If you own a small business, you understand how critical it is to keep track of your finances. But managing your books can be challenging and frustrating, especially if you are using a manual process or a software system that is insufficient for your needs. To make the most of your time and money, you should be aware of the potential advantages and disadvantages of using accounting software.
Accounting software: what is it?
Accounting software is a framework that enables you to automate the recording, processing, and reporting of your financial transactions. Software packages may include a range of accounting features, including payroll and payroll tax filing, sales tax tracking, invoicing, accounts payable, accounts receivable and more. Many of the programs that are currently on the market integrate with other software and services, such as CRM, e-commerce, inventory control, and banking.
An essential component of managing any business is bookkeeping. It enables you to keep track of your finances, identify areas where you might be able to cut costs, and make informed business decisions. However, it can be a time-consuming and tedious task. This is where accounting software comes in. Accounting software can automate the majority of bookkeeping tasks, giving you more time to focus on other aspects of your business.
5 benefits of using accounting software for your bookkeeping
1. Save time and money.
Accounting software can automate many of the tasks involved in bookkeeping, such as invoicing, expense tracking, and report generation. This can save you a significant amount of time and money. You don’t have to spend hours entering data, performing manual calculations, or generating reports. The software can automate that for you in minutes, with minimal errors and discrepancies.
Take a small business with 100 clients as an example. Without accounting software, you would have to manually enter each customer’s information, keep track of their orders, and create invoices. This would take a lot of time and effort. However, you can automate the majority of these tasks with accounting software. Simply enter your customer’s information once, and the software will track their orders and generate invoices with minimal input from you. This can save you hours of work each week, and it can also help you avoid costly errors.
2. Improved accuracy.
Bookkeeping errors can be reduced with the aid of accounting software. Since most systems let you integrate with bank and credit card feeds or import transactional data from a spreadsheet, the likelihood of human error is reduced. The Accounting software is designed to track all of your financial transactions in one location, making it easier to identify and correct errors that may occur and potentially saving hours of work throughout the year. Improved data accuracy is an important factor in helping you avoid costly errors.
For instance, if you manually record your expenses, you might miss entering a receipt or get your calculations wrong. As a result, financial statements may be incorrect, and potential tax deductions may be overlooked. Automating the process of tracking your expenses can assist you in avoiding these issues. Or, suppose you enter a customer’s payment incorrectly. You can check the accuracy of income and payment transactions using the application’s automated account reconciliation process and report generation. The error can then be corrected without having an adverse impact on your financial statements.
3. Stay organized and compliant with regulations.
Since accounting software tracks all of your financial information in one place, it helps you stay organized. A technical framework for maintaining accurate records of your assets, liabilities, income, and expenses helps you stay organized and makes it easier for you to meet reporting requirements. Additionally, you can abide by any accounting standards and regulations that may be relevant to your business entity, such as GAAP, IFRS, or GST.
Consider the case of a company with several locations. Tracking your income and expenses from each location can be challenging without accounting software. However, you can easily keep track of your income and expenses across all locations if you use an accounting program that is designed to support location tracking. As a result, you will be better able to understand how your business is performing overall.
Maintaining accurate and current records is extremely important for avoiding penalties and passing audits. The application can help you track your payroll and sales taxes to ensure that you’re filing them correctly and on time. It can also help you comply with other regulations, such as accruals related to payroll and employee benefits.
4. Access your data from anywhere.
You can always keep tabs on your finances with online software because it is accessible from anywhere. This is particularly helpful if you frequently travel or need to access your data from home. Your financial information is accessible 24/7 from any location and on any device. With encryption, backups, and cloud storage, you can guard against unauthorized access, theft, or loss of your sensitive data.
Suppose, for instance, that you need to check your financial records while traveling for business. A desktop-based or manual system would require you to wait until you returned to the office to complete this task. With an online system, you can access your financial statements from anywhere by simply logging in from a laptop or mobile device.
5. Get timely insights into your business.
Accounting software that is set up and used properly can give you business insights that can aid in better decision-making. Most accounting software programs have a feature that enables you to track sales trends, identify cost-saving opportunities, and make future plans using graphical representations of your financial data. Taxes, expenses, profits, and cash flow can all be monitored in real time. To support the goals and growth of your business, you can use these tools to help you plan ahead and make informed decisions.
For example, if you can see that your expenses are increasing, you can take steps to reduce them. Or, if you can see that your sales are declining, you can develop strategies to increase them.
4 potential drawbacks of using accounting software for bookkeeping
Although using accounting software has many advantages, there are also some potential drawbacks, such as:
1. Cost.
Accounting software can be expensive, especially if you need a full-featured system. To avoid the cost drawback, you can choose accounting software that is free or has a free trial. Another option might be accounting software offered by your bank or credit union.
2. Complexity.
Using accounting software can be challenging, especially if you are not familiar with accounting concepts. To avoid the complexity, you can select accounting software that is easy to use and has a user-friendly interface, as long as it offers all of the capabilities that you need. You can also ask for help from an experienced accountant or bookkeeper if you have any questions.
3. Data security.
You must be careful to find software that has security features to protect your sensitive financial data. To circumvent the issue with data security, you can use software that has strong security features, such as encryption and two-factor authentication. Furthermore, you should regularly backup your data.
4. Vendor lock-in.
If you select an accounting system that uses a proprietary file structure, it can be difficult to switch to another system. This is due to your data being locked into that file structure, making it difficult to export data from the proprietary system and import that data into another system, necessitating manual entry or transfer fees should you decide to switch systems. To avoid vendor lock-in, you would need to choose a program that offers a data export feature. This can allow you to transfer your data to another accounting software if you decide to switch in the future.
How to select the appropriate accounting software for your company
You should select an application that fits your business needs, budget, and minimizes any potential drawbacks if you want to take advantage of the power offered by accounting software systems. The market offers a wide range of options, from free to premium, straightforward to complex, desktop-based to cloud-based. You should compare the features, pricing, reviews, and support of different accounting software before making a decision. Accounting software is a great option if you are looking for a way to reduce costs, save time, and strengthen the financial position of your company.
It is crucial to take into account your unique needs and requirements when selecting accounting software. Some factors to consider include:
- The size of your business. Accounting systems are designed for a range from small businesses to enterprise systems for large companies.
- The features you require. Make sure to opt for an application that has the features you require, such as invoicing, billing, payroll, sales tax tracking, location tracking, project tracking, and more.
- Your budget. Accounting software can range in price from free to very expensive. Select a system that fits your budget.
- Proven reliability and ease of use. Find software that has a strong reputation for accuracy, reliability, and ease of use, especially if you are not familiar with accounting principles.
- Security. Select a system that has strong security features to protect your sensitive financial data.
Conclusion
Accounting software is a great choice if you are looking for a way to save time, money, and improve the financial health of your company. Make sure to choose a software program that satisfies your unique needs from the many that are offered. If you are unsure what you need, a consultation with an experienced accountant can provide the insight and analysis that you need to make an informed decision.
To learn more about the benefits of using accounting software, choosing an application, or training, contact us today.