How to Choose Accounting Software

What is accounting software?

Accounting software is an application for managing financial transactions. Individuals and businesses use accounting software to manage their finances and to track, organize and analyze financial data. 

Accounting software is particularly important for businesses. Your business’s needs will determine the features and level of software customization you’ll require. For example, freelancers and small businesses may opt for generic, one-size-fits-all solutions, while large enterprises will likely need a more complex system. 

“Accounting software can massively help with increasing the efficiency of your business’s financial management and operations,” said Alex King, a chartered accountant and founder of Generation Money. “With modern accounting software, you can get real-time updates and insights from your day-to-day business activity. This can really help with tracking business performance, including cash flow and asset management.”

How to choose the right accounting software for your business

Numerous accounting software options are available, so choosing the right one for your business can be challenging. Here are some tips to help you find the right solution:

1. Determine your needs. Before you start looking into different options, take time to evaluate the specific accounting software features you need. For example, are you primarily interested in sending invoices and tracking expenses? Or do you need more specialized software customized to your industry? For example, King noted that dealing in foreign currencies might be a concern. “If you make or receive payments in foreign currencies, then you’ll need software that supports multiple currencies,” King said.
2. Consider your budget. You should also consider how much you want to spend on accounting software. Generally, the more specialized features and tools you need, the more you can expect to pay. 
3. Research the market. Once you know what you need and how much you can spend, start researching the available options. List at least three products to test.
4. Sign up for demos and free trials. Once you’ve narrowed your options, sign up for trials or demos. Many accounting software platforms offer a free 30-day trial. If a free trial isn’t available, the company should be willing to set up a demo so you can see how the software works.
5. Check out online reviews. Research online reviews to see what kinds of experiences others have had with the software. Other users’ experiences may give you insight into problems you didn’t anticipate. 

What to consider when choosing accounting software

Your accounting software will handle financial tracking for your business, so choose carefully. Here are a few essential factors to keep in mind.

Integrations

Before you invest in accounting software, ensure that it integrates with your bank. If the software is compatible with your bank account, it will automatically download new transactions, saving you time. Integrations with other commonly used business software and platforms are also helpful or necessary.

“Check if the software integrates with existing software and tools your business might use, such as e-commerce platforms,” King advised. “This will greatly increase the efficiency and benefits of the accounting software, saving time on any manual data flows.”

Business needs

When you’re evaluating accounting software, your unique business needs are paramount. For example, a freelancer with no employees will have vastly different requirements than a multimillion-dollar business, so take your business’s size into consideration.

Look for software that’s also tailored to your specific industry or business type. For instance, our review of FreshBooks details how this platform is an excellent option for freelancers because of its advanced invoicing features. Some software is tailored to retail accounting, while other platforms specialize in manufacturing or restaurant businesses.  

Budgetary concerns

Consider how accounting software payments fit into your budget planning. Fortunately, many accounting software solutions are affordable and can accommodate different pricing requirements. Many packages come with a free trial so you can get a sense of whether the platform is the right fit for your business.  

King emphasized the importance of investigating all associated costs, not just upfront pricing. “This means any upfront cost plus monthly subscription fees,” King said. “Always check for any add-on fees, such as additional monthly fees for additional users.”

Cloud-based software

Cloud-based accounting software offers numerous advantages over on-premises software. Cloud software can be accessed from any location, and it has built-in protections to prevent data loss. Plus, cloud-based software tends to be less expensive, because you don’t have to pay for licensing or additional servers to house your data.

Ease of use

If you hire a bookkeeper or accountant to manage your business finances, ease of use may not be as important to you. But if you’re handling the bookkeeping on your own, you’ll want intuitive and easy-to-use accounting software.

Of course, there may be a learning curve initially, so look for companies that offer additional training and support. For instance, our QuickBooks Online review explains how this platform offers robust online resources, including articles and video tutorials, to help users learn the software. 

Scalability

Free or low-cost accounting software may work well for your company if you currently have limited business needs. However, it’s crucial to take a long-term view of your business when you’re selecting accounting software.

Instead of choosing the least-expensive software, look for a scalable option. For example, our NetSuite review highlights this solution’s modular pricing, which lets you start small and add features as your business grows.

King noted that compliance with local regulations is a key aspect of scaling your business. “Make sure any tax services built into the software are compliant with your local regulations and reporting requirements,” King advised. “This may not be a feature you’re concerned about today, but planning ahead could save you a lot of time down the road.”

Accounting software features

Any software you use should include essential accounting software features, such as a general ledger, account reconciliation, and accounts payable and accounts receivable functionality. 

“Most businesses should look for accounting software that allows bank and credit card reconciliations (ideally automated) and transaction categorization,” King advised. “These form the basis of any trial balances and, ultimately, financial statements, so it’s important that they’re integrated.”

Here are some other features to look for when you’re selecting accounting software.  

Invoicing 

Most businesses must create invoices, so most accounting software platforms offer this feature. A basic invoice should outline customer information, the amount owed and the due date.

Additionally, some software offers the following advanced invoicing features:

• The ability to create branded invoices using your company logo, colors and fonts
• Multiple payment options, like credit cards, debit cards, PayPal and e-checks
• Automated payment reminders if a client is late on a payment
• The ability to charge customers in their home currency
• The ability to set up a recurring payment for customers on retainer agreements

Payment processing

Your accounting software should make it easy for customers to pay their bills online. Most invoices allow customers to pay by scanning a QR code or clicking a button.

You should be able to set up recurring payments on a weekly or monthly basis for ongoing customers. After the customer has paid, your software should automatically track and reconcile this payment. 

Plus, the software should make it easy to view detailed reports about customer payments. These reports will help you understand customers’ preferred payment methods and other payment trends. 

Payroll management

When it comes to running payroll, companies’ needs depend on the number of employees and the types of employee benefits they provide. In general, your accounting software should calculate what you owe your staff, regardless of whether they are hourly workers, salaried employees or a combination of the two. 

The software should manage various pay schedules, compensation and benefits. Most employees prefer direct deposit when receiving their compensation, so any software you choose should handle direct deposits for your employees. 

The software should also calculate payroll taxes and print relevant payroll forms. For instance, freelancers who earn $600 or more from a single client in a calendar year will need to receive Form 1099 at the end of the year. You’ll also need W-4s on file for full-time employees, as these forms will tell you how much to deduct from their paychecks. 

Accounts payable 

As a business owner, you must track your finances and how much your business owes vendors and suppliers. The right accounting software will help you do that with billing features, purchase orders and the ability to pay vendor invoices. 

ERP

Enterprise resource planning (ERP) is a feature that helps companies collect and organize information to operate more efficiently. ERP software includes support for accounting, manufacturing, marketing and HR operations. 

ERP provides a unified solution for managing different departments and processes in your business. This feature helps larger companies break down silos between departments and increase transparency. 

Inventory management

If your business sells goods and products, you must track and manage your inventory. An inventory tracking feature in your accounting software can monitor inventory levels and tell you when to reorder specific items.

Accounting software can also track relevant information about each of your products, including stock keeping units, product images, prices and quantities. 

You can also use accounting software to create custom pricing lists. For instance, you may want to offer a discount to customers who order your products in bulk.  

How much does accounting software cost?

Your accounting software’s monthly or annual pricing will depend on your business’s size, the number of users who need access, and the customization level required. For example, if you’re a solopreneur or small business owner, accounting software can cost less than $10 monthly. You might also benefit from software that offers a free version with limited functionality.

In contrast, larger companies with more complex accounting needs can expect to pay more for implementation and licensing fees. You must also pay for additional users. And because accounting software is helpful only if your employees know how to use it, you may need to pay an additional fee to train your employees. 

How can accounting software help your business?

The right accounting software can simplify business processes and prepare you for tax season. If you’re not sure whether your business needs accounting software, here’s what it can do:

• Automate business finances: Accounting software can help you automate your business finances and remove the human error that comes with manual data entry. 
• Access your data from anywhere: With cloud-based software, you can access your financial data from anywhere as long as you have a Wi-Fi connection.
• Prevent data loss: Cloud-based accounting software regularly backs up your data, so you never have to worry about data loss.
• Integrate with third parties: Most accounting software integrates with popular third-party apps, the best CRM software and top expense-tracking solutions.
• File your taxes: The right accounting software makes it easier to file your quarterly and annual taxes. Use the software to collaborate with your accountant and to track how much your business owes.  

Pros and cons of accounting software

Here are some essential factors to consider when you’re evaluating accounting software. 

Pros

• Accuracy: Any time you rely on manual data entry, there’s the possibility of human error. Accounting software connects to your bank and typically categorizes your transactions automatically. This helps ensure accuracy in your financial records.
• Automation: One of the most significant advantages of accounting software is that it lets you automate your finances. By leveraging artificial intelligence, the software can record and reconcile transactions and generate financial reports. It eliminates repetitive tasks, so you’re free to focus on other aspects of your business.
• Relatively low cost: Hiring a bookkeeper or accountant can be expensive, but most accounting software is affordable. In some cases, a free solution such as Wave may meet your needs. If you need a low-cost way to track your business finances, finding the right accounting software is an excellent place to start.
• Streamlined invoicing: If you rely heavily on invoicing clients, the right accounting software can save you a lot of time. For instance, FreshBooks lets you create invoices in minutes and even set up automatic payment reminders.
• Collaboration: Most accounting programs let you grant outside access to your accountant. This can save time come tax season, and it makes it easier for you to pay your quarterly taxes throughout the year.

Cons

• Technical problems: For most people, the biggest downside of dealing with computer programs is the occasional technical issue. That’s why it’s a good idea to use cloud-based software that you can access from anywhere. Then, even if there’s a problem with your desktop computer, you can still access your financial information.
• Potential for fraud: Cloud-based software has many advantages, but it also provides more opportunities for hackers. If you’re not careful, hackers may gain access to your business’s financial data. Employees with access could also steal sensitive information or money before you realize it. 

As with anything else, accounting software has upsides and downsides. However, accounting software can improve your business’s financial accuracy and visibility and free up your time for more creative and profitable pursuits.