striking resemblance to Microsoft Office, hence the name Microsoft Accounting. The idea here is that if anyone can use Microsoft Office Products, they should be able to use Microsoft Accounting.

Frankly, I have been impressed with Microsoft’s first try at Accounting Software. It may need some bug weeding, but all in all, this is a good starting point for Microsoft, and after months and years of using QuickBooks, Peachtree & Sage, it didn’t make much for me to get comfortable with Microsoft Office Accounting; just a couple of hours. This is a very affordable software for most small businesses, and provides the BASIC functionality of Quickbooks & Peachtree, without passing off as a complex, confusing or difficult to use accounting/bookkeeping package.

Microsoft office Accounting – The Bad

At this point, since this is something that is actively being developed my Microsoft, credit card processing, payroll etc., though existent, are slightly limited. Although most small businesses don’t use these features from within the software, they are useful considerations, as a small business truly sees the use and efficiency of the software if functions like payroll are managed from within the software. This software is certainly scalable, but at this point it’s a very good basic package for small business, and scalability is yet to be seen.

I’m sorry I’ve had to cut this article short. I had intended to write very detailed reviews, but I just haven’t been able to find the time to do it.

If you’re in the UK and looking for help with any of the above products, feel free to contact me or VAFTA Solutions Limited. Ultimately, what’s best for you depends on your business habits, practice, requirements, and your accountant/bookkeeper.

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