How much is bad data costing your accounting firm
The term Big Data has been used with increased frequency over the last 5 years. While many organisations are still scrabbling to understand the broader application of it, there’s no doubt that simple operational data is becoming more and more common as a source of a decision making driver within organisations.
A big part of this rising trend is the use of tools and applications that organisations are adopting to capture and present this information in an easy to interpret format.
The other aspect is the trend toward organisations becoming more ‘data driven’. As traditional businesses start to understand how data is being used by the “best in the business” (startups and technology companies), CIOs and CFOs are collaborating, and turning their attention to focus on ensuring they have the right infrastructure and tools to capture and realise the value of this data.
“IT alone cannot help organizations realise the value from their data. That’s because while IT is good at dealing with the data, applications, and systems that manage the data, the true value comes when data is transformed into information and insights are extracted to drive better decision-making. This is the domain of accountants.”
In the SME environment, the accountant is the advisor best placed to help their clients interpret make decisions regarding this data. The challenges practitioners face however include:
- Understanding what to measure and capture; and
- Sourcing the ‘right data’ in a cost efficient manner.
How much does bad data cost?
In 2013, Gartner surveyed a wide range of companies and learned that a lack of quality data costs them over $14 million dollars a year.
The studies above refer to all encapsulating data, however from our experience the same problems are found in financial data.
What is bad financial data?
You can only make better decisions if you have good data that you can rely upon. Unfortunately this isn’t always commercially accessible, particularly for small and medium businesses that do not have the budget for an in-house finance team.
Bad data can include:
- Existence – does it exist in the first place?
- Completeness – is everything captured?
- Consistency – is structuring of the data consistent throughout the organisation?
- Accuracy – is it correct?
All of these issues stem from the base of accurate, robust and regular record keeping of financial information – i.e. bookkeeping. While there is limited information in the market regarding how much poor bookkeeping processes cost clients, in our experience it can be significant.
Unfortunately we’ve all experienced the horror story of having to ‘redo’ entire set of accounts because the bookkeeping was unreliable. It’s a common problem and the reason why we got into this business in the first place.
Accountants have historically been the cleansers of financial data. The roles include:
- External auditors – ensuring statements are reflective of true financial performance by applying assertions, testing procedures to ensure existence and completeness;
- Internal auditors – ensure internal governance and processes are operating effectively and assisting with structuring that data;
- Small business accountant – reconciliation of management accounts and bookkeeping to ensure financial statements are reflective of business performance.
As the accounting profession is striving to move more towards an advisory role – that is, helping their clients understand their financial performance by telling stories with data – most firms are still stuck in data cleansing mode due to lack of trust and certainty regarding the underlying data. This problem stems from a lack of quality bookkeeping service providers.
What to look for in a quality financial data solution provider
Because there are so many bookkeeping providers, it can feel overwhelming and frustrating to choose the appropriate contractor/agency to partner with. No matter what you ultimately decide, the proposed solution must absolutely have the following qualities:
- Sound internal processes to ensure consistent record keeping processes and quality assurance;
- Scale and adapt to your firm based on client volume, speed and variety of industries and client profiles while keeping everything valid and consistent;
- Know their scope of services so there is no overlap in services provided, which could result in confusion or conflict.
Partnering with a long term provider with built in redundancy will not only make your job easier, but will free up staff in your organisation to enable them to move towards telling stories with your clients’ financial data, rather than spending time cleaning it up.