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TechnologyAdvice Buyer's Guide to Accounting SoftwareUpdated: Jan. 16th, 2019
- Jump To:
- What is Accounting Software?
- Key Features
- Potential Issues
- Business Types
- User Roles SMB
- User Roles Enterprise
- Market Trends
- Creating Executive Buy-In
- Choosing the Best Accounting Software
What is Accounting Software?
Accounting software is an electronic version of an accountant’s general ledger. Revenues, expenses, assets, and liabilities are all recorded and tracked digitally to maintain a complete picture of your business’s financial health. This technology can take various forms and offer myriad features based on the needs of a particular business or industry. However, the vast majority of 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 Desk||Patriot Software|
|Sage Intacct||Oracle||Bill.com||Paychex Flex|
Categories of Accounting Software
Core accounting describes the group of software that retains the company’s general ledger, accounts receivable and payable, basic tax filing functions, and bank reconciliation. These are the minimum functions of any accounting software that hopes to extend beyond 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 cloud-connected and on-premise versions. Cloud-connected online core accounting software has the advantage of accepting real-time data from invoicing, ecommerce, POS, and other online data like bank statements.
Payroll software comprises a main category of accounting software, and 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 with connections to time and attendance software, automation for salaried and hourly wage workers, and compliance 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 from core accounting to inventory, ecommerce, supply chain management, and even business intelligence solutions. Depending on the needs of the company and the offerings of the software, many companies are able to centralize all of their financial data in one complete ERP system.
Due to its extensive functionality, ERP software may not be right for every company. Many growing companies choose to stick with a couple of integrated best of breed apps rather than implementing an ERP.
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 researching best of breed billing and invoicing tools, look for connectivity to other accounting, sales, and quote to cash software that your company uses to stay organized.
Project accounting software streamlines the process of completing complex, interdepartmental or inter-company projects, especially those 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.
While not an actual accounting function, all accounting software systems offer varying levels of security and/or access control in the form of user or role-based permissions, single-sign-on capabilities, and/or data encryption. Many solutions also offer the ability to grant access to your third-party accounting services provider.
The most commonly used area of any accounting solution, electronic management and tracking of A/P and A/R is part of every system and has varying levels of automation. The accounts payable features include tracking payments to vendors, suppliers, and other financial outlays. The accounts receivable feature includes billing/invoicing and collections.
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While less important to businesses without expensive capital assets such as production machinery, vehicles, or other forms of property, plant, and equipment (PP&E), electronically tracking and realizing depreciation costs for a company’s material assets is a major function of most accounting systems.
The key to automating the majority 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.
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 systems, and necessary for preparing the standard Statement of Cash Flows report. Many accounting systems also simplify managing multiple currencies by converting foreign transactions into the currency your business uses.
Most best-of-breed accounting systems offer 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/or reporting purposes.
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/or departmental budgets.
Most accounting vendors offer features that help users maintain compliance with various governmental requirements, such as GAAP, Sarbanes-Oxley, and GDPR.
Besides electronically recording transactions, the single most-cited reason for purchasing accounting software is automated report preparation for income statements, profit and loss, sales tax return, etc.
Budgeting and Forecasting
Critical to the forward-thinking company, budgeting and forecasting tools give companies the insight of 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.
Time and Expense Management
Time and expense management features go a long way to reduce manual payroll and accounting errors by moving paper timesheets to the cloud and digital systems. Time clock software generates digital timestamps based on employee clock in/out data. This data is instantly totaled and submitted to the payroll accounting system, reducing the chance of entry errors and the total amount of time payroll accountants spend on data entry.
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 an accounting software is a major reduction in the time spent entering and balancing ledgers. When comparing payroll systems, look for 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 software provides visibility into the financial workings of a company for accounting department representatives, executives, and management teams. Each of these teams may use the data differently, either within the accounting software or exported to business intelligence software.
Potential Issues with Accounting Software
These are the potential issues you might run into if you choose an accounting software that isn’t the right fit for your company. Keep these in mind as you compare accounting software choices.
Multi-currency and multi-country support with tax and regulatory compliance
Some accounting systems are built to manage finances within a specific country or in only a select few currencies. Companies who do business across 2 or more countries or who often do business in a separate currency should look for accounting software that meets those requirements.
When comparing accounting software, check to ensure that the software supports your local tax and financial regulatory statutes, as well. This will ensure that you can use those valuable tax features without much manual intervention.
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
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.
Business Types that Use Accounting Software
Accounting software comes in nearly as many shapes and sizes as there are company types. These are the main types of businesses that use accounting software 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. Of course, when comparing accounting software for your business, look for an accounting system that fits your particular needs, complexity of financial records, and feature requirements.
Accounting firms provide outsourced accounting services to businesses of all sizes. 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.
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 don’t often start out with a professional accountant working in-house. But business owners who manage the company’s accounts unassisted will find that core accounting software with available feature add-ons like payroll and invoicing can ease their pain. These systems place industry-standard financial accounting features behind the friendly user 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 so much potential and likely a lot of hopes for future expansion, which can be confusing for anyone buying accounting software. These teams need increased functionality and the ability to upgrade to more features quickly, but without the financial burden of buying an 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 midsize 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 business requirements of enterprise and multinational businesses can include multicurrency and multinational regulatory requirements, supply chain, manufacturing, and business intelligence needs. Businesses of this size or complexity should look for a fully featured accounting tool or ERP that meets as many requirements as possible.
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 User Roles for Small and Medium Businesses
Accountant or bookkeeper
Whether you have an in-house accountant or bookkeeper or you contract out your accounting services, an accounting software will be where these professionals will perform the majority of their work. When choosing the best accounting software for your small business, look for systems that easily share access with contract accountants.
Payroll manager and staff
Whether you manage your payroll in-house or contract out, your payroll department will need to have a way to report payroll expenses in the accounting software. Many companies manage this task by contracting with an accounting software that includes a payroll module. In this case, you’ll want to set up custom user roles that allow access to payroll features without full account access.
Another way to manage user access to your payroll documents is to connect a best of breed payroll tool to the accounting software via API or native connection. This connection will port over payroll expenses without opening account access to unauthorized users.
Because the buck stops with the owner/CEO/President/founder position, this employee is entitled to full access to the entire accounting system. This user role could have varying access, however, depending on their levels of interaction with the finances. In many small businesses, the CEO or Owner is also the accountant, payroll manager, and time and attendance enforcer. In this case, the CEO will need to have edit and reporting privileges within the accounting software. Other CEOs with dedicated accounting or payroll staff (or consultants) may only need reporting and analysis tools to keep tabs on the finances.
Sales manager or representatives
With custom user roles in the accounting software, sales managers or representatives can enter their own invoices and contracts directly into the accounting software without gaining unnecessary access to sensitive financial or payroll information. Similar segregation of financial data can also happen with a best of breed quote to cash or invoicing software. Sales managers and representatives can log their sales in the invoice tool, which then updates the accounting software via API or native app connection.
Accounting Software User Roles for Enterprise
In an enterprise accounting software, the accounting manager should have full access to the tool. This user is often the administrator for the entire software, tasked with setting up user roles, building out custom forms and categorizations, and monitoring the processes to keep the financial accounts on track.
Accounting associates will provide most of the day to day account updates, adding expenses and debits, monitoring payments and invoices, and handling order requisitions. These accounting professionals should have access to the types of transactions and accounts that they work with most frequently. Also consider giving these users access to the reporting and analytics tools to help them build a culture of improvement.
At an enterprise company, most payroll managers run oversight into the payroll processes for all divisions of the company, and will need access to the scope of payroll information. This can include access to time and attendance data and some supply chain information. They may also need access to reporting and analytics of the company’s larger financial status to have insight into areas for improvement.
Payroll associates will need editing access to the particular payroll accounts under their purview. Again, to instill a culture of improvement and Lean work, these associates may also be allowed access to reporting and analytics tools to better understand how to implements that save money across their department.
An enterprise organization’s executive team spends the majority of their time guiding strategy. In a data-driven company, the C-levels, VPs, and Directors will use accounting software to gain an understanding of the company’s financial status to drive macro and departmental strategy. If the accounting software is couched in an ERP, the team should have access to analytic tools that combine financial data from across the company. If using best of breed software, the company may want to consider using a business intelligence tool to aggregate accounting information with individual KPIs found in other software like sales intelligence, marketing automation, and supply chain management.
Sales Director or Manager
In an enterprise organization, the Director of Sales or Sales Manager will be directly involved in driving strategy for the sales team, and will need access to the financial data related to their department. These team members should have view and edit access to the sales data from their teams, and direct access to any reporting or analytics provided by the accounting software.
Depending on your software stack, sales associates may never need to access the accounting software. Some teams will have the sales representatives enter invoices directly into the software, in which case they will need edit access for their direct accounts. If your team uses an ERP, a CRM with invoicing capabilities, or another sales tool to manage invoicing and contracts, the sales individual contributors probably won’t need access to your accounting tool. In this case, however, ensure that the sales software stack has a native or API integration with the accounting tool to automatically port over crucial sales financial data.
Accounting Software Market Trends
The accounting software market is increasingly crowded and diverse. Long 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 software 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
Analytics and data visualization: modern accounting tools use the vast stores of financial data they collect and produce to build data visualizations that illuminate the company’s financial state without resorting to spreadsheets. Many of these tools also include data analytics that provide 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 allow 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 in 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 business case that “sells” the new solution to future company stakeholders. 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 live in whatever system you select, so you’ll need to ensure it offers a significant upgrade in functionality (and lower price point) than your existing solution. If you’re paying an outside accountant to manage your books, calculate the cost savings of moving your accounting in-house with a new solution.
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, a robust online knowledge base, and, hopefully, share a similar technical framework as your other mission-critical systems such as CRM, ERP, etc.
Choosing the Best Accounting Software
To truly understand which accounting software is the best fit for your company before you buy means searching out those software vendors who are willing to let you take a 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 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 day about the added value 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 on in the selection process and have it at the ready to send to accounting software vendors that you’re interested in contracting with. 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.
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