Today we’re heading off-piste a little and talking software.  Whilst we normally focus our articles on what you can do to grow your business, in this article we’re taking a look behind the scenes and looking at the software you need to keep track of your business as it grows.  The growth path for businesses varies, but as a general rule, it involves diversification.  In terms of business structure, how that diversification looks also varies and falls broadly into two categories:  divisions and subsidiaries.  If you’re an engineering firm you might consider each area of focus a separate division, for a veterinary business you might view each clinic as a separate subsidiary, it depends on your profession and long term aspirations.  But bottom-line, how do you account for it?  Most of the time it’s left up to your bookkeeper/internal accountant and your external accountant to figure this out between them, but at some stage, they’re going to want your approval for the use of additional software to achieve what you want and need to see from the system to continue the growth of your business.

So what is it that causes the added complexity leading to a need for new software?  Well, the time will come when you want to know the profitability of a particular function.  This will probably start as a gut feeling and a curiosity but will manifest itself in a need to know.  You may also want to budget for each division (and yes, I’m using function and division interchangeably!) to manage your costs and profit better.  At it’s very pinnacle, you may want to do a costing on the opening of a new division or subsidiary.  To do this, you need some pretty clever software.

Traditionally Excel has been used to do much of this work.  And don’t get me wrong, Excel is fabulous for doing this and incredibly powerful.  But, and this is a big but…does it integrate with your software so you can see the impact on your overall business, manage your KPIs, track in real time and adjust itself accordingly?  I’ll give you a hint…no, it doesn’t.  That kind of updating would be entirely manual requiring hours of time to maintain and update.  The cost for your bookkeeper/internal accountant/external accountant to continually do this is well…astronomical.

So what to do?  With the advent of Cloud Software, surely there is at the very least, one app out there which does this kind of thing.  Well, yes there is.  Now, I need to caveat the rest of this article…we’re entirely focused on interactions with Xero, its the software we use and prefer as a firm.  We also aren’t a tech firm, so we won’t be getting too technical.  Nor are we an affiliate of any of these, this is simply an overview based on our experience.

Xero itself has what it calls “Tracking Categories” which can be used to segment your business.  In itself, it is a fairly rudimentary tool but if all you’re looking for a way to split your P&L and balance sheet by segment, it’s a great tool and can be surprisingly effective when it comes to running most of the basics.  So, if you’re just starting out on your expansion journey, this is more than likely the best and simplest way to keep on top of things.

The difficulty comes when you want to start being a bit more strategic and create a budget for each division.  Then compare the performance of actual figures against budgeted ones in real time then consolidate all of it to show it one report for the entire business.  After all, how do you know inter-divisional transactions have not been doubled up?

It’s at this point Xero needs a spot of help.

There are a plethora of apps available to sync with Xero, there are however, relatively few with the capability needed to effectively manage all areas of a complex multi-divisional business.  Calxa is generally considered to be the leader in this area, with the ability to set budgets by division, on both a P&L and Balance Sheet basis, monitor cashflow forecasts, KPIs, multi-currency transactions, monthly forecasts, 3 way forecasts whilst also delivering the ability to manage your tax and loan expectations with built in tax and loan calculators (don’t sack your accountant just yet!).  This app will give you the ability to create your budget by division, monitor it by division, and bring it together to see the impact on the overall group.  You can also set your targets by division and track how everyone is performing.  It also has the ability to generate reports to show to your board, whilst also delivering on function providing you with what you need to grow and monitor your business effectively.

Float would be considered next on the list.  In contrast to Calxa, it focusses on simple transactional cashflow forecasts and so for this, this app would be the go-to.  It is more limited in it’s service offering than Calxa, only offering daily and monthly forecasts, and cash-based budgets in comparison to Calxa’s extensive list of offerings.  It is a brilliant app, and provides a lot of useful information, but it aims at a smaller business without the multi-divisional complexities.

Another app on the market is Fathom.  Fathom focuses more on reporting information rather than empowering businesses to create and monitor.  The app provides businesses and accountants with the ability to create customised reports to be used to easily convey information about the business at regular meetings.  It has the ability to consolidate data imported from Xero’s tracking categories but that is as far as it goes.  Aimed at small to medium businesses it very much relies on the importation of data from other sources.

Syft is another app which relies on the importation of data to create easy to understand and quick to produce reports.  If you’re after analytics on your data as well as reports, this app is sure to deliver.  It is able to consolidate data imported into it to provide you with forecast cashflow and cash management data as well as lender-ready financials plus you can provide any  investors you may have with access so they can see how their investment is tracking.

Futrli is another app worth mentioning.  It too monitors cash providing cashflow forecasting, KPI setting and monitoring and the ability to create reports.  Very much future-focused this app is targeted at smaller businesses.  It doesn’t cater for multi-divisional businesses with more complicated financial affairs.

So the conclusion?  If you’re wanting an app powerful enough to report on a divisional basis in our opinion it would be Calxa.  It delivers on the need to look at a business on a divisional basis and bring it together to see the overall impact on the whole business.  As a larger “small” business this is imperative to ensure cost wastage is kept to a minimum helping to drive returns and growth further forwards.