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TechnologyAdvice Buyer’s Guide to Accounting Software
|Recurring Billing||Nonprofit Features|
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Table of Contents
- What is accounting software?
- Top accounting software vendors
- Categories of accounting software
- Key features of accounting software
- Benefits of accounting software
- Accounting software challenges
- Types of businesses that use accounting software
- Accounting software market trends
- Creating executive buy-in
- Choosing the best accounting software
- Get recommendations for the best accounting software
What is accounting software?
Accounting software is an electronic version of an accountant’s general ledger that also keeps your books accurate, organized, and searchable. Revenues, expenses, assets, and liabilities are digitally recorded and tracked to maintain a complete picture of your business’s financial health. This technology can take various forms and offer a myriad of features based on the needs of a particular business or industry. However, most accounting systems share similar features and functionality. The best accounting software assists businesses with processes such as payroll, accounts payable, and accounts receivable.
Top accounting software vendors
|General Accounting||ERP Suite||Invoicing||Payroll|
|QuickBooks Desktop||Netsuite ERP||BillQuick||ADP Workforce Now|
|FreshBooks||Microsoft Dynamics||Zoho Books||Patriot Software|
|Sage Intacct||Oracle||Bill.com||Paychex Flex|
Categories of accounting software
Core accounting software retains the company’s general ledger and performs accounts receivable and payable, basic tax filing functions, and bank reconciliation. With these functions, companies can improve their organization and move beyond just tracking accounts on paper or in a spreadsheet.
The combination of these features provides benefits to the company including consolidated reporting, easier tax filing, and deeper insight and control over the company’s money. Core accounting systems come in both cloud-connected and on-premise versions, so you can choose the right fit for your company. Cloud-connected core accounting software consolidates real-time data from invoicing, ecommerce, POS, and other online data like bank statements to provide better visibility into your accounts.
Payroll software can be combined with general accounting tools or run as a separate best of breed software. Teams looking for the best payroll software should look for a system that integrates with or includes time and attendance software, automates payroll for salaried and hourly wage workers, and complies with tax and regulatory statutes for the company’s locations.
Enterprise resource planning (ERP) software is a feature-rich tool that combines many categories of accounting software including core accounting, inventory, ecommerce, supply chain management, and even business intelligence solutions. Many companies can centralize all of their financial data in one complete ERP system, providing better organization and greater functionality.
Due to its extensive functionality, ERP software may not be right for every company, as it often comes with a higher price tag than basic accounting software. For growing companies, a few integrated best of breed apps is probably a better option than a complex ERP system.
Billing and invoicing
Deceptively simple in theory, billing and invoicing can be complicated and frustrating if you don’t have the right tools. Billing and invoicing software manages the complex accounting gymnastics that many accounts payable and receivable departments perform. The best billing and invoicing tools come in all levels of complexity, but most provide the ability to automate formerly manual tasks and reduce manual entry errors. These tools come as part of a larger financial management software or can be found in standalone best of breed options. If you’re researching best of breed billing and invoicing tools, look for options that integrate with the other accounting, sales, and quote to cash software that your company uses.
Project accounting software streamlines complex, interdepartmental or inter-company projects with sensitive resource and capital allocations. Providing time and expense tools, human and material resource management, and billing and invoicing features alongside project management task management and analysis, project accounting tools bridge the gap between basic task-oriented project management tools and core accounting software.
Key features of accounting software
No matter your industry or business model, the top accounting solutions offer the following standard features or functionality.
As the most commonly used feature of any accounting solution, electronic management and tracking of A/P and A/R is included in every system with varying levels of automation. The accounts payable features track payments to vendors, suppliers, and other financial outlays to ensure your payments are prompt. The accounts receivable feature includes billing, invoicing, and collections to help you track missing payments.
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Electronically tracking and realizing depreciation costs for a company’s material assets is a major function of most accounting systems. While less important to businesses without expensive capital assets such as production machinery, vehicles, or other forms of property, plant, and equipment (PP&E), manufacturing businesses especially need these tools.
The key to automating many of your accounting functions is to connect your software directly with your financial institution. This allows you to reconcile the transactions you’ve recorded with your bank’s records for your company’s credit, checking, or savings accounts. Most systems include pre-built reports for both month-end and year-end closing to streamline reconciliation.
Though many businesses today are handling less cash—or none at all—managing your company’s cash or cash equivalents is a key function of all accounting software and one that is necessary for preparing the standard Statement of Cash Flows report. Many accounting systems also simplify managing multiple currencies by automatically converting foreign transactions into the currency your business uses.
Most best-of-breed accounting software offers support for recording transactions across multiple offices, branches, or divisions. This allows you to treat each subset as its own entity on paper, yet maintain a comprehensive view for tax and reporting purposes.
Time and expense management
In addition to tracking your business expenses via Accounts Payable, most accounting solutions offer a separate area for tracking individual employees’ expenses and reimbursements. This includes the ability to reconcile expenses with various projects and departmental budgets.
Time and expense management features are critical for reducing manual accounting errors by favoring cloud and digital systems over paper timesheets. Time clock software generates digital timestamps based on employee clock in/out data and automatically combines the hours and pays accordingly. This automation reduces the chance of entry errors and the total amount of time payroll accountants spend on data entry.
Besides electronically recording transactions, the most-cited reason for purchasing accounting software is the automated reporting feature. There are templates for income statements, profit and loss, sales tax return, and even outstanding balances. Reporting is a great way to ensure you know exactly what’s going on with your accounts and can make corrections as soon as something goes awry.
Budgeting and forecasting
Critical to the forward-thinking company, budgeting and forecasting tools give companies insight into their past revenue and spending habits to help them better use their resources and plan for future financial success. The top accounting tools can take advantage of financial records data to build intelligent insights that accurately judge a company’s earning potential. These tools allow C-levels and sales teams to build better revenue goals. Some even include artificial intelligence and machine learning to improve these forecasts.
Benefits of accounting software
These accounting software benefits can have far-reaching effects across the entire company’s financial systems.
The most immediate change many companies notice when they move from paper ledgers or spreadsheets to accounting software is a major reduction in the time spent entering and balancing ledgers. When comparing payroll systems, prioritize those that connect to bank, credit card, and investment accounts directly and port over financial data without human intervention. That changes the job of the accountant from record-keeper to funds approver and can allow the accountant more time to help direct financial strategy.
Reduction in manual data entry errors
Today’s accounting systems reduce the amount of paperwork required to sufficiently run the financial department of any company. Look for these features or connections to these apps included directly in the software:
- Time and attendance
- Quote to cash
- Financial institutions
- Regulatory compliance
- Tax compliance and submission
Greater account visibility for all internal stakeholders
Top accounting tools provide visibility into the financial workings of a company for accountants, executives, and management teams. Each team may use the data differently, either within the accounting software or exported to business intelligence software, so it’s important that they have all the information they need.
Accounting software challenges
These are challenges you might run into if you choose accounting software that isn’t the right fit for your company. Consider these as you compare accounting software.
Multi-currency and multi-country support with tax and regulatory compliance
Some accounting systems are only built to manage finances within a specific country or in a select few currencies. Companies that often do business across two or more countries or in a separate currency should look for an accounting tool that meets those requirements.
When comparing accounting software, check to ensure that the software supports multi-currency and multi-country regulations as well as your local tax and financial regulatory statutes, so you can use those valuable tax features without much manual intervention. If they don’t, you’ll need to input exchange information by hand which could lead to errors.
Your accounting records are precious data and need to be protected. While paper ledgers aren’t hackable, they also aren’t secure from everyone inside your organization. Accounting software provides greater data security for your business.
Cloud computing provides more security for accounting software than paper ledgers because they can be password protected and teams can assign granular user roles to ensure that the right people have the right access to the right financial data. The best cloud accounting software also provides the physical security of offsite databases, automatic data backups, and data encryption to protect the company’s financial data.
Reporting and analytics
Without the right data, it can be difficult to know exactly where your accounts stand and even tougher to make budgeting decisions and predictions. When looking for accounting software, you need to look for tools that offer in-depth reporting and analytics features.
In addition to providing export features to business intelligence software that gives stakeholders a full-spectrum view of how the company’s financial data impacts the overall business environment, many accounting software tools also provide dashboard reporting and financial analytics right in the tool. These features help accountants and bookkeepers track spend vs. income, outstanding invoices, and other KPIs critical to the company’s financial health.
Types of businesses that use accounting software
Accounting software is available in nearly as many shapes and sizes as there are company types. These are the main types of businesses that use accounting tools to manage their financial accounts.
- Commercial accounting: The most common type, commercial accounting software is used by both individuals and for-profit businesses to manage transactions, equity, etc. Commercial accounting software is often best-of-breed software designed for SMBs, mid-size businesses, and large companies that don’t deal with complicated regulatory or tax requirements.
- Nonprofit accounting: Nonprofit software is tailored for the specific needs of not-for-profit organizations. Sometimes called “fund accounting software,” it helps manage grants, tax-exempt transactions, and the stringent reporting requirements most nonprofit organizations face.
- Enterprise accounting: The majority of enterprise accounting solutions are designed for entities doing business internationally, which means they need to manage regulatory and tax compliance with widely varying requirements. Frequently, enterprise accounting software is deployed as an ERP. Theoretically, an enterprise-level accounting solution could be required for a nonprofit organization.
These three types of accounting software are used across the following major business types. When comparing accounting tools for your business, look for an accounting system that fits your particular needs, the complexity of financial records, and feature requirements.
Accounting firms provide outsourced financial services to businesses of all sizes that don’t have an in-house accounting department. Firms can either require businesses to use their preferred accounting software or request access to the company’s general ledger. Some accounting software is designed for agency use, while other software will require a new license for each company, making it more expensive for agencies who handle more than one company.
Small businesses and nonprofits
Small businesses will find increased financial visibility and easier records reconciliation when they switch from spreadsheets to a general ledger or core accounting software. Small businesses usually don’t start out with an accountant working in-house, but business owners who manage the company’s accounts unassisted will find that core accounting tools with available feature add-ons like payroll and invoicing can ease their pain. These systems place industry-standard financial accounting features behind the user-friendly interfaces, easing the transition when the team decides to contract with an outside accountant or bring a dedicated financial professional in-house.
Growing and mid-size businesses and nonprofits
A growing business has potential and hopes for future expansion, which can be confusing when buying accounting software. These teams need increased functionality and the ability to upgrade quickly but without the financial burden of buying a fully-featured enterprise solution that requires payment for features they do not yet use.
Some mid-size and growing businesses may find that an ERP designed for mid-size businesses will fit their needs while providing the opportunity for expansion in the future. Other teams may decide to put together a financial software stack built of best of breed software that shares data via API. A careful comparison of available features, add-ons, and pricing can help clarify these choices, as do recommendations for the best accounting software for your needs.
Enterprise and multinational businesses
The specific requirements of enterprise and multinational organizations include multi-currency and multinational regulatory requirements, supply chain, manufacturing, and business intelligence needs. Large or complex businesses should look for a fully-featured accounting tool or ERP that meets as many requirements as possible. Some enterprise businesses may even choose to work with a vendor to customize their ERP solution to ensure it has the functionality they need.
Enterprise-ready accounting software will automate and bring together many of the company’s financial tasks: invoice, supply chain, franchise, manufacturing management, and much more. These systems will also include valuable accounting analytics tools that will help with budgeting and forecasting and improving the company’s overall financial status.
Accounting software market trends
The accounting software market is crowded and diverse and grows more so each day. While the market has long been dominated by on-premise server-based solutions from Peachtree, SAP, QuickBooks, and other large software development firms, newer companies with industry-specific features and functions are bringing new products to market on a seemingly monthly basis.
These new, agile accounting systems use user-friendly interfaces that mimic mainstream consumer apps and software, provide easy access to automation and AI-driven features, and encourage small business adoption with low monthly subscriptions. This has greatly affected the overall accounting software and consulting market: feature-rich legacy systems tend to look bulkier and harder to implement, small businesses question the price of legacy systems, and accountants who use the newest accounting tools can pivot from standard day to day accounting tasks to the more valuable financial strategy consulting.
Technology changes contributing to the evolution of the accounting software market
Modern accounting tools use the vast amount of financial data they collect to build data visualizations that clarify the company’s financial state without resorting to spreadsheets. Many of these tools also include data analytics that provides insights into future strategies for improving revenue, reducing debt, and staying on budget.
- Event drivers: a new use of data analytics and artificial intelligence tools, event drivers recognize accounting opportunities within the company’s data and suggest improvements to the accounting representative. Event drivers might improve forecasting, tax savings, or revenue growth.
- Collaborative accounting: collaborative accounting has been around for a while and can help many businesses find creative financial opportunities within their data. This has become even easier with the consumerization of instant messaging, remote account access, and video conferencing software that allows two or more parties to collaborate while viewing the same ledger in the cloud.
- Mobile accounting and remote access: everything digital is also moving to mobile, including accounting software. Mobile accounting software allows remote, dispersed, field, and small business teams to access their financial data from smartphones, tablets, or desktop forms. And these teams don’t need to worry about security, as the cloud technology that runs these tools should provide end to end data encryption in transit and at rest.
- Data security: the 2018 rollout of the EU’s GDPR data privacy rules brought data and financial security to the forefront of many companies’ minds. The best accounting software for 2018 and beyond will include encryption, database security, customizable user roles, and other security features to protect the company’s financial data and that of their customers.
Creating executive buy-in
If you’re leading the initiative on software procurement, you’ll need to build a compelling case to company stakeholders on all of the advantages the new solution will offer. Below are a few talking points tailored to specific executives to help you get started.
Your CFO is the single most important person you’ll need to convince. They will likely be heavily involved in the new system, so you’ll need to ensure it offers a significant upgrade in functionality and lower price point than your current software. If you’re paying an outside accountant to manage your books, calculate the cost savings that moving your accounting in-house with a new solution will have.
Your CEO, like the CFO, will be concerned with the dollars and cents of this procurement effort. How many labor hours will the new system save? What will the month, quarter, or year-end close processes look like, and how long will it take to get those reports? Make sure the CEO and CFO agree because, without them, it will be difficult to make your case to the final stakeholder.
Your CTO likely doesn’t care about the features or functionality of the accounting solution you select, just as long as it can be easily integrated with the remainder of your technology stack. Look for solutions that offer an open API and a robust online knowledge base. You should also try to find software that shares a similar technical framework as your other mission-critical systems like your CRM.
Choosing the best accounting software
To truly understand which accounting software is best for your company before you buy, look for software vendors who are willing to let you peek behind the curtain with a free trial. With an application as complicated as accounting software, you’ll want to look for a trial that will provide you with enough time to port in some sample data, get a feel for major features, and test out the ease of use. A free trial can be the difference between choosing an accounting software that meets your needs and spending all your time formulating workarounds for problem areas.
Case studies and referrals
Accounting software sales reps and marketing websites can tell you all about the benefits their software provides, but where’s the proof? The best accounting software vendors will be able to show their worth via case studies and referrals to current power users. If you’re not given access to real-life user feedback and ROI calculations, don’t be afraid to ask for it.
Your software selection team should formulate a request for proposals (RFP) early in the selection process and have it ready to send to accounting software vendors that you’re interested in. A good software RFP should contain:
- Specific business goals your team would like to reach with this software
- A list of must-have and nice-to-have features you’re looking for
- A list of specialized industry or regulatory requirements that this software will need to fit.
Get recommendations for the best accounting software
That’s where we come in. At TechnologyAdvice, we specialize in connecting businesses with the technology they need to grow. Get recommendations, read reviews, and browse products for the best accounting tools for your business, all right here at TechnologyAdvice.com.
If you’re ready to ramp up your research, use the Product Selection Tool at the top of the page to get a list of custom recommendations based on your industry, use case, and/or desired features.
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