How to Choose the Best Small Business Accounting Software

Most people don’t start businesses because they love managing the books or running their own accounting department. The reality is that owning a small business means a large portion of your time is going to be spent making sure the numbers are in order to avoid an audit or tax issue. Thankfully, technology helps considerably. Even businesses that have their own accounting department or CPA use some type of software to help them record expenses and revenues and make sure everything is running smoothly. Small business accounting software makes the extremely complicated nature of managing charts of accounts, invoices, and payments much easier to understand and even automates the process in some cases.

All of that sounds great, but there are as many different types of small business accounting software as there are different types of businesses. Some are free, some very expensive. Some are cloud-based, and some are downloaded and run locally at a company’s site. Many are geared to be industry-specific, with features that are tailored to one type of business, such as manufacturing or agriculture. With all of that, how can you be sure you’re covering all of your bases when shopping for software? What are the things you need to assess before determining if a software solution will meet your requirements for years to come? Luckily, there are a handful of big-ticket items to consider before making a commitment to a software vendor.

Industry and Business Type

Even without looking at a type of small business accounting software that is limited to specific industry, some accounting tools are not well-suited to handle the complexities of companies in certain industries. Operations with complicated purchasing or customer relationships or very large inventories may find that free or low-cost entry-level solutions are not capable of recording their business processes to the level of detail required for proper reporting. On the other end of the spectrum, single-operator LLCs or small retail businesses might find themselves quickly out-priced and overrun with complicated accounting software that has features they don’t need.

Cloud-Based or On-Site

How your application is installed is just as important as the type of software itself. This decision will determine quite a few things about how your software operates for the entirety of the time you’re using it. As time has gone on, the costs of cloud software have come down as more and more businesses sign on, making them accessible to a much wider audience.

In the simplest terms, having cloud software means that the program you interact with looks and feels normal on your computer, but is installed on a server that is on the internet in a different location. Your databases and all of your records are stored remotely with this software and you generally pay a fee for each person that has access to the server.

This is in contrast to locally-installed software, which is what most people think of when buying a program. The installation happens on a computer or server that is located on-site at the business and is accessible only on the machines where it’s installed.

Typically, businesses will choose cloud-based software if they:

  • Have a geographically-diverse workforce, with employees located across the country or globe
  • Do not want the hassle or stress of owning and managing a large, expensive in-house database
  • Want the latest software and updates as they are available
    On-site installations may be best for companies that:
  • Handle very sensitive customer data – banks, etc.
  • Are very risk averse
  • Have a very complex set of technical requirements
  • Are married to a legacy accounting system or framework

Growth Plans

Not surprisingly, the software that fits a business with $500,000 in annual revenues may not work as well for one with $2.5MM in revenues. Some small business accounting software is limited by the number of customers or vendors they can handle, or by the number of accounts that the general ledger is allowed to hold. This can be a serious roadblock to business growth if limitations of the accounting software are not in line with the goals of the organization. Also, consider that implementing a new solution can take 6 months or much more for more complex operations, which can mean a great deal of downtime or disruption in daily processes.

It may be the case that the accounting solution you’re assessing is able to scale and grow with your business, but the costs to do so grow far faster than you can sustain. This doesn’t happen often, as most solutions get less expensive on a per-user basis, but it’s worth noting that almost every vendor will charge more as your company grows.

Lastly, most businesses already use other software to manage things like payroll, field expense tracking, customer outreach (CRM), and so on. Research an accounting solution that will allow integration of the data from these systems to help automate business processes. For example, once payroll has been calculated for the pay period, an automatic integration of that data would feed the financial information into the accounting system and record the expenses on the ledger without the need for human interaction. This type of custom work can add to the overall expense of implementing an accounting solution but saves time and reduces the opportunities for human data-entry errors.

Take It for a Spin

Above all, an accounting solution is only as good as the people using it. If the system is difficult to use or requires a large learning curve before being able to properly access all the functionality, it may not be a good fit for your organization. Most software vendors have trial periods, during which you can install the application or access it in the cloud, upload sample data, and have your users get a feel for what their day to day lives will be like if you choose to go with that particular type of software. Gather feedback from the users during this time and be sure to address their concerns with the vendor to make sure everyone is aware of any gaps and that there is a comfort level with moving forward.

It’s important to remember that small business accounting software is not just a one-time purchase. Without sounding overly dramatic, the decisions made when choosing an accounting solution can have an impact on business operations for several years to come. Taking the time to research, conduct trials, and thoroughly vet an accounting product can save headaches and thousands of dollars down the road.