Valid Information Is Power
The owner of a growing business thinks about return on investment much differently than owners of slow-moving companies. When a business is positioned for growth, you want accurate answers about how the business earns and spends money as well as where to invest resources for the best return.
For instance, how do you determine the age of your inventory and when it begins to depreciate? Do you know when your customers are likely to buy more or less product? Can you pinpoint which factors are driving the results of seasonal sales or pricing promotions?
After sales wins a new piece of business, can you scale up quickly because you know intimately what your operating costs are, when inventory turns and what margin you need to maintain a profit?
Many businesses think they have that information at their fingertips only to discover that the operating margin calculations done by finance do not mesh with those done by sales or the IT group. How can each group have a different view of what the costs and profit margin should look like? The answer and the problem are often the same: spreadsheets.
One lesson that many publicly traded corporations have learned from the Sarbanes-Oxley Act is that information is powerful—but only when that information is valid. Few small businesses rely on an outside auditor to validate their management accounting procedures and take time to ensure that each group within the company uses the same formula to calculate results.
Solid financial controls ensure that a single stream of accounting data and one version of the truth permeate the entire company. At one time, only big business could afford the high price tag of sophisticated applications that standardized processes across the organization. Small business was on the outside looking in.
Luckily, a number of software providers have begun to scale their packages to fit the needs and budgets of small business. Through these packages, small businesses can more effectively control financial reporting processes and quickly generate accurate information. As a result, small business management is better equipped to guide strategy based on this reporting.
Still, these applications are not for every business. If spreadsheets continue to meet your needs, here are some suggestions for ensuring that you generate one version of the truth.
1. Password Protection: All the major productivity applications offer passwords. They are great for limiting access to critical spreadsheet formulas and ensuring that no one makes unauthorized additions.
2. Control: Eliminate numerous data streams and control sources of data into spreadsheets.
3. Change Management: Creativity is a valuable quality for just about every department except finance. Knowing which individuals are authorized to change the spreadsheet provides accountability.
4. Formula Documentation: Maintaining documented formulas (and preventing individuals from altering them) increases the validity of your data.
5. Backup: Wherever you decide to house your critical financial data, make sure that drive stays secure and backed up on a regular, defined basis.
