by Jim Cahill
Are you looking for new accounting software? Do you need help in making that decision?
You could be a start-up or you could be a mature business who realises that your existing accounting software isn’t doing what you need it to do.
Many businesses get recommendations from their accountant. In some cases, the accountant recommends something that suits the accountant but may not suit the client or else may be a solution that works well for another client but may not be right for a different business.
It would be better to identify what you need and then compare the options before deciding what to buy. You are likely to have this software for a long time so you don’t want to have regrets.
Over the course of my career in industry, consulting and in accounting practice, I have done a lot of work helping both small and large companies, select and implement accounting and operations software.
If you are a startup or smaller business, you may think that you don’t have a lot of choice – you will just have to buy a cheap solution. That’s not the case. Even in the most basic, entry level software, there are differences that could make life easier or more difficult and it’s better to understand what you need and what the various packages offer.
In this article, I will guide you through the approach that I use in helping clients identify the accounting software that is best for them. I focus on a few key areas.
Integrated or Standalone Accounting Software
The first question relates to any other software that you already have in your business. If you have software to manage your operations – whether that be manufacturing, distribution, retail or something else – then you should investigate if there is already an accounting package that will easily work with your operations software. For this situation, that will usually be the best solution.
Accounting software is now a mature product and core functionality is common to many packages. I feel strongly that accounting software should support the business. For this reason, a key philosophy to adopt is to let the needs of the business determine the type of accounting software needed.
I am going to assume that most readers of this post will be looking for a standalone package. Finding accounting to suit different operations software will be much pretty much specific to each business
Accounting software functionality
The key area to spend time on is functionality – what I mean by that is getting clear on what you want the software to do. Every business is different and different owner managers can differ slightly in how they run the business so you need functionality to support what is needed.
How do you make sales? Do you have specific items that you sell repeatedly or do you have large one-off unique items? Do you buy and sell in one currency or do you buy and sell in many currencies and need to manage foreign exchange? Do you have repeat or recurring invoices where it would be good to automate the repeating elements.
Creating Sales Quotes
Do you create quotes for customers which you hope will be converted to sales invoices later on? If you need that and the system can support it, just how easy is it to do.
The requirements here can be similar but opposite to sales invoices. Can you have recurring invoices? Do you manage specific parts and will you be buying by part number? Will you have to use your suppliers part numbers or you own in-house part numbers.
Do you want to create purchases orders and match these to supplier invoices as they are received?
Completing Bank Reconciliations
Most systems support bank reconciliations now. How well is that done? Can you import the bank statements into the accounting software to automate the reconciliation? What sort of reports are available?
Tracking Stock items
Do you want to track stock items ie the system keeps track of stock and each sale will reduce stock while purchases will increase stock? Will you want reports showing items on hand and the value for those items.
How well does the accounting system handle VAT? Can it handle both allowable ways of handling VAT – the cash basis or the invoice basis? What about invoices that come in late – ie June invoice that comes in after the June VAT return has been submitted? Are they treated properly?
Is there good reporting and a good trail to support a VAT audit if required?
Tracking margins on sales
Does your business have fixed cost prices for each item sold which would allow you to calculate margin either by invoice or by line item within invoice.
Do you want to set budgets and then compare actuals to budgets.
Importing and Exporting Data
Do you want to import data from other systems. For example, import your bank statements or import a listing of sales invoices for other software. Maybe you have time tracking software for service personnel and you want to link that to your accounts.
Do you want to be able to export data – maybe for analysis in excel?
Locking Accounting Transactions
When you have finalised your accounts you don’t want late transactions to get added into closed accounting periods. Will you be able to lock transactions once you have finalised the accounts for a specific accounting period.?
Accounting for Jobs or Departments
Do you want to gather income and/or costs by jobs or by departments? For example, a building conractor might want to be able to see the revenue and costs for each individual job. On the other hand, a larger business may want to report on costs by department – maybe sales, manufacturing, distribution, admin etc.
Things can, and do, go wrong so do you want to make makeups and be able to restore those backups. How easy is that? Where will be backups be stored?
Will you want to give anyone remote access – an employee at another site or maybe your external accountant? How easy is to do this?
What sort of reports do you want? The basic reporting includes Profit and Loss, Balance Sheet and Lists of customer balances and supplier balances.
Do you want to have flexibility on reporting periods? Do you want to be able to compare actual with budget or actual with equivalent period last year? Do you want to give department managers figures only for their own department?
Drill down in reports
A very useful feature that many, but not all, accounting software has is the ability to drill down when working with reports.
For example, if I am reviewing a Profit and Loss, I might think the travel amount looks high. With drill down, I can click on the travel number and it will open up a new window which will show me the makeup of the number. I may be able to drill down on a number in that window and eventually drill all the way down to the lowest level transactions that make up the total number
I find that a very useful feature and would be reluctant to work with software that doesn’t does it well.
Correcting Transaction Errors
If you do find something wrong, how easy is it to correct?
Some systems will not let you edit a transaction, instead forcing you to enter a reversing transaction and then a new transactions. I find this very cumbersome and it clutters up the database.
How easy is it to distribute accounting reports from the system.
Can you email them? Can you export them to excel or csv formats? Can you push them out to pdf or MS word?
If somebody does something wrong, can you easily find out what happened and can you identify the user responsible so that you can train in how to do it right?
Does the system provide an audit trail that can be queried by date, by user or by account type?
How does the system handle Accounting Periods
How does the system deal with the end of an accounting period?
Most modern systems are date driven but some older systems are period (month) driven. The problem with the older systems is that you may be still finalising last year but cannot move on properly to the new year until last year is fully closed off. It just makes reporting for the first few months more difficult until the last period is closed off.
There is a lot of features listed above. They may not all be relevant to you. What you need to do iis to look at your own business and understand what functionality your business needs and then you need to match that to what the software delivers.
How easy will it be for users to work with the system? If its awkward or cumbersome, users will find it harder to work with and this can lead to inefficiencies.
What do the screens look like? How easy is it to navigate around the system? The only way to know this is to play around with the system. Talk to other people who are using the system, if you can.
Does it look like you would need to be an accountant to use it or is it easy to use, with little or no jargon. Will you be able to run your favourite reports or will you always have to rely on accounts staff?
Quality and Form of Support available
What happens if you have a query or something goes wrong? Is support readily available? Is this support by telephone or by email? How much does it cost? How responsive are they – will you be long waiting?
Cost of Ownership
When buying any software, you should always consider how long you will have it and what it will cost over that time-period.
Typically, you would want to have it for at least 5 years. What will the total cost of ownership be?
This will be made up of the upfront cost. Then add in support cost over the full life of the software. Will you have to invest in additional modifications or customisations? Will you have to invest in additional hardware? Will there be obligatory updates that you will have to buy?
Add up all of these costs to determine the total cost of ownership for the lifetime of the software.
Do you want software that runs on desktop or on the cloud?
The cloud comes will a lot of advantages but may have disadvantages. If you have slow broadband it may not suit. Some book-keepers find data entry on a cloud much slower. Against that, some cloud solutions have data import facilities that overcome the data entry issues.
Also, it’s good to pay attention to the underlying software used to write the product. There are still software packages out there using older database technology. They can be harder to work with and can hit size limits – sooner than you expect.
I came across a client a couple of years ago who had database size problem because they sold a lot of small value items. It was the number of transactions that counted and not the value so they quickly ran into database size problems.
Single or Multi User Accounting Software?
Will you be a single user site or a multi-user site? If there are multiusers, does that put any restrictions on other users. For example, I am working with a client and regularly, the software will prevent a user doing something – running reports or procedures – because another user is going something else in the system.
Who should be involved in the software selection decision?
The people who will be working with the software on a day to day basis should be involved. If you have some staff with more experience with other software you may give more weight to their opinion. Your external accountant may be familiar with many different types of software and may be able to help.
The amount of effort you put into the software evaluation should match the amount of money you will be spending and the consequences of getting the decision wrong.
Evaluation Matrix for software selection
At the end of the day, you will have done your research and there may be a lot of factors to consider. You may feel confused but you want to make a decision.
What I find helpful in these situations is to create an evaluation matrix and use that to guide the decision. Have a read of another of my blog posts about creating a decision matrix.
What I find is that the evaluation matrix will help you to organise your thoughts and to identify your priorities. It will not make the decision for you but it should trigger a discussion about just how important some elements are and it’s important to have that discussion.
At the end of the day, you are going to be living with the software you select for a number of years. Unless your business is very straightforward, the chances are that some software will work much better for you than other software. It’s well worth investing time up front to get it right.
This article is written and reproduced with the kind permission by Jim Cahill of AccountsPLUS