How Outdated Accounting Practices May Be Hurting Your Business

By Loran Armstrong, Rockwell Capital Group Founder & CEO, Forbes Council Member

Originally written for Forbes Finance Council

As your company grows, so do its financial requirements. In my time as COO of a financial services firm, I've seen the mishaps that can happen when a company relies only on traditional accounting practices like manual processes, spreadsheets and outdated software. Let's go over some of the challenges businesses can face and why it's important to keep your accounting processes up to date.

Signs Of An Outdated Accounting System

1. Lower Efficiency

Think about how much time your team spends reentering data, correcting mistakes or hunting for lost paperwork. This can not only affect productivity but also make your business more susceptible to expensive errors. Outdated accounting processes can erode time and capital that could be spent scaling your business or developing new offerings.

If you've noticed this type of inefficiency, a great place to start is creating a virtual checklist of your source documents needed to complete tax returns. Also, schedule regular accounting meetings; steps like these can help limit the total hours spent reviewing financials.

2. Costly Mistakes

Manual accounting systems are prone to human error. Whether it’s an incorrect entry in a spreadsheet or a misclassified expense, small mistakes can snowball into costly consequences. Errors in tax filings, payroll or financial reporting can result in penalties, strained relationships with investors or damage to a company’s credibility.

That’s why it’s important to set up a comprehensive tax plan with proactive measures to understand your business' financials. This should be done with regular financial reviews by your accountant/bookkeeper; part of their job is to keep you informed of any changes to the tax code and how they can affect your business' bottom line.

3. Lack Of Scalability

As your company expands, your accounting processes will inevitably grow more complex. This might include managing multi-state tax compliance, handling foreign transactions or tracking multiple revenue streams. If your accounting system isn't able to scale as the business grows, it can lead to business overwhelm, financial complexities and potential financial mismanagement. When checking your processes for scalability, I recommend paying special attention to your cash flow management and business forecasting.

4. Limited Access to Real-Time Data

Data is one of the most valuable assets businesses possess today, and having current financial information is important for making agile decisions. If your accounting process is outdated, it may be difficult to collect and analyze financial data in meaningful ways, limiting your ability to use these insights for decision making.

Similarly, if you're only able to review your financial health at the end of the month or quarter, this could leave your business exposed to risks and missed opportunities associated with outdated financial data. Regular financial reviews containing the most recent, accurate and up-to-date financial information can help lower risks and streamline decision making.

Steps For Modernizing Your Accounting

If you've determined that your accounting is outdated, here are a few strategies for finding the right solutions for your needs:

• Consider compliant, holistic platforms.

When updating your accounting systems, use tax-compliant software that aligns with IRS and state tax requirements to simplify filing and ensure regulatory compliance. Additionally, consider integrating enterprise resource planning (ERP), point of sale (POS), customer relationship management (CRM) and inventory management software, along with employee management and bill payment platforms. You can also integrate your software with your banking and credit card accounts for seamless data entry and streamlined accountability. In my experience, this kind of holistic approach can consolidate operations to improve data flow, operational efficiency and financial oversight.

• Reduce repetitive tasks with the cloud and automation.

Modern accounting solutions like cloud-based platforms and automation can validate entries in real time and handle routine processes like bookkeeping, financial reporting, reconciliations and immediately flag discrepancies for further investigation to help you reduce financial missteps.

• Seek scalable solutions.

A quality accounting platform will scale as your business grows. It should be able to process higher volumes of transactions, integrate with essential business tools like CRM systems, and adapt to changing regulations. Look for a platform that provides advanced reporting capabilities that allow you to analyze profitability by product, region or department to help you make more informed decisions.

• Ensure data integration capabilities.

Seek an accounting system that can integrate with data analytics platforms to help you extract actionable insights from your financial data. This integration should allow you to uncover inefficiencies, spot trends and refine budgeting or forecasting processes. Predictive analytics, for example, can help project cash flow more accurately, empowering you to make smarter capital allocation decisions.

Final Thoughts

Your accounting system is the foundation of your business’s financial operations. Its role extends beyond balancing the books—it should also support your growth, help minimize risks and enable data-driven decision making. Sticking to outdated methods may seem manageable for now, but over time, the inefficiencies, errors and missed opportunities may begin to take a toll.

If you think your current accounting methods are slowing you down, consider how some of these modern solutions can help. In my experience, the cost of sticking to old practices can be higher than the investment in a streamlined, tech-driven future.

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