Computerized accounting systems have grown so commonplace that it barely makes sense to imagine contemporary alternatives based solely on handwritten ledgers and old school adding machines. But it’s easy to become excessively reliant on computerized accounting. Before you dive deeper into technology solutions, consider the potential pitfalls of allowing a machine and a software program to store all your data and calculate essential numerical relationships.
The quality of the information that a computerized accounting system provides depends on the quality of information that you input. You may enter every single check, receipt and invoice into QuickBooks, but if you haven’t set up your QuickBooks chart of accounts to accurately reflect the intricacies of your business, your efforts will yield only partial or irrelevant information. For example, if your business works with multiple types of accounts such as online retailers, brick and mortar storefronts and direct sales to customers, your accounting data won’t be especially meaningful unless you track these categories separately.
Although computerized accounting systems use technology to calculate sums and store information, this data must be entered by humans, and these humans must be trained. Training staff on software programs can be expensive, and knowledge needs to be updated regularly because computerized accounting systems change, sometimes every year. Mistakes happen at many stages in the learning curve, and a computerized system with formulas that build on one another is likely to compound seemingly simple errors, making the source of a problem even more difficult to find.
Virtually every aspect of a computerized accounting system is costly. Computers are exponentially more expensive than paper ledgers, and the software required for your accounting data adds a further expense which often has to be renewed or updated yearly. You may also have to shell out funds for repairs, or hire professionals for training, custom software or to untangle especially complex mishaps.
Computerized accounting systems are vulnerable to cyber security issues. Cloud-based systems store your company’s information remotely, where it can be hacked. Your system may be infected with a virus that destroys or corrupts information. Computers also crash periodically, so unless you’re especially diligent about backing up files you may lose many hours’ worth of work. So, while computerized accounting systems organize information and make calculations quickly and efficiently, they may create a false sense of security. The bottom line is they can never fully stand in for direct knowledge of systems or first-hand familiarity with the details of your operation.