19 Features to Consider When Selecting Small Business Accounting Software

A good accounting software can be an invaluable tool for businesses. Before choosing an accounting software it helps to have a detailed understanding of what your accounting system can do for you .  This involves analysing the key aspects of your business, determining what is essential (eg. invoicing, expenses, banking, reports) and what you would like to have (eg. time tracking, credit card payments, banking downloads etc.). By reviewing your requirements in advance and building a checklist, you can make a better decision about something that goes to the very foundation of your business. Below are some important features to consider:

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How Much Does it Cost?

There are numerous software out there at different price points. Some accounting software are free but might have limited functionality, some charge a one time fee (usually desktop based) and some are based on monthly or annual (recurring) billing (which is the most popular billing model these days). When reviewing the cost of a software it is also important to examine what your time is worth and can you be using your time more productivity on other aspects of your business that are more beneficial. This is also referred to as the opportunity cost. Below is a simple calculator that can help you evaluate your time

DO YOU WANT it TO BE DESKTOP OR CLOUD BASED?

Deciding whether you want the software to be located on your desktop or accessible in the cloud is one of the most important decisions to be made in the current environment. It is important to ask yourself:

• Do you work from one computer that is located in your office or your home office or do you want the ability to access your accounting information from anywhere?

• Does other software that you use, and might want to integrate, operate in the cloud or is it desktop?

• Are there access or security considerations that would make you decide one over the other?

• Are you more comfortable with having your software on a few computers where you can make a hard backup or do you feel more at ease with your data in the cloud?

• Is the software available for the operating system that you use. For example some software is only available for Mac while others are only accessible to Windows users (although there are generally workarounds)

IS it AVAILABLE IN YOUR COUNTRY AND OPTIMIZED FOR COUNTRY SPECIFIC CONSIDERATIONS?

While many accounting software are available internationally, there might be some areas that are not optimized for your location. These are often related to tax including sales and payroll tax, discussed below. They may also use different conventions (currency symbols) or have different report names than the ones you are used to.

DOES it HAVE BANKING DOWNLOAD FUNCTIONALITY?

One of the dominant advantages of many accounting software is that they interface with your bank and can be automated to download transactions from your business bank account.  The ones that do will have a list of banks that are supported. Once connected, the transactions are downloaded daily, which can be a significant time saver as bank related transactions no longer have to be entered manually. Instead they can be directly categorized from the banking download. This also works with credit cards and line of credit accounts.

what type of customer/invoicing features does it have?

Most accounting software will be allow you to create invoices, enter payments and track accounts receivable owing by customers. However, some businesses require additional functionality from their customer portals. For businesses that allow credit terms to their customers, it is important to select accounting software that provides reports that show the age of customers receivables. Some software also allows you to send reminders and generate statements that can facilitate the collection process and reduce bad debts. Additionally, reports by product or service types can be helpful when analyzing sales and determine where to make improvements.

Does the software allow for invoice customization?

To some businesses, invoice customization is essential. This includes integrating your logo into the invoice and the ability to design elements to your requirements.  Some accounting software have very limited customization, while others are far more flexible.  If this is an important consideration eg. you are a design business, an accounting software that allows for greater customization can greatly streamline your invoicing process.

does the software offer Credit Cards/Payments directly from customers?

Many businesses allow customers to pay their invoices by debit or credit card . While a separate credit card processor can be set up, having software that allows you to send an invoice and allow for payment by credit card directly (without any additional steps) can save a great deal of time, improve collection efforts as it is much easier for the customer to pay and make the bookkeeping easier by allocating the payments automatically. It is important to look at rates that the software charges and do a cost benefit analysis depending on the volume of sales vs time saved.

what type of Inventory features does it have?

Accounting for inventory is one of the more complex aspects of selecting accounting software.  Many small businesses have external systems , an excel spreadsheet or more sophisticated system, to keep track of their inventory.  If you have inventory it and track it regularly , ideally you want your system to integrate with your accounting software.  Alternatively, you can migrate your current inventory tracking system to the software itself and have it track it for you all in one place. Inventory may only involve dealing with quantities on hand or there may be other requirements such as price levels or bundling various components into one item. It you are planning to track inventory either currently or in the future, it is important to ensure that the selected software either supports it or allows for add-ons/apps that can be integrated.

what type of Accounts Payable/supplier features does it have?

Most accounting software allows you to track your bills and amounts owing to vendors and suppliers, although sometimes this require an upgrade. Some go a little bit further and allow you to reflect time based discounts and cash flow analysis that can help you optimize your payment decisions. 

are the reporting sufficient for your needs now and in the future?

The complexity of your business combined with your desire for analysis will be important in determining the level of reporting sophistication that you require for your business. Well organized data allows for endless amounts of reporting and is limited to what your accounting software allows.  You also want to confirm whether the data is exportable to a spreadsheet like excel which allows for more detailed data analysis. Most reporting software has profit-loss, balance sheet and cash flow reports. It is important to review the other types of reports to ensure that they meet your needs now and potentially in the future as the business grows.

does the software offer a payroll option?

If you pay your employees or yourself a salary you have to evaluate whether you want your accounting software to do it or whether you are satisfied with your current system.  Software that also provides payroll can streamline operations as all reporting is in one area and can be helpful when accounting for payroll and preparing reports. Alternatively, there are numerous external payroll providers that integrate with accounting software.

does it offer Foreign Exchange options?

Dealing with customers and suppliers in different countries can be complicated and frustrating.  Accounting software can help alleviate this.  If you invoice in USD or other foreign currency or if you have suppliers that do the same, it is important to select a software that can handle this as there are many accounting complexities that can be simplified. Additionally, it helps to be able to send an invoice to a customer in their original currency directly from your software.

are there limits on the number of users?

Determining how many users will need access to the software is important to determine up front so that you can ensure that the software offers multi user access and ensure that the cost is reasonable (they often charge extra for additional users).  It is also possible that you might need multi user access in the future in which case you should evaluate whether an upgrade is possible.

is it simple to use?

There is accounting software that is written for accountants which can be frustrating for the average non accountant user. If you intend to use the accounting software in house and have the business owners and other employees access it, it is important to assess whether it is straightforward. Note that like any software there is a learning curve so it might take some time to learn.   Luckily most software offer free trials which allow you to play around and figure out which one you are most comfortable with using. 

Does it have sales tax functionality for your region?

If you operate in the US, Canada, EU, Australia and many other countries, you are often required to charge sales tax . For those businesses that are required to charge, calculate and remit sales tax it is essential to assess the software’s ability to represent these taxes on invoices and bills and generate reports that will facilitate government filings.

what type of security and audit trail does it provide?

Financial data is highly sensitive and as such, particularly in a multi user environment, you need to ensure that the software you select is able to maintain the security of this data.  This can be accomplished through encryption of data, different permissions for users and audit trails for any changes to made. An audit trail allows you assess changes that have been made to transactions which can be essential when trying to pinpoint an error or even fraud.

Does it have time tracking?

For businesses that charge based on time spent on a project, there are several accounting software that have this built in functionality.  This allows employees to input their time on projects which can help determine billing for clients and in the preparation of estimates. The time tracking module is often integrated with the invoicing module thereby making the invoicing process easier. This is one more way to consolidate and facilitate your financial processes and enhance reporting.

Does it have Budgeting/Forecasting functionality?

Many businesses want to be able to make estimates for future sales, expenses and cash flow, prepare budgets and forecasts.  Some businesses use excel or specific budgeting apps. The advantage of using the accounting software is that it the historical data is already there and therefore much more easily built upon. The downside is often the budgeting functionality is a bit limited.

does it allow for Upgrades /Add-ons?

Many software offer different levels of functionality at different price points.  While a new small business’ needs may be quite simple, these tend to change as the business grows.  It is generally easier to upgrade rather than change accounting software and as such important to assess if the software is able to handle more complex business activities.

Additionally, there are numerous apps that are available including inventory, customer management, cash flow, CRM, reporting etc. which integrate with accounting software. These can often provide a good foundation for a growing business. It is important to assess if these might be necessary in the future and if they integrate with your choice of software.

Choosing a software does not have to be difficult especially when you have mapped out your requirements.  The checklist above can be a useful guide whether you are choosing an accounting software for the first time or are thinking of upgrading.  As always, if you have access to an accountant, you should consult with him or her as he can often provide with you with greater insight into your requirements and help you set up your accounting software.  

Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.

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