What is Accounting & Finance?
Accounting software is a general set of business applications used to perform accounting and financial processes. Accounting software range from single-entry systems like check writing or bookkeeping to double-entry systems such as general ledger, accounts receivables, and accounts payable. Other robust solutions also include inventory, invoicing, fixed assets, and more sophisticated functions. Accounting software helps your business to avoid manual errors and keep the numbers accurate, automate repetitive tasks to save time, get financial calendar alerts to avoid penalties, and so much more. As your business grows, so does your need for accounting software.
Best Accounting & Finance
A buyer's guide to choosing the best accounting software
You’ll be amazed at the variety of accounting software out there. Advances in cloud computing and mobile technologies further accelerate newer features, along with the trend towards industry-specific applications. The key to avoid getting overwhelmed by a slew of financials systems is to understand how accounting software are packaged. That way you can easily separate exciting features from the features you just need.
Components of accounting software
The majority of vendors provide the modules listed below as either part of a single product bundle or as additional features that can be integrated at a later time. The general rule here is that bundles usually offer less complex tools fit for small businesses while additional modules are more sophisticated and aimed at bigger enterprises.
Core accounting – it’s the basic component of all accounting software, so make sure you’re getting this module. Features include general ledger, accounts payable, accounts receivable, fixed assets, and bank reconciliation. Most vendors offer this as their basic plan, while a few vendor even give it away as a freemium to get you on board for future paid subscriptions.
Billing & Invoicing – this module can be part of the basic module or as a separate component. It lets you to automate routine collections. Billing & Invoicing can vary by industry based on payment methods, industry standards and practices, and scale of operations.
Budget & Forecasting – often packaged as an add-on, this module lets you estimate next year’s budget based on historic data and sales targets. A standalone module can consolidate different departmental budgeting and forecasts for an overall company estimates, while a bundled feature usually only allows a single budget and forecast tool.
Fixed asset – whether as an add-on or bundled with core accounting, fixed asset lets you manage financial information on important company assets. Features include depreciation calculation; audit history; and cost. This module is critical if the business has a lot of assets in different forms. Otherwise, a bundled fixed asset may suffice.
Payroll system – lets you process employee payrolls, print checks, automatically withhold and pay taxes and create legal and tax reports on schedule. The module is often packaged as an add-on or standalone product. A practical feature to look at is an automated reminder when to issue government payments to avoid penalties.
Project accounting – it’s usually packaged as a standalone product targeted at businesses with project-oriented operations like construction and software firms. This product is usually bundled with core accounting on top of costing and estimation of overheads, labor, materials, and equipment, among others. Project accounting solutions range from simple systems that can manage projects one at a time, or complex solutions for multiple and simultaneous but interrelated projects.
Fund accounting – targeted at nonprofits and government agencies, which have a separate set of financial reporting requirements. Features include: tracking donation expenditures; grant management; and Governmental Accounting Standards Board (GASB) regulations.
Inventory management – it’s a specific module to manage inventory. The system allows you to manage the movement of products to avoid over or under stocking. It features tools to track orders, sales, and deliveries. More specific inventory systems have a tool to calculate stock depreciation if your business has a low shelf-life product line.
Know your type of business
You should also know what type of business you are when choosing an accounting solution. Your subscription decision depends much on this factor.
Routine small business – your accounting needs are straightforward. These include: general ledger, accounts payable/accounts receivable, fixed assets, and bank reconciliation. In most cases, you only need the basic plan or core accounting with one or two add-ons to your liking. Vendor support is needed, but very rarely, perhaps only during setup.
Growing business – you may have the same accounting needs as a small business now, but you’ll need more robust features in a few months or years. Look for accounting software with scalable options, that is, you can start with a core accounting module and add more modules later.
Large enterprise – you will need more complex and robust accounting modules. For example, instead of getting a core accounting module with bundled budget & forecast or fixed asset features, it’s recommended to get full but integrated modules. Standalone modules can handle multiple data from different departments and consolidate them to get an overall picture. In many instances, vendors need to quote a price based on the large enterprise’ specific processes.
Industry-specific – some businesses like engineering and construction firms require features that enable them to break down costing and estimation by project or other categories. Software development companies also need features to match the development phases specific to launching new products. Likewise, nonprofits and fundraising entities need accounting solutions that incorporate reporting requirements specific to them. If your business has a specific need, check for accounting solutions that specialize on your field.
Special features – some vendors offer as an add-on a Business Intelligence module. This feature enables you to consolidate your financial data with other data from other business processes like sales and project management to get an insight, such as, business or market trends, cost or income patterns, and seasonal trends. Likewise, other accounting software has a mobile app for iOS and Android so you can access the system wherever you have Internet connection.
General vs. industry-specific accounting – An accounting software designed for your industry outperforms a general accounting solution. But consider other factors like vendor support, integration, and scalability to ensure the industry-specific software is truly superior.
Cross-process integration – other business processes like CRM, sales software, and project management solutions often work best when integrated with your financials. A reliable accounting software should not be capable of integrating to its own modules, but also across other processes. If the accounting software can export data to standard file formats like CSV, TXT, or PDF, it’s likely compatible with other business solutions.
Scalability – even if you’re a small business, give scalability a serious look. You can never tell if your business needs to expand, along with your financial needs. At the least, the accounting software should let you export data in case you need to get a more robust solution in the future.
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