In this article , we’ll talk about a tool that you can expect to be using very often…your accounting software.
There’s a lot that goes into choosing the right accounting software, and we’re excited to talk about it all!
We often times see founders keep their financial records in a spreadsheet.
BIG mistake…and for many reasons.
With an accounting software, you can:
1. Sync transactions from your bank/credit card automatically
2. Classify transactions efficiently, leveraging historical trends/rules
3. Upload extra details to each transaction, such as receipts or supporting documentation
4. Perform bank reconciliations - a MUST for financial reporting
5. Run various financial reports such as your Profit & Loss, Balance Sheet, and AP Aging
6. Set up recurring journal entries
and much much more…
Most accounting software not only allows you to manage your financial reporting, they also allow you to manage a number of tasks related to:
1. Accounts Payable - uploading & managing bills
2. Accounts Receivable - sending invoices and collecting payment
3. Payroll - processing paychecks for employees
The best part? Many accounting software are less than $100 a month.
The only time that we’d suggest you use a spreadsheet instead of accounting software is if you have such limited activity with your business, that you’ll simply send over it to a tax accountant at year-end to clean up and file your tax return.
Now that we know the benefits of accounting software, let’s look at what you should look for in choosing the right one…
but before we do, let’s talk about the difference between an ERP and an Accounting Software.
You may have heard the term “ERP” before….but do you know what it means?
ERP stands for Enterprise Resource Planning and is a more robust version of accounting software that typically includes:
- Manufacturing & Supply chain management
- Customer Relationship Management software (CRM)
- More comprehensive HR tools
- Other automation related to managing your back office
ERPs are way more powerful in the sense that they often-times have separate modules that enable you to automate a lot of complex tasks in your financial statements.
At the same time, more power isn’t always a good thing, as it often-times accompanies larger implementation periods and higher costs!
Most small businesses do just fine with accounting software, and gradually shift to an ERP once they hit a large enough inflection point in their journey.
Ready to choose Accounting software? Focus on these items
1. Pricing
If you are going with accounting software instead of an ERP, you can expect a low monthly cost of less than $99 / month.
For ERPs, the amounts can be much higher, sometimes 10x the cost of an accounting software.
2. Cloud vs On Prem
Most accounting software these days are on the cloud, though there are still a few that remain on-premise (or “on-prem” if you want to sound cool).
This means that instead of having an online login, you’ll have software that you’ll need to access via a remote desktop service like Right Networks.
The most common on-prem accounting software is Quickbooks Desktop.
3. Modules
Remember when we said that ERPs have a lot more modules than Accounting software?
Well, accounting software still offers a lot of functionality past just bookkeeping.
Here are some of our favorite things modules to use in accounting software:
a. Sending invoices to customers and collecting payment via ACH / Credit Card
b. Uploading bills
c. Processing payroll
d. Performing Bank reconciliations
e. Syncing & exporting data Excel, Google Sheets, and PDF
4. Integrations
Like our discussion earlier on banks, integrations are a big part of an accounting software.
Odds are you’ll be using multiple tools outside of your accounting software, such as:
a. A payroll provider (justworks, gusto, rippling)
b. A Sales platform (Stripe, Shopify)
c. An AP platform (bill.com, Ramp, airbase)
d. An external bank (vital for syncing to your bank feed automatically)
The best accounting software make it easy to sync these platforms via their API, allowing you to save time & effort each month as you reconcile your books
There’s no-one-size-fits-all for accounting software, but here is our pick!
For small and medium-sized businesses, Quickbooks Online continues to dominate the space.
If you aren’t aware, Quickbooks is owned by Intuit…the same company that owns turbotax, tsheets, Mint (sold to credit karma), and plenty of other financial tools.
We enjoy the online version of Quickbooks more than the desktop version, as we are big fans of cloud solutions…but many swear by the desktop application as being more robust.
We’ve also found that Xero is a popular accounting software for SMBs, with a lot of similar functionality to Quickbooks Online.
For ERPs, our top pick is Netsuite - but be prepared to pay a lot more than if you were to use Quickbooks Online!
Choosing the right Accounting software is a decision that will yield you many returns for your entire business journey.
Once you have an accounting system in place, be sure to design a nice chart of accounts, and set up the relevant rules to ensure that transactions are classified correctly.
Choosing the right Accounting software is a decision that will yield you many returns for your entire business journey.
Once you have an accounting system in place, be sure to design a nice chart of accounts, and set up the relevant rules to ensure that transactions are classified correctly.