Underestimated expenses, overspending, financial mismanagement, and fraud can lead to disaster. A major reason organizations go out of business is their inability to forecast and/or secure sufficient cash flow. Planning is necessary, but not sufficient, and must be supplemented by skillful control. Information systems play an extremely important role in supporting organizational control, including: risk analysis, budgetary control, auditing, financial ratio analysis, and profitability analysis and cost control.

Risk Analysis – Companies must analyze the risk of doing business with other entities and giving credit to customers. The product @RISK for Excel from palisade.com is an effective tool that performs risk analysis in Microsoft Excel spreadsheets using Monte Carlo simulation. You can answer questions like, “What is the probability of profit exceeding $1 million?” or “What are the chances of losing money on this venture?”

Budgetary Control – The annual budget should be divided into monthly allocations to ensure the business has sufficient funds to pay expenses, especially if the business is susceptible to long lapses between paychecks. Managers at various levels should monitor departmental expenditures and compare them against the budget and operational progress of the organization. Numerous software programs can be used to support budgetary control; most of them are combined with budget preparation packages from vendors such as outlooksoft.com, clarifysystems.com, and capterra.com

Auditing – The major purpose of auditing is to ensure the accuracy and condition of the financial health of an organization. Internal auditing is done by the organization’s accounting/finance personnel, who also prepare for external auditing by CPA firms. Internal auditors can use information technology to facilitate auditing. For instance, intelligent systems can uncover fraud by finding transactions that significantly stray from previous balances. » Read more: Taking Control of Your Accounting System With Information Technology

You’re just starting your new business and you’re wondering what you should look out for with regard to the accounting software you’ll need to run your business efficiently? Perhaps that question should start with: do you really need to buy accounting software?

Depending on the nature of your business the answer may very well be no, you may be better off by getting a friendly spreadsheet expert to set you up a series of linked spreadsheets that will last you from now until you retire and sell your business.

If your company deals in prepayments, has few purchase invoices and doesn’t generate a large number of sales invoices every month, you can avoid buying software all together. Many High Street banks supply easy start up packages with a cash flow, forecasting, profit and loss as well as balance sheet set up in spreadsheet form that are perfectly sufficient to get you started.

Selecting Small Business Accounting Software

Whatever you do decide, never ever ask your accountant to recommend software to you! Invariably your accountant, trained for years to hide behind accountancy jargon, will recommend software that is suited to large multi-nationals with zillions of dollars turnover and a whole team of accountants looking after their affairs, but that is utterly incomprehensible to anyone who’s not a trained accountant.

Instead, go online and try out at least three different online small business accounting software providers for 30 days, free of charge. Once you’re happy that you’ve found the one you like best, you can sign up to their secure online software.

If your business requirements change and you need something different, you can usually cancel the online contract with just one month’s notice and no harm is done. With traditional accounting software you don’t have this advantage, since you’re required to buy the expensive package and are then stuck with it, until you can find the money to buy something that suits your business best. » Read more: Small Business Accounting Software: What You Should Look for