Firms involved with alternative assets focus on delivering and reporting positive investment outcomes for their clients. They allocate considerable time, effort and money on technology and processes to improve their investment accounting and investor reporting. While that makes sense, many neglect the corporate side of their business – which can create issues, and cost the firm money, down the road.
Currently, many firms house their general ledger for their management company in an Excel spreadsheet or use the most basic accounting tools possible (like QuickBooks) as their primary financial management software. These tools are cheap, easy, and accessible, but are not ideal for growing firms with increasingly complex accounting needs.
This problem is pervasive – but for a lot of firms, it’s become normalized. Firms installed basic accounting tools when the firm first started, and over time people have gotten used to them in spite of their flaws. As a result, many firms can’t see how bad the problem has become – and how much waste and expense this is creating in their operations.
To help you avoid becoming one of those companies, look for these indicators that suggest the corporate side of your business needs a transformation:
- Disorganization – Tools like Excel and QuickBooks offer little in terms of system and user controls. When users are free to follow their own whims, accounting can quickly become disorganized, confusing, and inefficient. Something that should be systematic is entirely inconsistent and support is scattered across multiple network locations and personal desktops.
- Extensive Manual Processes – Manually entering data into spreadsheets and multiple disjointed systems is a time and labor-intensive process – so much so that some companies must hire extra staff to handle it. Not only is this an expensive and unsustainable way to solve the problem, but manual processes also create the risk of human error, which is unacceptable in something as important as accounting.
- Confusing Calculations – Anyone who has tried to audit and trace formulas in Excel knows it’s not necessarily an easy process. The formulas can be broken or hard to understand – and errors are missed. Understanding the spreadsheet gets even harder when the source data is not included because it’s stored in another spreadsheet or the values have been hard-coded.
- Lack of Visibility – Basic accounting tools are designed to handle discrete elements of accounting – budgeting, payroll, reporting, etc. What they are not designed to do is offer a top-down, 360-degree perspective into the company finances. Getting this perspective is difficult with sub-par accounting systems and often involved massive, complicated spreadsheet reporting. Without going through this painful exercise, though, the true financial performance of the company is never fully known – a troubling blind spot.
- Insufficient Reporting – QuickBooks offers limited reporting capabilities, and reporting in Excel must be completely self-designed, which isn’t easy unless you’re a power user – adding a new risk to the list – personnel risk. Firms know they can’t continue to grow without detailed and accurate financial reports, yet the tools at hand turn even the shallowest reporting efforts into huge undertakings – and nothing is systematic.
If any of these scenarios sound familiar, it’s time to consider a different approach. With the right upgrades, it becomes easier to conduct better accounting – and can provide an incredible return on your investment. When you’re ready to optimize the corporate side of your business, contact Madken Advisors for a free assessment.
