How to Choose Accounting Software for Your Small Business
Running a successful business is hard enough without having to struggle with financial details. Dealing with time-consuming and daunting accounting tasks can be overwhelming. This is especially the case when you’re managing all the other aspects of a company. Financial tasks should simple enough to be handled effortlessly, especially if you don’t have a numbers background. That’s where accounting software comes in.
An efficient and affordable way to achieve this is to utilize accounting software. This is software specifically designed to automate regular financial activities. It allows business owners to focus on the essentials like business development, strategy, and goals. In this article, we offer simple steps for understanding accounting software. We also provide you with some guidelines to reference so you choose the right accounting software for your business.
What does accounting software do?
The truth is, a large percentage of small-business owners admit they’re not very knowledgeable about accounting and finance. That’s where accounting software comes in to play. It’s an application that manages and records financial accounting information. There are three main classes of accounting software:
- Developed by the business organization (internal)
- Purchased from a third party (outsourced)
- Modified internally after being purchased from a third party (mix)
Further, using accounting software can improve financial accuracy and help avoid costly bookkeeping mistakes. It centralizes and streamlines your overall accounting operations. This can free up employee time for other tasks.
But no matter your needs, preferences, or business size and model, the right type of accounting software for you does exist. Accounting software is primarily designed to save time and automate routine tasks and activities. These include recurring invoices, invoice templates, and other financial record-keeping and bookkeeping functions. It also helps maintain proper documentation, reduce costs, and easily store and provide transaction history whenever needed.
Accounting software tools do have some differences in terms of features. But most software also shares a lot of common functionalities. They’re designed to handle everyday accounting tasks and are easy enough for beginners. Simultaneously, they can contribute to cutting costs and saving time.
Accounting software also includes basic functions such as automatically entering, storing, and analyzing data. Other standard features include payment and expense tracking, invoicing, payrolls, customer management, and generating financial reports.
Some tools are capable of tracking inventory (required by e-commerce businesses, for instance), managing vendors, and assisting with purchase orders. On the other hand, for service-focused businesses, tools like time tracking and invoicing billable hours are more important. Depending on your business needs, the software may be cloud-based (accessible wirelessly with any internet enabled device) or on-premise (accessible in the workplace only).
Things to consider when choosing accounting software
The first step to choosing the right accounting software is to have detailed information about the type of operations you want it to perform, as discussed above. Here are some examples of business operations you may want your accounting software to help with:
- Inventory management
- Cost accounting
This mainly depends on your business type, industry, customers, and payment schedules.
Availability and Mobility
If you have a single office space, you can choose to purchase accounting software that operates on a network server. These kinds of tools allow all employees to interact with the software and ensures local security.
Conversely, for businesses with multiple offices in various locations, it’s best to utilize an internet-based accounting software for enhanced communication and easy access. This is called cloud accounting software, and a good example of a highly reliable one is Quickbooks. These types of software are accessible to remote workers and offer the advantage of not having to maintain an on-site infrastructure.
Ease of Use
Another important aspect to consider is the difficulty of using the software. Some tools are portable and do not require any form of installation, while others are not so user-friendly and have to be properly installed. There are also tools that are designed particularly for users who aren’t accountants, while others require different levels of accounting expertise.
Accounting software can make your life a lot easier. But without proper knowledge about how to operate it, you may run into trouble. If you evaluate your options carefully, you’ll surely be able to find something that fits your needs. Be certain to consider the technical strengths and weaknesses of your team when making your software choice.
Features are probably the most important aspect of any accounting software. As mentioned, different tools come with different features. These may aim to solve particular issues and fulfill specific needs. They are designed for specific businesses in terms of size, industry, business model and operations. To understand what various features can offer you in terms of value, ask yourself questions such as:
- Do you sell products or services? You’ll need inventory and vendor management or time tracking and hour-based billing accordingly.
- Will you be handling everything yourself, or will you need an accountant to work with the software?
- How many team members will need to have access to the tool?
- Do you have long-term clients that repeatedly pay you on a monthly/annual basis? Recurring invoices will be helpful here.
- What level of automation do you require? How much time can you dedicate to using the tool without compromising other business aspects?
- What kind of customizability and personalization do you need? If your marketing is heavy on brand-building, you’ll need personalized invoices with a logo, background, etc.
- How will you handle taxes?
- Do you need clients to be able to pay you with a credit card or a simple bank transfer would be sufficient?
Answering questions like these will help you choose the right course of action.
Also, be aware that accounting software is often worth it simply for the easily generated, real-time financial reports. Those include Value Added Tax, Income and Expenditure, and General reports like automated recurring payments.
The amount of features you get varies according to the package you choose. Generally, the more you pay, the more features you get. But the important thing is to evaluate and understand if you’ll need the added functionalities. It’s basically a game of value vs. cost, and different vendors offer different options. This is where a free-trial period will come in very handy. For example, Freshbooks offers a 30-day money-back guarantee to help you get the feel and value of the product.
For a small business on a tight budget, try accounting software with the most number of basic features that are useful to your business. Don’t be afraid to switch products as you go. Almost all accounting software tools make it extremely easy to export and import data, so you won’t lose anything. If you come across other software that you believe would suit your business better or costs less, go for it.
Level of compatibility
The level of compatibility of accounting tools varies across different systems. This means that most systems are not compatible with each other. This is due to differences in their functionality such as time tracking, billing process, and operating systems.
To avoid unnecessary annoyance and trouble, look for accounting software that is compatible with the business tools you’re already using. Be sure to ask the vendor how they can assist with integrations. Remember that an expensive system doesn’t necessarily mean a better one. One software might have a whole lot of features but fail to deliver in terms of UI, customer support, or performance.
Accounting Software Cost
After considering those factors, next look at the cost of getting everything set up and running. While cost is an important factor, make sure that you’re getting the value that you require. Paying less but also getting less than what you need in terms of features and functionality is a big mistake. To avoid this scenario, a good idea is to shortlist a number of tools that meet your specs and then compare pricing.
Additionally, the cost of upgrades, licensing, and support should be taken into account when you’re making your decision. There are also tools that require technical help to install/integrate the tool with your system. Make sure to discuss all of these aspects with the vendor before committing.
Choosing accounting software may seem overwhelming if you’re new to the field. But if you approach the matter as we advised above, it shouldn’t be too overwhelming. Consider the dynamics of your company, and take into account the educational level required for installation. Think about the features you require, check the compatibilities, make a shortlist, compare costs, and contact the vendor to inquire about specifics before moving on with the purchase or free trial.
Just like in most business aspects, proper planning and research will be your best friends here. Be patient and follow the basics, and you will definitely find accounting software that suits you perfectly.
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