The ultimate goal of every management team is to maximize profit and minimize losses, which requires the efficient utilization of resources.
Managerial accounting software can help pool relevant financial data and feed it into the management’s strategic planning to help the company efficiently direct its resources toward its most realistic business goals.
In this article, you will discover how managerial accounting software works, and things to consider when exploring the many options on the market.
Let’s dive in.
TL;DR
- Managerial accounting analyzes the cause-and-effect relationships between the numbers in financial statements and then presents that information in the most relevant format to business managers to help them make better business decisions.
- Managerial accounting software automates the data recovery and number crunching process to ensure you and your managerial accountant can get the up-to-date financial information you need at the click of a button.
- Follow the step-by-step process outlined in this article for a trouble-free implementation of your accounting software.
Understanding Managerial Accounting
Managerial accounting analyzes and presents financial data in a meaningful way to help an organization’s management make better business decisions.
It aims to rectify the limitations of financial statements created through financial accounting.
Financial statements are designed to present a company’s financial performance in an aggregated and concise manner, focusing on numerical performance metrics like profit and loss.
Managerial accounting goes deeper by analyzing the cause-and-effect relationships between those numbers.
It presents that information to key decision-makers using easy-to-understand metrics like net present value, standard costing, marginal costing, contribution margin, cost-volume-profit (CVP) analysis, etc.
The amount of financial analysis you can do with your managerial accounting software encompasses several aspects of your business operations and includes product costing, budgeting, incremental analysis, responsibility accounting, forecasting, and much more.
The data is modified to be relevant to each department within your company, and the information presented to users can vary from one department to another.
For example, breakeven analysis data that helps managers determine the level of production required to cover the business’ total cost will be very relevant to the production and sales departments, while the cost-per-hire metric will be more relevant to the HR department.
Managerial accounting vs financial accounting
The key difference between both types of accounting is the end user of the information they produce.
The role of managerial accounting information is to aid internal decision-making, while financial accounting information is designed for public consumption by external stakeholders like investors, creditors, regulators, and the press.
Financial accounting information only covers a defined fiscal period, and must comply with strict regulations such as GAAP (Generally Accepted Accounting Principles) imposed by the relevant industry regulatory body.
The information must be presented in the most straightforward way possible using generally accepted formats like the income statement, balance sheet, cash flow statement, and statement of shareholder equity.
In contrast, managerial accounting information is flexible, detailed, and very specific.
The metrics used to present the information are not dictated by generally accepted accounting standards, and are instead, optimized to communicate the data to the target audience in the most exploratory way possible.
Benefits of Managerial Accounting
Improved decision-making
Managerial accounting’s data-driven approach helps business management understand the financial implications of business objectives and minimize risks when formulating plans to achieve those business goals.
For example, let’s say you are planning to purchase a pre-built warehouse to store increased inventory and you have to decide between purchasing the property outright or paying for it in installments.
Your company’s managerial accountant can run a cash flow analysis for both scenarios to determine which cash outlay will be most beneficial and sustainable for the company based on projected revenues and existing loan obligations.
Enhanced financial planning
Budget planning is easier when it relies on managerial accounting expertise.
Your accountant will use historical financial data and current business data to forecast future trends.
Using those projections as a roadmap, company leadership can set a realistic budget that efficiently allocates resources to departments and capital expenditure plans.
Variance analysis is a good example of a managerial accounting metric that can help during the budgeting process.
It is used to compare the forecasted performance of a business and its actual performance. The accountant will also determine the cause of those deviations, whether it’s due to controllable internal factors or uncontrollable external factors.
Once the cause of the deviations has been identified, you will be able to measure the feasibility of your current projections and make necessary planning adjustments.
Improved understanding of business costs
Constant cost analysis will help you identify cost-saving opportunities, while remaining competitive.
With managerial accounting, you will be able to distinguish between your fixed and variable costs. Fixed costs are unavoidable, but variable costs can be analyzed and reduced by eliminating avoidable expenses.
Also, cost accounting will help you better understand the full expense associated with the production of your goods and services.
It will track the costs of raw materials, labor, and indirect expenses to create a holistic cost structure for your product, which will inform your pricing decisions.
Better resource allocation
Managerial accounting can help with production volume decisions to ensure efficient resource allocation.
For example, using inventory turnover analysis, you can calculate the quantity of a particular product that has been sold and replaced over a quarter or a larger period.
You can then use that information to determine whether you are currently carrying excess units of that product.
If that’s the case, you can reduce costs and free up cash for other areas by cutting back on the production volume of that item.
Increased operational efficiency
Research by the global market intelligence firm, IDC, shows that companies are losing between 20 to 30% of revenues due to operational inefficiencies.
You can use managerial accounting to spot areas in your production process where you are not efficiently utilizing your resources.
For example, managerial accountants use constraint analysis to identify the factors that are affecting the performance and effectiveness of your existing sales and production processes, as well as the financial impact of those bottlenecks on your profits and revenues.
That data can then be used by managers to identify and resolve underlying issues.
Choosing the Right Managerial Accounting Software
Managerial accounting software automates the accounting process to ensure you can get the up-to-date financial information you need at the click of a button. Your accountant will no longer have to enter data manually into Excel spreadsheets.
So, you must take the time to find the right managerial accounting software for the peculiar needs of your business.
You don’t want to pay for the most popular product, only to find out that it’s too bloated for your needs, or worse, it lacks relevant data analysis metrics required in your industry.
Below are nine factors you should consider when evaluating the many options on the market.
Specific business needs
You should start by reviewing your business processes to identify areas that need a significant boost in efficiency.
To narrow down your requirements, ask yourself the following questions:
- Why do you need management accounting software? Is it to better plan your finances? Is it to improve your logistics system? Is it to improve your CRM (customer relationship management) processes?
- Who needs to use the software? Is it your accountant? Is it your product manager? Is it your sales manager? Is it the central management team?
- What industry are you in? Is it a manufacturing company? Is it a services company? Is it a niche sector with peculiar datasets?
- What’s the size of your business? Is it a small to medium-sized business with a small and multi-tasked management team? Is it a large enterprise with several departments and many managers?
Your answers to these questions will help you determine the scope of features you need, the number of users you should pay for, and the most suitable software provider for your company.
Also, you need to consider the amount you are willing to spend on managerial accounting software.
Going beyond your budget for a platform that has all the bells and whistles may negatively impact your financial health.
Platform features
Once you have determined your core requirements, it’s time to compare and contrast the features of the many software platforms on the market.
At the bare minimum, a decent platform should have the following features:
- Customizable general ledger templates
- Cost accounting systems
- Inventory management systems
- Operations and production management systems
- Predictive analysis and financial modeling systems
- Budgeting and forecasting systems
- Human resource management systems
- Customer relationship management systems
- Project management systems
- Comprehensive and customizable reporting
Use this list to narrow down your options, and create a shortlist. Then check out each software platform on your shortlist to identify two or three tools that have the most relevant package of features for your needs.
We recommend having your managers and departmental heads try a free trial of each software to get a practical view of how it works and if it’s the best fit for your needs.
Ease of use and installation
Your managerial accounting software should have a simple and easy-to-understand interface.
If it’s not intuitive and too complicated to navigate, it will be very difficult to get your managers to actively use the software for more effective decision-making.
Spending significant monthly subscription fees on a platform that gets little use is not a rational way to use your resources.
So, use the free trial period and check out online reviews to ensure you are paying for a platform with simple and useful features.
Another thing to consider is the potential software’s onboarding process. Make inquiries about what it takes to install the software and import your existing data onto the platform.
If the process is too cumbersome or expensive, move on to the next software option.
Integration with existing tools
The managerial accounting software should integrate seamlessly with your existing business management software apps.
This includes your bookkeeping, CRM, ERP (enterprise resource planning), and marketing apps.
Trouble-free integration ensures smooth data exchange, which the accounting software needs to make the analysis and comprehensive reports you see on your dashboard.
If you choose incompatible software, the costs of rectifying your mistake can be huge.
You will either be forced to manually feed relevant data into the platform, or pay for another software tool plus the time and financial resources spent retraining your employees on the new platform.
Integrated communication
You are getting the software tool to help your management team analyze data more effectively to make better decisions.
Reliable communication features will help ensure that everyone is seeing the same data and kept in the loop during the decision-making process.
The managerial accounting software platform should support key communication features like email, comments, real-time notifications, video conferencing, and chat.
It should provide a high level of data security to protect sensitive communications and company data.
There should also be tools for controlling access to restricted information to ensure only the relevant eyes can view your company’s most confidential information.
Cloud-based system
We covered the importance of seamless communication in the preceding point and the best way to ensure your team members can always reach out to one another is to use a cloud-based accounting software platform.
Cloud-based software is hosted on remote servers owned by your platform provider, instead of your in-house servers like with traditional desktop software.
This ensures that anyone with an internet connection can access the platform using the mobile app from anywhere in the world.
However, you may consider going for a hybrid software platform—that works online and offline—if you live in an environment where internet service is not always reliable.
A hybrid system ensures you always have access to your software platform even when you are not connected to the internet.
Scalability and customization
As your business grows, you will need a software platform with features that let you effectively manage expanded and more complex company operations.
So, it’s better to opt for a platform that is robust enough to handle your requirements when your business gets bigger.
Once again, cloud-based platforms make this easier. Since the data is stored offsite and product updates are done via the cloud, you will be able to add more users and analyze larger datasets without having to invest in new software and data storage hardware.
Pricing
Software providers use a wide variety of pricing structures, and you must be looking to see which provider offers the most cost-effective option for your budget.
Some ask you to pay the full price of the software upfront, while others use a subscription model where you pay a fee each month to retain access to the platform.
We recommend going for a provider that uses a tiered subscription model, so you only pay for what you need right now. And as your business scales, you can pay for a more featured-packed subscription plan.
However, the cost of your software may go beyond the initial subscription fee, and some providers add extra charges for installation, training, and support.
You must be aware of such hidden fees to avoid getting into a contract that is way more expensive than your initial cost projections.
Customer support
As a bare minimum, your provider should offer 24/7 phone, email, and live chat support.
And for a platform as integral to your operations as a management accounting software, you should also check for the following customer support options:
- Software setup and implementation support
- Training and onboarding programs
- Dedicated technical support staff
- Online knowledgebase
- API access for your developers
You should check out review sites to see what other small business owners have to say about the quality of the provider’s customer support services.
Bad feedback is a major red flag, and an indication that you may have to look elsewhere.
Implementation Tips for Managerial Accounting Software
Follow the step-by-step process outlined below for a trouble-free implementation of your accounting software.
Step 1: Install the software
You must first set up the necessary hardware (desktops and relevant mobile devices) that will host the accounting software, and once that’s in place you can work with the provider to install the software onto your computers.
They will also help you configure the system to fit the specific needs of your business and test it to ensure everything is working properly.
Of course, company-assisted installation is often not the case with cloud-based platforms where all you need to do is sign into the platform once you have paid your subscription fee.
Step 2: Data migration
Integrating the new managerial accounting software into your day-to-day operations will likely involve the migration of your financial data from the existing systems you currently use to manage those tasks.
It’s crucial that you clean up and organize the data in the old system before moving it to your new platform to prevent any data errors that can compromise the performance of the new software.
You should have a data migration plan and assign responsibilities to individuals in each department who will be responsible for auditing and moving relevant data to the new system.
Step 3: Staff training
You can’t maximize the potential impact of the new platform if your staff are not properly trained on its features and functionalities and are motivated to use it.
Most cloud-based software providers have online video and text tutorial materials you can use to train your staff. Some also have consultants who work with customers to provide one-on-one guidance.
The training program should be close to or immediately before you start using the software in-house.
If there is a significant time lapse between training and actual usage, they may forget how to use the software.
Once they are trained on the system, get them to use the platform while you observe their proficiency with the software.
You should also ask for their feedback about the probable impact of the software on the quality of their work.
Step 4: Go live with the software
Once the platform has been fully tested for any issues, and your staff have gone through the relevant training program, you can set a date for everyone to start using it.
There are three different approaches to this, and the best path depends on your level of confidence in a trouble-free implementation process.
- Parallel running: here you run the old system and the new software together, and it’s an option when you want the flexibility to fix any unforeseen problems with the new software, while the old system remains active to ensure there is no downtime in your access to crucial financial data.
- Phased rollout: here you gradually implement parts of the new software, and it’s used to ensure an unexpected problem can be curtailed and fixed without breaking down the whole system.
- Full implementation: here you transfer fully from your legacy system to the new software platform at once without any safety net. You should only consider this option if you have full confidence in the new system, because you can face costly problems or loss of crucial data if the new system doesn’t work correctly.
Step 5: On-going post-implementation provider support
After the successful installation and implementation of your new accounting software, your provider should ideally continue to offer ongoing technical support, either through a traditional customer support helpdesk or via a dedicated support staff.
There should also be an in-house support system that lets the employees who interact with the platform on a day-to-day basis provide feedback and share their concerns with company leadership on whether the software is meeting their needs.
Making Your Final Decision
By now, you know why leveraging the power of managerial accounting software can help improve your bottom line and take your business to new heights.
There are many types of accounting software on the market, and we have explored things to consider when weighing your options and how to set up the software once you have made your choice.
Ultimately, the best accounting software is the one that offers the perfect balance between pricing and relevant managerial accounting features. StaxBill, when combined with the right managerial accounting software, can streamline your billing and help ensure your books are in order. Learn more.
