Simple or Complex Accounting Software – What Accounting Software Is Right for Your Small Business?

It is a common misconception that all accounting software aimed at small business is the same. This couldn’t be further from the truth. There are different products in the market to meet different business needs that all come at varying prices all with their own pros and cons. It is the purpose if this article to explain the different types of accounting software and to allow you to make an informed decision about what type of accounting software best suits your business.

We will start by focussing on the term SME as we believe this best explains the three types of small business that exist – small, medium and enterprise. Whilst it is right to bracket all of these types of business together they all have very different characteristics and needs. As a result depending on which one of these brackets your business sits in will have different repercussions on your requirements from your accounting software.

1) Small Business – are characterised as an SME business that has just starting out, freelancers or companies that have relatively small revenue lines into the business. Owners of these businesses are very focused on all capital expenditure and ensure that all spends are tangibly linked to driving growth within the business. Objectives at this stage are to achieve sustainable income lines into the business in order to stimulate growth within the business.

2) Medium business – Slightly larger SME business that now have sustainable revenues and have achieved solid growth. It is likely that medium businesses have recruited some employees to facilitate the new level of work that has to be completed. Medium businesses are looking for increased structure from their financial management as well as a way of monitoring costs and expenses as employees in the business grow.

3) Enterprise Business – This is the largest type of SME business. Businesses of this scale have tended to grow in size, stature and operational complexity. Department structures will have now taken place, business administration increased with human resource management becoming more prominent in the business. By having additional scale and complexity in the business there are increased requirements for support with driving process efficiency in both financial and operational management. The larger more complex accounting products cater for these demands at an additional premium.

It is clear when looking at the above 3 types of business how it would be virtually impossible for a software company to make a generic small business accounting software system to cater for all budgets and needs. A small business would require a significantly less complex product than an enterprise small business. This may appear quite an obvious statement to make; however, there are many SME owners that still believe that if they purchase a generic product specialising in small business they will have a great product designed for their business. For this reason I wanted to be clear toward the two main types of accounting software that exists.

1) Bookkeeping Software – Bookkeeping software packages perfect for a business that simply wants to manage their incomings and outgoings in an effective compliant manner. They enable an owner to input key information sources such as sales income, purchase expenses, cash and bank transactions. The accounting software takes these pieces of information and automates the double entry bookkeeping principles by producing simple accounts payable, accounts receivable and general ledger accounts. These basic accounting software features are more than enough for an SME owner to understand their financial position and complete end year reports.

2) Sophisticated accounting software solutions – The enterprise small businesses are likely to want their accounting software to do more than simply work out their balance sheets. Because of the additional business complexity accounting software features such as fixed assets registers, inventory/stock control, job costing and payroll become appealing. All of these features allow an enterprise small business to manage their business more effectively by managing their assets, providing support on how to manage stock control and managing human resources effectively. These additional features enable an enterprise business to not only to manage their financial accounts but also to drive efficiency within the business.

The medium small business sits in between these two types of accounting software. Choosing the right accounting software for a medium business completely depends on the businesses particular requirements of the business at the time of purchase. There are many accounting software products in the market that are aimed at the medium business market and all have pros and cons in terms of features. Some have a greater emphasis on HR related features some have greater financial forecasting and modeling capabilities. The only way to ensure that the right product is purchased is to go through a thorough exercise of mapping products to business requirements.

Whatever the size of your business it is critical that you base any decision to buy accounting software on the particular requirements of your business. Don’t be swayed by brand or recommendations do a thorough requirements tracking exercise and use these requirements to guide whatever you decide to buy.

Finding the Ideal Accounting Software Package

Accounting software are computer programs or software that records and processes financial proceedings such as payroll, accounts payable and trial balances. Its primary purpose is to function as an accounting information system, and it may be developed in-house by the company using it, it can be purchased from another vendor, or may it be a combination of the two with local modifications. As you can imagine, accounting software varies tremendously in complexity, capability, and cost.

While there are thousands of accounting software packages available in the marketplace today, not all of them will work properly for you. As with any human endeavor, there is no single, “one-size-fits-all” aspect with regard to accounting software. The software that best fits your requirements will be dependent on the size and type of company that you run. Although the specific requirements of every business may differ, the general requirements of a company like collections, payments, classification and analysis of financial data is what constitutes the essentials of accounting.

Most accounting software packages are comprised of individual units or modules each dealing with a specific area of accounting. The most common general core modules are: accounts receivable (company enters money received), accounts payable (where the company enters its bills and pays money it owes), general ledger (company’s “books”), billing (where company produces invoices to customers), and stock/inventory (where company keeps control of its product).

Other more specific(non-core) modules are also readily available. They include: debt collection, expenses, inquiries, payroll, reports, and time sheets. Although different suppliers may use alternative names for these modules, the actual name used is usually fairly self-explanatory.

Before purchasing any accounting software, it is vitally important that you determine your individual needs and concerns. For example, software for small business/personal use is simple, easy to use, and quite inexpensive. These programs perform simple accounting tasks such as budgets quite easily.

The next category, the so called “low end” accounting software, is known for its single entry products and serves a single market quite effectively.

Mid-market accounting software covers a wide range of business software that may be capable of serving the needs of multiple national accountancy standards and actually allows accounting to be done in multiple currencies.

The most complex and expensive “high end” business accounting software is frequently part of an extensive package of software often known as Enterprise Resource Planning or ERP software. These highly technical and costly programs handle the specific needs of enormous companies and organizations.

Once you have decided on the level of software that is right for you, the buying process starts. You can find accounting software in a vast number of locations including large retail stores, computer supply stores and even some large book stores. The web also provides an easy and comprehensive resource for finding that ideal piece of software for your business. Upon comparison shopping, you will find a large fluctuation in price depending on the services the software provides.

No matter which accounting software package you purchase, the end result should be the same–it should increase the level of your professionalism, provide added convenience to your busy life, and, most importantly, it should assist you in gaining a better understanding of your financial situation.

Using Accounting Software Does Not Require an Accounting Background

A number of growing companies are hesitant to purchase and implement new accounting software because they are afraid that they will need to learn a whole new set of skills to effectively use the software.  They often feel that their understanding of accounting principles will not be enough to allow them to use the software properly. 

Thankfully, this assumption is not entirely correct.  It is certainly helpful to understand accounting principles when using the software, but it is not necessary.  Any business, small or large, can benefit from implementing a dedication accounting software system, regardless of the users’ understanding of accounting principles.

Granted, an accountant will have a much more thorough understanding of what the software is doing and the reports that it creates, but the actual use and input of data requires no specialized accounting background.

Most accounting software will do the “nitty gritty” work that you would need special accounting training in anyway, so it is safe to say that accounting knowledge is not necessary to begin using accounting software.  That is not to say that a company should blindly begin using a new financial software package – of course they should make an effort to understand the principles to allow themselves to get the most from their software.

For example, if you operate a retail company, the average user of your accounting software will need to know the following:

How to input an invoice

How to make changes to an invoice once it is paid

How to print and/or email receipts, invoices, etc. 

None of these tasks require a background in accounting.  Any person with a general idea of how to use software can probably figure these things out and can most certainly be trained.  While people with accounting backgrounds will be able to see these changes reflected on the general ledger and know what they mean, the bottom line is that for the end user in this case that information is neither necessary nor relevant for their job. 

Anyone who has experience using or has even seen the interface of a typical accounting software package will quickly realize that minimal accounting knowledge is required to use the system.  In fact, that is the beauty of these programs – their user-friendliness.  Just like you do not necessarily need to understand how an engine works to drive a car, so too do you not necessarily need to know how accounting software works to make it useful.

Accounting software reviews often focus more on the usability and efficiency of a software package than the specific accounting tasks that the software performs.  This is because most users do not understand the advanced accounting tasks that the software does automatically and the truth is that they do not need to, so long as they put the data in properly. 

The bottom line is that most accounting software is designed exactly for people who have minimal accounting knowledge as they are the ones that benefit the most from it.

In fact, software that was designed only for accounting professionals would have a hard time staying on the market.  As a result, more and more software is brought to market with a target market of the “average user” that is simple, yet effective. 

However, do not get caught thinking that since you have good software that is easy to use that you should avoid learning about accounting.  The more you know, the better use you will be able to make of your software.  The key is to balance your time and effort between learning about accounting and thus being able to use the software more effectively while remaining focused on the activities that you have more time to work on as a result of the improved efficiency that the software gives you.

You don’t need to be a professional race car driver to be on the highway, but it would certainly make you a more efficient driver.  In the same manner, you don’t need special accounting knowledge to use accounting software, it simply makes your job easier.