It’s a common misconception that all small business accounting software is the same. This could not be further from the truth. There are different products on the market to meet different business needs that come at different price points, all with their own pros and cons. The purpose of this article is to explain the different types of accounting software and to enable you to make an informed decision about which type of accounting software is best suited for your business.
We’ll start by focusing on the term SME, as we believe it best explains the three types of small businesses that exist: small, medium, and enterprise. While it is correct to bracket all of these types of businesses, they all have very different characteristics and needs. As a result, depending on which of these brackets your business is in will have different implications for your accounting software requirements.
1) Small business – are characterized by being an SME that has just started, freelancers or companies that have relatively small lines of income in the business. The owners of these businesses are very focused on all capital expenditures and ensure that all expenditures are tangibly linked to driving growth within the business. The objectives at this stage are to achieve sustainable revenue lines in the business to stimulate growth within the business.
two) medium company – Slightly larger SMEs that now have sustainable revenues and have achieved solid growth. Midsize businesses have likely hired some employees to facilitate the new level of work that needs to be completed. Midsize businesses are looking for more structure to their financial management, as well as a way to control costs and expenses as the number of employees in the business grows.
3) business business – This is the largest type of SME business. Companies of this scale have tended to grow in size, stature, and operational complexity. Departmental structures will now have taken place, business administration increased, and human resource management became more prominent in the business. With additional scale and complexity in the business, there are increased support requirements to drive process efficiencies in both financial and operational management. Larger and more complex accounting products meet these demands at an additional premium.
Looking at the 3 business types above, it becomes clear how it would be virtually impossible for a software company to create a generic small business accounting software system that meets every budget and need. A small business would require a significantly less complex product than a small business company. This may seem like a pretty obvious statement; however, there are many small business owners who still believe that if they buy a generic product specialized in small businesses, they will have a great product designed for their business. For this reason, I wanted to be clear about the two main types of accounting software out there.
1) accounting software – Perfect accounting software packages for a business that simply wants to manage its inputs and outputs in an effective and compliant manner. They allow an owner to enter key sources of information, such as sales income, purchase expenses, cash, and bank transactions. Accounting software takes this data and automates double-entry bookkeeping principles by producing simple accounts payable, accounts receivable, and general ledger accounts. These basic accounting software features are more than enough for an SME owner to understand his financial position and complete year-end reports.
two) Sophisticated accounting software solutions – Small businesses are likely to want their accounting software to do more than just calculate their balance sheets. Due to the added business complexity, accounting software features such as fixed asset records, inventory/stock control, job costing, and payroll become attractive. All of these features enable a small business to run their business more effectively by managing their assets, providing support on how to manage stock control, and managing human resources effectively. These additional features allow a business to not only manage its financial accounts, but also drive efficiencies within the business.
The small to medium business falls between these two types of accounting software. Choosing the right accounting software for a midsize business depends entirely on the particular requirements of the business at the time of purchase. There are many accounting software products on the market that are aimed at the midsize business market and they all have pros and cons in terms of features. Some have a greater emphasis on HR related features, some have greater financial modeling and forecasting capabilities. The only way to ensure that the correct product is purchased is to perform a thorough exercise of mapping products to business requirements.
Regardless of the size of your business, it is critical that you base any decision to purchase accounting software on the unique requirements of your business. Don’t get carried away by brand or recommendations, do a thorough exercise of tracking requirements and use them to guide what you decide to buy.