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Automating your accounting.

For many industries in the U.S., computerization has been a key factor in increasing productivity and improving operational effectiveness during in the last decade. But, perhaps not surprisingly, regional food service distributors have been slow to embrace computerization in some key areas of operation.

The reasons for this are many. Competition keeps profit margins for regional food distributors very tight. A gross profit margin of 12% and net profit of 2% are not unusual. By necessity, food wholesalers tend to be conservative. Investments are closely scrutinized in terms of cost vs. impact on gross profit.

But automation in areas such as accounting, for example--which is still performed manually by many regional food service distributors--is not always easy to evaluate in terms of impact on gross profit. While productivity may be directly affected in terms of manpower needs, most often computerized accounting affects an organization in more subtle ways.

Perpetual Inventory

Computerized accounting can increase overall operational effectiveness by improving both the quantity and quality of management information available. Putting a price tag on information is difficult because its value is often determined by how it's used. Computer-printed invoices look more professional than handwritten or typed invoices. And records can be more efficiently provided to accountants using a modem.

One of the key advantages of computerized accounting is perpetual inventory. An effective accounting system offers management a "snap-shot" of inventory at all times. It improves tracking of freshness and of buying and selling activity while limiting opportunities for theft and error. Reducing theft is a key benefit for one food wholesaler, who noted that he has to sell $5,000 worth of product to recoup the gross profit lost on a $500 theft.

Automated accounting systems also enable distributors to react to price changes instantly and to provide sales representatives with immediate price quotes. Sales can be tracked by product line, product class and sales representative.

But perpetual inventory tracking for the food service industry has some unique requirements. For example, the system must be capable of dealing with "catch weights"--a class of inventory items that are stocked by one category but invoiced by another.

Not all general accounting software packages are set up to deal with catch weights. Most of these packages require substantial custom programming to meet food wholesalers' unique needs. "Niche" packages--software systems created especially for use by the food service industry--are specifically designed for handling catch weights but are expensive.

The "ready-to-go" software packages designed for use by food service distributors are expensive (in the $20,000 range) and typically run on minicomputers, which require a hardware investment in the five figures.

Most general accounting packages are less expensive (under $5,000) and can be run on microcomputers, which also results in a lower hardware investment. But usually this software requires custom programming, which is costly and might not achieve the desired results in an efficient manner.

Lamers Food Distributors in Tulsa, Oklahoma, sells fresh and frozen commodities to hospital cafeterias, sandwich shops and restaurants. Established in 1983, the company is on a rapid growth curve, with sales of $5 million for 1991.

Lamers had been doing all paperwork for daily transactions, invoices and accounts receivable statements manually on a typewriter. After working with a consultant to research accounting software products, the company chose Solomon III |R~, a general accounting software package.

Six modules of a Solomon III Equity Pack (Accounts Receivable, Order Entry, Inventory, Accounts Payable, Payroll and General Ledger) were implemented on a Telex 386-25 microcomputer with an 80 MB hard drive. Backup software was also added to speed daily backups. Two printers, one exclusively for invoices, are used.

Lamers works around the catch weight problem with no custom programming, using a solution devised by computer consultant Price Brattin, a Solomon Software-certified consultant based in Tulsa. Two part numbers are assigned to each catch weight item. One part number is for the "each" quantity and carries a price of "0." The second part number for the "weight" is the same as the first, with a "-1" suffix added to carry the per-pound price. The first part number is used for inquiries, sales orders and pick tickets. The person filling the order writes the individual order weights on the pick ticket and sends it back to the office. The person handling invoicing adds up the weights, calls up the sales order in Solomon III, converts it to an invoice and adds the line for the second part number.

The result is that there are two lines on the invoice for each catch weight item. The first shows the quantity for each and an extended price of $0.000. The second shows quantity for pounds, a unit price, and an extended amount for pounds times price. The computerized reporting system allows Lamers to report the quantity and weight with a single price. This insures that inventory is updated for both the "each" and the "pounds" quantities as shipments are invoiced.

The total investment for purchasing the software and implementing the package was under $5,000. How is it working out? "Wonderfully," commented Carolyn Anson, who handles invoicing at Lamers. "We have reduced our time to process orders by more than 50%, and in some cases we save even more time. The system even helps us avoid mistakes to provide accurate information.

System Shopping

So how do you find a system that meets your needs but doesn't break the bank? According to Brattin, there are a number of steps you can take to help assure that you purchase the right system for your operation and that the transition goes smoothly.

* Know what you want your system to do, even if you don't know how it will do it. For example, know what information you want to track and what you want to see in your reports before you purchase a system and well before you implement it.

* Do your homework. Research software packages. Talk to others in your business about what they like and don't like about their systems. One consultant comments that general accounting packages, because they have more users than specialty packages, have more of the bugs worked out. Calling in a consultant can be one of the best investments you will make.

* Invest in training. It's not necessarily what the software does, it's what you can do with it. Even if the software is easy to use, training is essential to make users comfortable and bring them up to speed so things go smoothly.

* Plan your staffing. At least one person involved in the implementation of the system must understand accounting. Employee turnover could adversely affect your operations if top managers aren't trained on the system.

* Plan your implementation in phases. For example, one wholesaler implemented the accounts receivable module first. Invoices were typed manually and the information from them entered into the database. Customer information was entered on the database and made ready for use. "Phasing allowed the office staff to become accustomed to the new technology while at the same time maintaining a level of comfort with the old procedures," this distributor said.

* Choose someone you like to work with and to train you. Chemistry is important, and the consultants and trainers you bring in will be your support long after implementation.

Rob Francis, a senior application designer for Solomon Software, designs the payroll, inventory and order entry modules for Solomon III. He can be reached at Solomon Software, 1218 Commerce Parkway, Box 1414, Findlay, OH 45839; 1-800-879-2767

NSPA does not recommend or endorse any specific software package.
COPYRIGHT 1993 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Debits & Credits
Author:Francis, Rob
Publication:The National Public Accountant
Date:Jun 1, 1993
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