How to Choose the Right Accounting Software for Your Business

How to Choose the Right Accounting Software for your Business

How to Choose the Right Accounting Software for Your Business

The key steps in choosing the right accounting software for your business involve understanding what accounting software is and what you want accounting software to accomplish for your business…

Introduction

The issue of knowing which accounting software is most suitable for your business may not be as simple as it appears. In these days of too much data and bloated infomercials, you will be left even more confused if you decided to look for a quick answer by searching the web. At the end, most people consider referrals and recommendations from friends and colleagues as the safest ways out. But before we can even discuss the issue of choosing the right accounting software for your business, I want to make sure that you even understand what exactly accounting software is.

In 2013, while in the business school, I was trying to recommend accounting software for one of my colleagues, when he promptly told me that he already had one. “It is cloud-based, and it is free,” he said. I asked him for the name and the link to the site, and he quickly gave them to me. However, when I checked out, it turned out that what my colleague called “accounting software” was nothing other than an invoicing utility. I could not blame him, however, because the term “Accounting Software” was boldly written there as part of the caption. Many such tools are being bandied around as accounting software online and off-line, and many people have embraced them, convinced that they are using accounting software. Now the question is: “What is accounting software?”

What is Accounting Software?

Accounting can be defined as the collation, recording, processing and presentation of financial data, based on standard policies and methods. Accounting policies and methods are promulgated and regulated by recognized international and national authorities, such as the International Accounting Standards Boards (IASB), or the US Financial Accounting Standards Board (FASB). The policies and methods of accounting are what make accounting what it is, and they are not subject to any personal bias or preference—they are meant to be applied as stipulated.

Generally, accounting methodology involves the following:

Classification

Every item to be accounted for must be properly classified into one of the following categories: Asset, Liability, equity, Income and Expense. Item cannot be accounted for if it does not belong to one of these categories, and no one item can belong to more than one category.

Measurements

The initial value of every item must be determined using approved methods (such as acquisition cost or fair value). Measurement of subsequent value must also follow approved methods. Examples include devaluation or amortization of noncurrent assets, impairment of assets, inventory write-down, amongst others.

Recognition

The timing for the recognition of the measured value must be determined based on approved recognition criteria for such an item. Items can be recognized as Asset, Liability, equity, Income and Expense only when they meet the standard criteria specified for such recognition.

Presentation

The results of all financial transactions for an entity must be presented as financial statements. The following are some of the mandatory statements every accounting entity must produce:

  1. Statement of Financial Position
  2. Statement of Income
  3. Statement of Cash Flows
  4. Statement of Changes in Equity

All items to be accounted for must be subjected to these accounting treatments. True accounting software must provide tools for the implementation of these standard accounting methods. And in addition, the software must be able to generate, at least, the Statement of Financial Position and the Income Statement. These should be the basic minimum requirements for any accounting software, and any software that does not meet these minimum requirements should not be classified as accounting software.

Having explained, in general terms, what accounting software is expected to accomplish, let us now look at the specific issues that should influence your choice of accounting software.

Which Accounting Software is the Right One for Your Business?

Many a times I have had to confront this issue, directly and indirectly. The answer to this question is tied to another question: What do you want? What do you want your accounting software to do for you—beyond those general requirements of allowing you to classify items, record transactions and produce reports?

Many people just think that what is good for their friends or their competitors will also be good for them. The truth is what may be working for your friends or competitors might not necessarily work for you, even if both of you were in the same business—unless, perhaps, both of you think in the same way, and executing the same strategy. The way you run your business, or you want to run your business, is a function of your thought, vision and strategy.

Below are four steps you should adopt in deciding which accounting software is good for your business.

Understand what you are doing, and what you want

You need to understand your business in detail. You must have all the processes and the procedures properly in place. This is where you can copy what your friends or competitors are doing, but with the aim of improving upon them. Having put your processes and procedures in place, you can then identify the areas most vital to your business which you want accounting software to handle. List your preferences according to their order of priorities before you go shopping for accounting software. What are the most important problems you want your accounting software to solve? Because you may not find one accounting software that will meet all your requirements, you have to settle for the one that addresses your topmost priorities.

If, for instance, you want to go for a cloud-based accounting software, do it not because everybody is talking about it; do it because it is in your priority list—your business requires your employees to have access to the system from anywhere in the world and at anytime, or you want to eliminate the cost of acquiring and maintaining your own servers and other infrastructure. But you have to know what the comparative costs are, and the rating of that requirement in your priority list. If you don’t prioritize your requirements, you may find yourself being cajoled into paying for something that may become a cog in the wheel of your business.

Understand your environment and your limitations

When people build software they have a set of environments and audience in mind, no matter how universal the software may appear. There are basic pre-requisites for using any software, and these could span a spectrum which includes people, environment, systems, security and many other components. Some accounting software may require a certain level of education or competency in accounting; some may require constant broadband internet connectivity. There are some that require central admin control to commit batched transactions—which could be a great advantage to some organizations, but a big disadvantage to you because of the way your business operates. There could be a lot more to consider here. Just make sure your environment can support what you are opting for, and your organization has what it takes to get the software and the system running smoothly?

As part of environmental consideration, do not ignore the issue of Standards and legislations. If you are operating within a jurisdiction where the International Financial Reporting Standards (IFRS) have been adopted, for instance, make sure your accounting software complies with IFRS policies, as well as tax and other relevant legislations within your jurisdiction.

Ease of Use

Certainly, accounting software is not a plug-and-play device like your DVD player or USB drive. You will have to spend a little time to learn and understand how to use your accounting software. However, let the learning curve not be so high that you end up sacrificing your primary task just to learn how to use accounting software. Remember, accounting software is meant to make your work simpler and faster, and to free you from all forms of drudgery so that you can focus on your work. If your accounting software cannot add value to your business, either by way of making things more efficient or cheaper, then it is not worth it. I have seen organizations that end up employing more staff with higher qualifications, after deploying accounting software, and end up increasing their overhead cost instead of reducing it.

Even if you are an accountant, you cannot spend all of your time learning and using accounting software only—you could not have spent all those years in the university just to come and use accounting software. Accounting software is meant to free you from the mundane and tedious task of manual bookkeeping so that you can devote your time to something more challenging. If your current accounts clerks cannot use your accounting software, then you have to do a rethink. Understand that people are most productive with the tool they are able to use effectively, and not the ones with the most advanced features. A good example is high end smart phones which most owners hardly use up to 25% of their capabilities.

Support

No matter how fine or stable things may look now, you can never bet on things not going wrong someday. If it does not come from a hidden bug or internal factors, such as failed device, it could come from external disasters such as virus attack. Make sure there are capable hands nearby to assist in good time whenever the need arises. Beware of people who peddle products they know nothing about. That is why you have to ask all the questions before you buy.

Cost

While cost should not be your number one consideration, you will have to make sure that you get the right value for your money. There is no need paying for features you will not use, no matter how good such features might be. You have probably heard of free accounting software. Be careful about this. Your financial data is too important to be entrusted to a platform with no guarantee of adequate security or supports.

There may be many other things you will, probably, want your accounting software to do, but what I have listed here should form your basic and minimum requirements. Everything boils down to you having a prioritized list of what you want, and taking time to look for the solution that addresses your topmost requirements. Just understand that buying accounting software is an investment, no matter how small or big the amount may be. It is not really the amount that matters so much; what matters is how much the software solves your problems and provides information that helps run your business better.

In the course of my work, I have had to recommend accounting software other than our own to some customers after analyzing their requirements. This has always been a surprise to those customers who invited me because they wanted our product. The point is I cannot recommend something that cannot solve known problems of the customer satisfactorily.

Take your time and learn everything you have to learn about any accounting software before you commit your money to it. If the information is too scanty, make a call and ask questions. Don’t get carried away by hypes; just make sure you get something that solves your problems. Maybe you can also visit our site, www.accountingbychoice.com, and take a look at what we have—for both the private and the public sectors. We also have books and other resources that could help you master accounting in theory and in practice. Just visit our website.


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