How to Use Accounting Software to Monitor Your Business's Financial Health

Running a business needs regular monitoring of its financial health to ensure sustainable growth and make informed decisions. Accounting software plays a crucial role in automating this process, ensuring that the companies comply with Generally Accepted Accounting Principles or GAAP and also meet the criteria of the IRS's tax requirements.

This is especially complex for CPAs and accounting firms because every client is built individually and differs in financial needs and regulatory requirements. Normally, the right bookkeeping software for accounting firms is needed to handle this task efficiently, automating the accounting and financial reporting in an industry-compliant manner for all clients. 

In this article, we will tell you about the main indicators of a company's financial health. And how solutions like Eleven accounting software can keep you informed about them.

01 | Key Financial Health Indicators

Some financial health indicators are indispensable in conducting a business. These indicators provide insight into the firm's performance and show areas that need improvement. 

Key metrics are:

• Profitability: Operating profit and net profit are the main indications of how well the company picks on resources and manages them. Such figures are greatly facilitated in their analysis by means of accounting software, which, in turn, is a very important basis for strategic planning and making decisions.
• Liquidity: Liquidity is the ability of an enterprise to meet its current liabilities. The important liquidity ratios include the current ratio and quick ratio, which give relevant information about that aspect of the business. It is a very vital measure that has to be there to guarantee financial stability.
• Working Capital Turnover: It allows business entities to track inventory turnover, accounts receivable, and accounts payable to maintain working capital and avoid any type of cash flow gap. It would be more relevant in those cases where a company has to deal with bulk inventories or heavy credit operations.

These signs of financial health can be calculated with accounting software for clients automatically. It's especially needed for CPA and accounting firms, easing the process of offering actionable financial advice. Since the CPA firm generates regular tracking data on these metrics, they allow their clients to improve their financial performance and make informed business decisions.

02 | Key Features of Accounting Software for Monitoring Financial Health

Financial accounting software today provides a business enterprise with the tools needed to monitor its financial health accurately. These would enable the preparation of the most relevant informative financial reports that a company requires for daily operation and long-term planning. The accounting software meant for CPAs and accounting firms should secure multiple clients' reports that require customized reporting and include information relevant to their needs.  

The main features that must be included in the accounting software to give proper financial monitoring are:

• Profit & Loss Statement (P&L): This is a report that calculates the income and expenses of a company during some period. It is cardinal in determining profitability and thus enabling business enterprises to arrive at the best utilization of resources. All information derived from the P&L report is used in the tax returns filed with the Internal Revenue Service.
• Balance Sheet: This is the statement that reflects the assets, liabilities, and owners or stockholders equity of an entity at a specific date. It presents information that allows the liquidity, solvency, and current financial position of the business to be gauged. Such a report is required by investors and auditors among other external parties, and it is a requirement by generally accepted accounting principles.
• Cash Flow Statement: This is a statement recording the inflow and outflow of cash in an enterprise. The Statement also indicates the liquidity of the company. It helps cash flow management; these are indications of whether or not the business can go forward with its operation and make further investments.

03 | How to Use Accounting Software For Business Process Monitoring and Improving Financial Data Analysis

Modern accounting software automatically generates financial reports and allows a business to make smart decisions, with effective management of its financial processes.  Let’s explore how accounting software assists in interpreting key financial reports and using them for both strategic and operational management.

Analysis of the P&L Statement:

Accounting software allows for the analysis of this information. It can let a business:

• Take a clear view of the most profitable departments, products, or regions by comparing income and expenses within each division, in order to distribute resources accordingly.
• Identify the trend of revenue growth or profit decline over successive periods. Automation in trend analysis aids in forecasting future profitability and ascertaining suitable adjustments to sales or marketing strategies.
• Assess how individual expenditures are negatively impacting profitability. The software is capable of identifying detailed categories of expenses that may hurt profits the most, and hence businesses can try adjusting their budgets in the right direction.

This would, in turn, enable companies to make informed decisions on the funding of projects or growth areas and or areas where cost reductions may become necessary.

Interpreting the Balance Sheet to Manage Assets and Liabilities

Accounting software converts this report into a vibrant decision-making tool. Accounting software will:

• Automate the tracking of structural changes in assets and liabilities over time to enable companies to act in a timely manner regarding liquidity issues or debt burdens.
• Compare existing figures with previous ones to gauge financial stability. A company can use comparative analysis to calculate the difference in the balance sheet after obtaining loans or purchasing a major asset.
• Classify between the levels of short-term and long-term liabilities based on the total debt structure. This will help in managing the risk associated with debt and making proper decisions with regard to refinancing or paying off the debt.

Strategic balance sheet analysis, therefore, allows enterprises to efficiently prepare for financial problems, avoid excessive indebtedness, and manage working capital effectively.

Cash Flow Analysis for Liquidity Optimization

While there are many key indicators of a company's financial health, cash flow is one of these, and accounting software provides tools not only for tracking inflows and outflows of cash but also for forecasting future cash flows. Using the information from the cash flow statement, the company is able to:

• Distinguish between periods that reflect cash deficiencies or excess funds. This proves very helpful for those businesses whose revenues and/or expenses are seasonal in nature.
• Examine if a business can finance itself from ongoing activity alone, independent of external financing. This will provide the basis for decisions on possible additional investments or new projects without compromising continuing operations.
• This entails forecasting short-term financing needs. Based on past trends, the software may provide forecasts to help a business plan and budget future spending or within a cash management plan.

Therefore, accounting software facilities enable businesses to pre-estimate their investments better and avoid cash shortfalls in sustaining stability for day-to-day operations.

Using Analytical Insights to Improve Business Performance

Instead, accounting software develops the necessary analytical capabilities to make forecasts and scenarios of future growth. In other words:

• "What-if" scenario analysis: Most of the programs will allow the companies to model various future outcomes based on their present data. It enables the businesses to understand in what way a change in conditions may influence profitability and stability.
• Cost-performance analysis: It helps an enterprise check how the resources are utilized to the fullest capacity and identifies which expenses can be minimized or where the processes need improvement.
• Segment reporting: The financial results of a firm may be reported in segments which tend to be particularly useful for larger enterprises or those that operate across more than one industry or region.

All this is very important for CPA and accounting firms. With these analysis tools, they can interpret their clients' financial health. Other than understanding, they can also go on to make recommendations for making their clients' business processes better. If a firm is dealing with a large number of clients, then such tools reduce occurrence of errors, hasten data processing, thereby enhancing the quality of financial consulting.

04 | Tips for Automating Reporting for Regular Monitoring

Automating financial reporting is one of the major advantages of the use of accounting software. Following are some tips for automating financial reporting:

• Set up Recurring Reports: Compare monthly and quarterly changes, as it is very important to track them over time. Using accounting software will allow you to set up recurring reports so you always have updated financial information.
• Utilize Alerts and Notifications: Accounting software systems are bearing the facilities to allow businesses to set up alerts pertinent to important deadlines, such as tax filings due dates or receipting payments due dates. These notifications will make the companies compliant with regulatory requirements and help them get out of penalties due to late filings.

05 | Data Integration for a Complete Business Overview

Accounting software can be integrated with other business systems, like CRM systems and inventory management systems, for a more holistic view of a company's financial health. The integration allows businesses to collect data from different sources and take those further with more accuracy in generating their financial reports. 

Here are some benefits:

• Real-time Collection of Data: The integration of accounting software with other systems ensures that businesses can collect real-time data regarding their financial performance. This enables them to make decisions in a timelier manner because businesses can rely on updated information to assess the state of their financial health.
• Smarter decision-making: Integration of finanfcial data with operational data from other systems provides a deeper understanding of business performance. Accounting software integrated with inventory management systems allows a firm to view financial implications of inventory levels for decisions that can lead to optimization of stock levels and cost reduction.

Data integration may tend to be quite helpful in dealing with complicated business structures of clients for CPA firms and accounting firms. By integrating data from various systems, a CPA firm would better furnish more accurate and comprehensive financial reports that are deemed necessary in audits and tax filings.

06 | How Eleven's Accounting Software Helps in Your Business Activity Monitoring 

Eleven provides bookkeeping software with tools like standardized reports, analytical accounting, and custom reporting & BI, which have the necessary features to automate your financial reporting, analyze data, and track key metrics that keep businesses on stable grounds and speaking to informed decisions.

• Automated Reporting: Standardized reports allow for ease of producing important financial reports like the Profit & Loss Statement, Balance Sheet, and Cash Flow Statement. This feature ascertains timely and accurate information with minimal errors. 
• Deep Financial Analysis: Analytical accounting aids a firm in analyzing profitability, liquidity, and the management of working capital, thus enabling better insights into strategic decisions.
• Custom Reports & BI: Custom Reporting & BI allows creation of reports and BI according to one's needs, hence making it easier to focus on key financial metrics.

Eleven accounting software integrates the business's data for a complete financial view, compliance with General Accepted Accounting Principles, and IRS standards by integrating along with other business systems. 

07 | Conclusion

Accounting software helps an organization maintain better financial health. It offers them whatever tools are necessary to make decisions. The accounting software automates financial reporting, helps to track financial performance by analyzing current data in real time and plan for the future accordingly.

Accounting software has become an essential tool for CPA and accounting firms when offering multi-client reporting, automation of financial processes, and the necessary maintenance of compliance with generally accepted accounting principles and IRS legislation. This allows the firm to serve its clients at a higher level while minimizing errors and improving efficiency.