Effective financial management is important for the success of any business because it keeps a close eye on the company's money. But even though modern accounting systems have many benefits, many businesses still use manual accounting methods, which are not only time-consuming but also prone to mistakes.
In this article, we'll talk about the real costs of accounting by hand and explain why businesses must switch to modern accounting solutions. By switching, the risks can be reduced and financial operations become more streamlined, which makes you more efficient and as a result, you end up making more money.
What is Manual Accounting?
Manual accounting is the traditional boring way of keeping track of money transactions withoutmaking use of any software or digital tools. The manual process includes entering transactions by hand into ledgers, comparing bank statements, and making financial statements like income statements and balance sheets.
Manual accounting takes a lot of time and work because it requires careful calculations and double-checks to make sure the numbers are correct. And even though it takes a lot of work, some small businesses have continued to use manual accounting methods. But now many businesses are waking up to modern accounting systems being available, thus they are making a switch to save time, get more done, and reduce the chance of making mistakes.
The Real Cost of Manual Accounting
Enron, a big energy company, made headlines for going bankrupt in 2001 after it was found that the company had been using shady accounting practices to make its profits look bigger than they actually were.
Because the company used manual accounting, it was easier for the executives to change the books and hide their wrongdoings. Apart from such security concerns, manual accounting has a lot of other problems that could affect your business. Let's talk about them down below:
Manual accounting is a complicated process that takes a lot of time because it requires a lot of manual data entry, cross-checking, and calculations. And because of this, there isn't much time to focus on other more important business tasks.
This lack of efficiency is a big setback for any business, and the time spent on it could be better used somewhere else to make more money. Businesses can save time and put their resources to better use by switching to modern accounting systems.
Prone to Errors
We all know that humans aren't perfect by any stretch, so mistakes can happen when accounting is done by hand.
Fixing the errors can be expensive and take time, which can cause delays and extra costs. But businesses can greatly reduce the chance of mistakes by using modern accounting systems. This leads to more accurate financial records and better decision-making.
When it comes to processing and keeping track of a lot of data, manual accounting processes have their limits. As a business grows, it can be hard to keep track of accounting data by hand.
Because of this inefficiency, expenses may rise substantially, making it difficult for the company to expand at a healthy rate. Businesses can expand rapidly and cheaply with the help of modern accounting systems because of the improved efficiency with which they deal with large amounts of data.
Modern Accounting - The Benefits
There are many advantages to switching to modern accounting for businesses. They are as follows:
Accounting tasks that used to be boring and time-consuming can be a thing of the past with modern accounting software. Many boring and repetitive tasks can be done automatically and save you time on data entry and calculations.
Modern accounting software can handle growing business needs better than manual accounting, which has trouble with large amounts of data. This lets businesses focus on growth opportunities instead of being limited by the accounting processes.
Modern accounting software can provide businesses with significant cost savings in the long term. By eliminating the need for additional staff and mitigating the risk of errors that can cause financial losses, businesses can reduce their operational costs over time which could have a positive impact on the business over time.
When to Consider Switching to Modern Accounting
Before switching to modern accounting, it is important to consider a few key things. Let's discuss them below:
As a business grows, the number of transactions can become too high for manual accounting systems to handle. modern accounting software, on the other hand, can automate boring and time-consuming tasks, making it easy for businesses to handle large amounts of data. This is probably a good time to consider upgrading to modern accounting.
Need for Greater Efficiency
Modern accounting software is a better alternative to manual accounting processes because doing it manually would simply take a lot of time. By automating many manual processes, a business can not only save time and resources, but also work more efficiently, and save money.
The Desire for Real-Time Financial Insights
Modern accounting software lets businesses see their finances in real-time, which helps them make decisions quickly. With manual accounting, on the other hand, it can take days or weeks to make financial reports.
In summary, manual accounting processes are prone to errors, limited in scalability, pose security concerns, and can be time-consuming. Conversely, modern accounting software can improve efficiency, scalability, and security, while also offering cost-effectiveness.
Thankfully, a FinOps platform like Osfin.ai can come to your rescue when it comes to adopting a modern accounting system. Osfin.ai automates financial operations and offers intelligent tools to reconcile accounts, process invoices, and streamline payouts. With Osfin.ai, businesses can prevent revenue leakages, which can amount to around 0.2-1.8% of the top line.