How can small businesses become more agile in their accounting?

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A major reason why most businesses fail is poor cash flow management. With over 12 years of accounting experience, I have turned around the fates of businesses that were on the brink of failing. How? Well, you guessed it. Agile accounting. 

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In simple words, agile accounting means having the flexibility to respond to changes, making shifts as necessary, adjusting decisions on the fly, and anticipating the environmental challenges and threats that may occur.

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For small businesses, agility is one of the most important areas to focus on, especially during volatile economic conditions. Further, becoming more agile helps a business respond to financial opportunities right on time.

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So, how can small businesses become more agile in their accounting? That’s what I’m here to answer. But, before that, let’s understand the recurring challenges small businesses face in adopting or maintaining agile accounting practices.

4 major challenges small businesses face in maintaining an agile accounting practice

Resource constraints are the biggest challenge

More often than not, small businesses lack the resources required to invest in expensive accounting software, onboard a dedicated accounting staff, or outsource bookkeeping services.

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More importantly, owners and employees often wear several hats, not giving enough time to the nitty-gritty, such as record-keeping and financial analysis.

Absence of the right knowledge and expertise

The lack of an in-house accounting specialist can indeed complicate things. Small businesses often don’t have the right accounting knowledge or necessary training to have a solid grasp of their finances. Not to mention, the back-breaking nature of tax laws and frequently changing accounting standards make it even more challenging for small businesses to be agile in their accounting.

Manual processes and disconnected systems

There’s no doubt that manual processes and repetitive tasks, such as reconciliation and data entry, can consume a lot of time and be error-prone. Moreover, data silos that exist between bank accounts, accounting software, and other financial tools can limit visibility and add to the workload.

Limited access to real-time data and reporting

More often than not, manual processes and outdated systems are among the many things to worry about as they delay access to important financial insights. On top of that, inaccurate or incomplete data, too, can result in misleading financial reports, making decision-making a lot more complicated than it already is.

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This brings us to the next question, why is it important for small businesses to be agile in their accounting practices?

The importance of agility for small businesses

There's always an added edge for businesses that are agile in their accounting. Here’s why small businesses need to be more agile:

Faster decision-making

Small businesses often need to make decisions on the spot to take advantage of the new opportunities available to them. This is one of the benefits of agile accounting practices. In simple words, accounting practices offer accurate and updated financial information that helps to make wise decisions in no time.

Greater adaptability to change

There's no doubt that businesses are constantly changing with new regulations, market trends, and economic shifts growing rapidly over time. Agility is one of the many ways that allow small businesses to adjust their strategies and operate smoothly as a response to these changes. How does it help? Well, it helps to minimize disruptions and bolster compliance.

Gives a competitive edge

Small businesses have a higher chance of gaining a competitive edge by adapting faster. With leaner systems it takes less time to adopt agile accounting practices.

Greater cost efficiency

When small businesses start to adopt technologies, such as cloud-based software and automation, they can begin mitigating manual errors and save big time on operational costs. The business can then use these savings to fund expansion-oriented departments.

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Now that we’ve seen why agility is important, it’s time to look at what small businesses can do to become more agile in their accounting.

How can small businesses become more agile in their accounting?

There are several ways in which businesses can become more agile in their accounting. Here are some ways:

1. Embrace cloud-based accounting solutions

Using cloud-based accounting solutions offers a number of advantages over traditional software. In fact, it represents a radical change in the way small businesses handle their finances.

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Here’s why cloud-based accounting is one of the pillars of agile accounting:

• Accessibility and real-time updates: Cloud-based accounting software can offer you unmatched access to financial information anywhere and anytime. This means you can stay updated with the financial well-being of your business, regardless of whether you are working from home or on the go. Tools like Quickbooks Online, Xero, and FreshBooks, among many more, can always give you real-time updates to help you stay ahead of the curve, enabling easy and prompt decision-making as well as financial management.

• Cost efficiency and scalability: Among the many integral aspects of cloud-based solutions, one of the most appealing is their cost-effectiveness. Tools like Wave and Zoho usually offer more features than most people need and all the necessary adjustments just included in their free plans. In software like this, there's no upfront investment, which makes it even more appealing. Rather, these services generally use a subscription model, which covers regular updates and support at no extra cost. Moreover, cloud-based accounting software can readily expand to accommodate extra users, clients, or transactions as your business grows, negating the need for costly system overhauls or upgrades.

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In more practical terms, cloud-based accounting systems can help small businesses achieve:

• Greater efficiency and accuracy with automated features. Example: Bank feeds, error-free invoice generation, and expense tracking, among others.
• Better access of financial data to multiple users and enable greater coordination among teams.
• Cloud-based systems promote an added layer of security as compared to older data storage and transfer systems.

2. Streamline processes and workflows

I’ve noticed that in non-agile organizations, a lot of time is wasted due to the lack of standard processes, lack of automation of repetitive tasks, lack of communication channels and similar issues. Here the emphasis should be on:

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Identifying and eliminating bottlenecks:

• ‍Conduct workflow audits: This is where you map the current processes to understand where bottlenecks might occur. This helps you recognize the potential pitfalls ahead of time. Normally, this includes documenting every step of the operation—from sales and invoicing to sourcing and delivering.‍
• Prioritize issues as early as possible: Now, analyze the impact it may have on your business. Try prioritizing these issues contingent on customer satisfaction, time delays, and cost status.‍
• Implement solutions: Reorganizing resources, introducing new equipment, or redefining roles and duties are just a couple of examples of how to implement solutions. For instance, if end-of-month closing is among the bottlenecks, you might think about implementing cloud-based finance automation software such as Ramp, that automates expense management and reconciliation.

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Automating repetitive tasks:

• ‍What are the repetitive tasks?: Look for tasks that consume a lot of time and resources but require very little decision-making. Some instances of this scenario include data entry, customer follow-ups, and invoice making.‍
• Choose the right tools: Choose the software that best suits your situation and can help you automate these tasks easily. For example, tools like Zapier help in syncing emails with calendars so that if anyone books a meeting with you through email, it shows up on your calendar.

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Implementing efficient approval processes:

• ‍Streamline approval chains: Delayed approvals are common reasons for missed opportunities. Now is the time to identify and simplify them. This can include reducing the number of approval stages or using delegation.‍
• Using digital tools: In agile accounting, digital tools can streamline faster approvals. For instance, digital tools like e-signatures can often expedite approval stages in key documents.

3. Establish collaboration between departments

• ‍Breaking down silos between accounting and other departments: In order to encourage teamwork, it's best to bring people from accounting and other departments together for certain projects. This can help set common goals and uncover challenges teams may be experiencing. What’s more? This is one of the most important ways to make sure everyone is on the same page.‍
• Encouraging cross-functional communication: Tools can make it easier to share and talk deeply about ideas, no matter the department. This largely includes using digital spaces to make working together more practical. This is one of the ways to build a supportive and understanding culture in workplaces.‍
• Collaborative budgeting and forecasting: Budget and forecast discussions can't really happen among two or three people. It's important to include different teams. This helps make financial plans more realistic and support the aspirations every department has.

4. Prioritize data security and compliance

Undeniably, securing your sensitive information has become more important than it ever was. A study by IBM disclosed its annual Cost of Data Breach Report. Surprisingly, the worldwide average cost of a data breach rose to $4.45 million in 2023.

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This is the highest figure that’s reported to date and is a massive 15% hike in costs over the last three years. When you handle data securely, it safeguards you from huge financial losses and keeps the business's reputation intact. 

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Businesses that are operating internationally most definitely have to comply with regulations like the General Data Protection Regulation (GDPR) in the EU, and the Health Insurance Profitability and Accountability Act (HIPAA), alongside any other local data protection laws. 

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Quite frankly, any form of non-compliance can attract huge fines and major legal repercussions. Now, when I say “compliant”, I mean you should adhere to some important areas like regular training, policy updates, and ensuring all data practices meet the mandated standards.

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Last but not least, with cyberattacks becoming more and more frequent, we must be a lot more mindful and implement robust cybersecurity measures.  This covers safe, encrypted connections, firewalls, and antivirus programs. As the saying goes, “to err is human” – we have to keep educating employees about phishing scams and safe internet practices.

5. Invest in employee training and development

For small businesses wanting to boost their accounting agility, they need to invest in employee training and development. There should be no compromise in this area. According to a LinkedIn Learning study, 94% of workers would stay with a company longer if it made investments in their professional growth.

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With accounting technologies evolving constantly, ongoing training is the only way to not lose out anymore. There's no doubt that this not only boosts efficiency but also helps empower members of a team to contribute to the business’s agility in the long term. Not to mention, when you cultivate a culture where learning is indispensable, you can gradually adapt to changes.

6. Regularly review and fine-tune strategies

You have to keep checking how currently implemented strategies are performing in order to make sure your business is agile in accounting. In simple words, this means looking at whether you have met the set objectives or not, at the end of the day. Moreover, it's also critical to get input from staff members and any other relevant parties, such as partners, affiliates, or clients.

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In many cases, they can help you identify and offer invaluable insights into what’s actually working and what isn’t. This is the time you need to be the most prepared about. Simply put, be prepared to adjust your strategies in light of market developments and any new demands your company may encounter. With this adaptability in place, you can make sure that your accounting practices keep up with the expansion and change happening in your business.

Summing up agile accounting practices

Agile accounting is the future, mostly because it enables small businesses to understand and steer their finances with greater ease and efficiency. There are a lot of advantages to agile accounting—from enhanced decision-making to a stronger ability to adapt as markets evolve.

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With agile accounting, your business not only keeps its books in order but also gets the chance to propel it forward. In other words, for small businesses that are poised for growth and transformation, agile accounting can be your ticket to a future where having powerful financial management is essential to your success rather than just an advantage.

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Truth be told, “agile” is simply a method that takes everyone in participation, including both users and customers of your business. The motive behind it? To communicate. If you really want to succeed with Agile, you must be communicative with your staff and customers from both a management and customer service perspective.

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In agile accounting, the goal is quite simple: Agile prioritizes who will best execute the delicate details of the operation, not what will change. So, keep in mind that agile accounting for small businesses is all about staying ahead of the curve and understanding the what-ifs in detail. 

Become more agile and speed up monthly close with Ramp

Ramp accelerates the accounting process by automatically collecting receipts, categorizing expenses intelligently, and ensuring compliance through automation, thus saving time and preventing errors.

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Ramp's scalable solutions, including real-time data syncing via integrations and APIs, make our platform reliable for businesses of any size, from growing organizations to multi-entity global enterprises.