Traditional accounting in a business measures economic outcomes and uses them to make decisions in the business in regards to speed and course. When starting a new business, there are no economic results from the past so, the business uses the present results. By using these results, the accounting procedures indicate that the new business is making losses in the initial months. Since the startup needs to measure how they are evolving and their position in the market, innovation accounting helps it to do it.
Innovation accounting is a rigorous procedure of defining, measuring, and communicating progress in innovation in businesses. Accounting innovation has indicators and metrics which help a business make data-based decisions. The decisions are made while still at the stage of validating and invalidating the business hypothesis. There are good and bad indicators. Bad indicators give a false representation of the progress of the business.
Characteristics of good indicators:
- Accessible: The indicator must be easy to understand and obtain.
- Controllable: It must lead to a cause-effect relationship. This helps to learn the cause of variation and make a decision to improve them.
- Auditable: Can be tested without complexities.
The steps that innovation accounting follows
- It uses an MVP (minimum viable product) to institute real data on the stand of the company at any time. The MVP is useful in establishing customer feedback loop using minimum effort. The MVP tests the fundamental business hypothesis without perfecting the service or product too prematurely.
- Using the MVP helps start-ups to reach the decision making point.
- The company evaluates the progress it is making and decides if it is making sense or not. If the idea is not making sense, then it is considered flawed, and the changes are implemented.
The effect of technology advancement is being felt in all industries. In accounting, for example, accounting innovations enable CFO’s and CEO’s to have control of their finances at all times. There are four main accounting trends in the industry that are important for business owners.
- Mobile Access: The difference between mobile and cloud storage is the device used. Smart devices like tablets and smartphones are used in the case of mobile access. Cloud storage relies on stationary computers with internet connections. Accounting mobile applications rely on data plans through cellular connections. Mobile accounting applications allow you to access the information from anywhere. There are however some challenges with mobile access but to guard against it, accounting professionals should apply policies that guard against it.
- Driver Based Forecasting: By looking at trends in consumer interests and revenue markets, businessmen can make financial decisions quickly. By assessing website visits and engagement level on social media provide a way to analyze customer behavior. Having current information on consumer and products trends will guide you make savvy operational and financial decisions.
- Cloud Options: Storing accounting details in cloud options makes the data accessible from any location as long as there are internet connections. Cloud options are useful in business with more than one accounting personnel or when the business is working with a third party accountant. The accounting personnel gets access to the cloud storage for easy storage and retrieval of information. For security purposes, train all personnel that accesses the cloud storage about the confidentiality of financial information.
- Tax software: The software is useful in relieving businessmen from time spent sorting through documents that have been stored in intricate filling systems during tax time. Basic spreadsheets are no longer required when using tax softwares. The software can update and sync between devices that have the necessary mobile application. Accounting tax software cannot replace the guidance of accounting professionals, but it is useful in that it compliments their advice.