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Managing a company’s accounts is a tough job. It involves tracking an abundance of financial data, such as revenue generated from sales, payments made to vendors, and employee expense claims. The job gets even tougher when the only tool used to record that data is an endless stream of spreadsheets.
Cleaning and consolidating redundant and widely-scattered data are just two challenges among many that small businesses face while trying to analyze financial data. Manually generating invoices and tracking bank statements makes the whole accounting process more complex.
Accounting software simplifies this process by providing a single view of all financial data and workflows across an organization. It also helps by automating processes such as expense tracking and bank reconciliation.
However, choosing the right fit for your small business could be daunting. From full-suite solutions to specialized ones, the market is densely populated.
To help small businesses make informed choices when selecting accounting software, we’ve created this buyer's guide, which discusses the different functionalities of such solutions. The guide also explores different considerations that small businesses should keep in mind when evaluating accounting software.
Here's what we’ll cover:
Accounting software is designed to help businesses manage their financial accounting, which involves bookkeeping, tracking payments, generating invoices, and financial reporting. These solutions serve as a central location where businesses can store and process financial data, track income and expenses, manage taxes, and assess their overall financial status.
Accounting solutions can be broadly categorized based on the scope of accounting functions they support.
Here’s a closer look:
Full-suite solutions: These solutions integrate multiple modules to support a broad range of accounting requirements. Common modules include accounts payable, accounts receivable, expense tracking, bookkeeping, invoicing, and tax management. This option exempts small business from purchasing separate tools to address a common accounting function.
Stand-alone tools: These are modules that cater to specific accounting needs and help small businesses avoid paying for unwanted functionalities. For instance, businesses that primarily want to automate the calculation and reporting of tax on their goods and services can opt for a specialized sales tax software app, instead of paying needlessly for several integrated modules.
Key question to ask a vendor before you buy: Is your product available only as a full-suite solution or can I buy individual modules to address specific needs?
Deployment options for accounting software
When it comes to deployment, accounting software can be categorized into cloud-based and on-premise solutions.
Though both have their pros and cons, we’ve focused on cloud-based solutions as these are often more suitable for small businesses. They require less up-front investment; their implementation is faster, and updates are automatic; and they support remote use and are easy to scale.
Let’s look at what you can expect with each deployment model:
Cloud-based: The vendor hosts the solution off-site on its own servers, so users don’t need to worry about software maintenance, data backup, upgrades, etc. A user can access the solution from any authorized computer with an internet connection by paying a monthly or annual subscription.
Nowadays, many vendors also provide mobile apps, which allow users to access and operate accounting software from their mobile devices.
On-premise: These solutions typically incur a one-time license fee instead of a recurring monthly or yearly payment. However, you’ll bear the expense of installing and managing infrastructure to host the solution, data backups, and upgrades.
This option is suitable for small businesses that desire complete control over their data.
Key questions to ask a vendor before you buy: What are the deployment options your solution is available in? Do you also have a mobile app?
Accounting software solutions come with various capabilities, from tracking basic general ledgers to employee payroll processing.
We have listed the most common accounting software features below:
General ledger: A record of a business's financial transactions, used to prepare financial statements. The general ledger typically includes account information for liabilities (accounts payable) and assets (accounts receivable), as well as equity, revenue and expenses.
Accounts payable and receivable: Accounts payable functionality tracks money owed by a company to its suppliers and other creditors. Meanwhile, accounts receivable functionality helps track the money owed to a company but not yet paid for goods or services rendered. It automates the creation and transmission of invoices as well as the collection of payments.
Bank reconciliation: Automatically capture details from bank transactions to compare your company's accounting records with your bank statement.
Bank reconciliation feature in QuickBooks Online
Financial reporting: Understand the status of your company's balance sheet; track budget and ledger entries with detailed reports, including charts and graphs.
Reporting in Xero
Expense tracking: Track organizational expenses, such as employee travel expenses, and approve expense reports.
Expense tracking in FreshBooks
Billing and invoicing: Create invoices to send to customers and automatically process them based on predetermined rules (contract-based billing, subscription billing, etc.).
Invoice management in Tipalti
Key question to ask a vendor before you buy: Do you offer the specific features I need?
Note: The applications selected in this article are examples to show a feature in context, and are not intended as endorsements or recommendations, obtained from sources believed to be reliable at the time of publication.
Accounting software can integrate with other solutions, which can help small businesses simplify their financial processes, increasing the value of the software.
Here are three important integrations to look for in accounting software:
Digital payment wallets: Integration with digital payment wallets, such as PayPal, allows businesses to receive or make payments from within the accounting solution.
Email software: Integrating email software with accounting solution provides users with automated email notifications of new transactions.
Point of sale (POS) solutions: Integration with these end-point retail software and hardware tools allows businesses to seamlessly transfer data, including inventory details and payment transactions, from the POS to the accounting solution.
Key question to ask a vendor before you buy: What integrations does your solution offer and how will they benefit me?
Technological advancements such as cloud computing have changed accounting software significantly in the last few years. Newer technologies such as blockchain further continue to drive the software’s evolution.
While there are many technological disruptions that will change how organizations practice accounting in the future, we have identified one that small businesses can leverage immediately.
Robotic process automation (RPA) technology saves time in transferring data: Businesses are saving a lot of time by leveraging RPA to automate repetitive work in managing financial accounting.
Here are two ways small businesses can use RPA:
Bookkeeping: Improve the speed and accuracy of transferring transactional data from sources (spreadsheets, emails, invoices, etc.) to the database built within accounting solutions.
Automated tax filing with tax bots: Available as API integrations, tax bots are useful add-ons to an accounting solution. Finance teams can run these bots to automatically extract data from balance sheets or invoices and transfer the details to a tax management solution.
*Note: The applications selected in this article are examples to show a feature in context, and are not intended as endorsements or recommendations, obtained from sources believed to be reliable at the time of publication.
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