Your company has grown to the point where managing your numbers on spreadsheets is no longer an option, and Quickbooks has become limited in the services your business requires, so you’ve moved to NetSuite’s ERP software system. This indicates a step in the right direction for the growth of your business. But, if you aren’t using the software correctly, you may find it challenging to reap its full benefits and process your finances efficiently.
Having the right accounting software setup is imperative to the successful financial recordkeeping required for tax filing purposes. Making sure your business enterprise is following the right steps is important for avoiding an accounting mess and ultimately steep tax penalties.
Our CPAs have found the following common issues among enterprises using NetSuite, that might pose a risk to accurate accounting for enterprises.
Our CPAs have found the following common issues among enterprises using NetSuite, that might pose a risk to accurate accounting for enterprises.Lack of Accounting Understanding Within NetSuite
NetSuite is a highly customizable software that offers users the ability to drill into data and gain very specific insights. It comes with sophisticated design and reporting capabilities, which many enterprise businesses are enthusiastic about. Oftentimes businesses overlook the specific accounting requirements for their enterprises, which may lead to missing important numbers within their recordkeeping. For example, a manufacturing company may be most interested in reports that help them drill into specific product information for cost-saving or safe scaling business clues. This business may not take into account the daily financial round-up that can be automated and managed within NetSuite, and as such may be creating a ripple effect accounting challenge later on.
Fusion’s CPAs have found that enterprise businesses often don’t understand the specific accounting requirements for their businesses, and as a result, they often have gaps in their financial records that can quickly lead to challenges with the IRS.
Lack of Understanding of Cash vs Accrual Accounting
To keep bookkeeping processes clean, it is essential to consider the financial reporting methods best suited to your business. Enterprises using NetSuite would generally be following the accrual accounting method, but oftentimes these businesses are transitioning from a cash-based accounting method and do not fully understand how the accrual-based accounting method differs from the previous reporting practice used. Understanding cash vs accrual accounting and how it can impact cash flow and taxation within a business is helpful for business owners to gain a better understanding of their finances, especially when working to keep their NetSuite accounting records in order.
When a business uses the cash accounting method, the owner reports income during the receiving year and deducts expenses when paid in that year. The accrual accounting method differs by recognizing and reporting income in the year it was earned, regardless of payments not received, and deducting expenses when incurred. The different accounting methods paint a different picture of financials within a business, and when working on NetSuite, it is important that businesses understand how to input data according to the accrual accounting method; as well as understand how this method impacts the financial statements of a business. While the method may be more complex than cash-based accounting, it provides a more accurate report on how much money is earned or spent on expenses over a prolonged period. It is also important that enterprise businesses understand that they may pay taxes on revenue not received from customers or clients via this accounting method.
Incorrect NetSuite Setup
An inadequate understanding of NetSuite from a financial standpoint, creates further challenges for enterprises, especially from a software setup perspective. Enterprise business owners have managed to grow their businesses to their thriving state because they are experts in their industry. This doesn’t necessarily mean they understand accounting best practices and the requirements for financial record keeping with the IRS. This is crucial when setting up accounting software for a business.
Our CPAs have reported that when handling ERP accounting clean-ups, the most common errors can be traced back to the software setup.
“Oftentimes our diagnostic assessment interviews with enterprise businesses show that NetSuite set up is taking place based on a business owner’s understanding or interpretation of accounting within a business, not necessarily according to the accounting standards and guidelines”, one of our head CPAs said.
The problem with an incorrect accounting setup is that it only gives rise to further challenges later on. For example, information for accounts payable and accounts receivable not captured correctly will have a ripple effect on the reported business revenue and expenses, which directly affects tax reporting, and ultimately poses a risk for tax penalties if inconsistencies are detected by the IRS. The correct accounting setup within NetSuite not only mitigates this challenge but also ensures that your business has access to the basket of customized functionality offered by the software, to make business processes more efficient.
The Need for NetSuite Training
At the root of all challenges, is the most common issue our CPAs see among clients using the NetSuite ERP system. Many enterprises are inadequately trained to use the software. They may have opted to forfeit the NetSuite-provided training, thought they’d be able to smoothly transition from their current software to Netsuite, or possibly bargained on having a lot more consultation with software experts around financial recording. Our findings show that this is not the case. The majority of our ERP clean-ups at Fusion are linked to inadequate training on the platform’s functionality, and which of the functions would be necessary for a specific business or industry.
Part of our clean-up process involves accurate setup and training of a chosen team member to use the required features of NetSuite for their business. It is important for businesses to understand how to do everything from accepting customer payments to creating invoices, creating vendor bills, recording bills as being paid, entering credit card charges and bank transactions, and matching bank feeds, as well as being able to get transactions into the software. These form an important part of reconciliation statements and accurate record-keeping. Being able to accurately keep a handle on these, plays a major role in the financial wellness of a business’s records within NetSuite.
NetSuite’s ERP software can position your business to be competitive and give you great insight to improve your bottom line and efficiency. NetSuite shines when it comes to consolidated financial reporting for multiple entities. It also has sophisticated inventory management ability, which would be useful to ERP businesses. The customization and multiple additional software integration make Netsuite a high-functioning software with great benefits to any industry. But without the know-how, many businesses struggle. To reap the full benefit, it is necessary to have the right software set up, especially when moving from a different accounting software system.
Working with CPAs that understand the ins and outs of the software and that know how to set it up for your business helps reduce errors and safeguards against incorrect reconciliation of financial statements. Fusion CPA works with multiple enterprises to set up new software and keep their accounting processes clean. Schedule a discovery call to speak with a CPA today.
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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.