If you are still using spreadsheets to track your business finances, this article is ideal for you. We are going to go over what accounting programs can do these days and how to specifically pick the right accounting program for your small business. After reading this mini guide, you’ll be an expert in everything accounting so that you can pick and setup the right program for your specific needs.
Things to Look to choose the Right Accounting Software
Key Accounting Functionality
This is probably one of the most critical factors to consider – because how your business manages the books will determine what accounting programs suit your needs. A few things to look for include:
1- Accrual Accounting
The accrual method is an industry standard and most accounting programs use this method for tracking transactions. You don’t have to use it if you’re a small business, but larger businesses must use accrual accounting for regulatory purposes.
2- Double-Entry Accounting
Double-entry is when entries apply to both debit and credit accounts. This is also referred to as “general journal.” With most software programs, you will not need to worry about which account to credit and/or debit – the software does it all behind the scenes. But, if you need to apply a credit and debit, you want to make sure the program offers double-entry capabilities (here’s a hint: most do).
3- Chart of Accounts
This doesn’t apply to all businesses – in fact freelancers or companies with just one employee rarely need charts of accounts. But, it is important that you list all of your accounts and have a program that lets you create, modify and adjust those accounts as you need to.
Most software today will automatically download and categorize expenses from your bank and credit card. But, you still need to reconcile the accounts. Your software must be able to match the dollar amounts as well as the transactions – and do so with accuracy. Some programs lack the complexity to identify transactions, which can destroy the accuracy of your books overall.
Reporting is critical. Your accounting software should be able to provide you with at least the basic reports, including:
Profit and Loss Statements
A few other reports you might want to have, but aren’t critical, include:
Sales Tax Payable
Payroll Deductions and Payroll Tax Reports
Not all programs help you with taxes – and the purpose of a program should be to simplify tax time just as much as it should be able to track your income and expenses. Most programs come with built-in capabilities for sales tax, but they may not include income tax. You will need to consider your personal tax needs and see if a software applies to it.
This is a huge benefit of accounting software today – especially if it operates on the cloud. Most programs offer the ability to integrate with other types of online software. Some services that you may want to see integrated with your accounting program include:
Point of Sale Software
Inventory Management (if not included with the software itself)
Some programs have poor invoicing – and invoicing is probably one of the more critical aspects of your business. When you are analyzing a particular program for invoicing, here are a few things you will want to look for:
Whether or not you can customize the invoice – can you add a logo, choose from templates or even change the colors? You want your invoices to represent your brand as much as possible so that they are easily recognized by customers.
Can estimates be quickly converted into invoices? This will save you time.
Can you setup automatic invoice reminders so that when an invoice goes unpaid, the recipient receives a nice reminder telling them to pay.
Can you add fields to your invoices, such as descriptions, memos and more?
This is a feature that not all programs offer – but should. If you input an expense into your program, will you then be able to attach a receipt or other type of document? This eliminates the need to store everything in paper form and makes filing for taxes easier. Some programs will limit you on how much document storage you will receive too – so this is something to consider.