We didn't have an accounting system in place from day one and now things are a mess

We reached $1M in sales by bootstrapping and working long hours. We didn’t have a lot of processes in place and our systems were fragmented. We couldn’t tell what was going on. We all agreed that we needed new systems. We asked around and found a lot people were using XYZ Clouding Accounting for their accounting. We thought it was a good system but we had multiple sites and wanted to open a new business in another country. We also needed integrated stock systems, etc., so we chose ZZZ Cloud Accounting.

We didn’t have any problems setting up the system. Problems started with data entry. We entered all the data we had from our existing systems. Since the data sources weren’t integrated and reconciled, we immediately ran into problems. There were large discrepancies with the stock (finished and raw materials). We couldn’t reconcile the bank statements with the balance sheets, and sales and discounts looked off.

We quickly concluded that the data we entered was flawed and there were problems  going back to when we started the company. The company that sold us the new software said we should stop what we were doing and create a ‘newco’ which would use data from today onward. We should then go back and sort out the old data even if this meant having a third party reconstruct the accounts, etc. We followed their advice. It took months to sort out the old data. When we did, we found we were losing, not making money. We had discounted 70% of our product, not the 50% we planned, and our overhead was understated  by 20% because we have not entered the invoices for electricity and local taxes. All of this meant we had to postpone any fundraising and revise our pricing.

It took a while, but we are getting better at using data to run our business

I was taught that you couldn’t manage what you can’t measure, so I was always looking for data to tell me what was going on. My team told me I was data-obsessed and that I believed the data more than I believed them. There was no question in my mind that hard data was one of the keys to success. I knew I couldn’t force my team to use the data but I could teach them how important it was for making sound decisions.

My idea was that two days a week we would look at an issue facing the business and go through the data we had and what data was missing for us to make an informed decision. We started with customer data. What struck me first was that we didn’t share a common understanding of who our customer is. It took several sessions, but gradually people began to have a common perspective. By the end of two months we were able to talk about our customers, their life style and life stage, and how they might use our products and services.

When we looked at operations data (inventory, on-time delivery, finished stock levels, wastage, etc). The reaction to this was immediate. The team saw the problems and started to deal with them. I asked everyone to develop metrics, which we now use everyday. We are far from being a data-driven company but we pay attention to the facts, we use metrics, and we find ourselves asking more and more questions and collecting more data to make better decisions.