How to Select the Best Bookkeeping Software for Your Small Business

It will happen eventually. As your business grows, you will at some point outgrow your current accounting system, whether you started out with a manual ledger, an Excel or Lotus spreadsheet, or simply a shoebox (or refrigerator box, depending on the number of receipts your business accumulates).

The need for a new accounting system may manifest itself in many different forms. You may find that payroll is becoming more onerous to calculate and track as you hire more employees. If you run a manufacturing or resale business, you may keep running out of stock on high-turnover items because you are out before you know it. If you run a service business, you may start losing track of how much time should be billed to each customer. Regardless of the various symptoms, the problem remains the same: your bookkeeping system is taking more of your time than it's worth.

There is always a balance in any small business enterprise between time and money. You can spend either time or money (or both). Scrimping on one will cost you more of the other. For example, if you decide to buy the least-frills accounting package that you can find on the shelves of your local office supply store, you may spend an extra 10 hours per week forcing it to do what you want it to do. If you could take that 10 hours and sell more to your customers, then it perhaps would be worth spending more on the bookkeeping software package.

Recently, Deloitte & Touche did a study of the top criteria used by businesses when selecting their bookkeeping software. It's quite interesting to see that first-time business owners and seasoned entrepreneurs have different priorities in this regard. This would suggest that experience teaches business owners what's really important when choosing financial software.

The top three criteria used by first time business owners are:

1) Price of software

2) Ease of implementation

3) Ease of use

These reasons make sense. They are all important things to consider in the purchasing decision. But now take a look at the top three criteria used by businesses selecting their second bookkeeping system:

1) Level of support provided by the local firm

2) Developer's track record of performance

3) Software's ability to fit the business

What do the experienced business owners know that the neophytes don't? Let's take a look at each point separately.

Level of support provided by the local firm- many of the entry-level accounting systems are billed as being turn-key; you just load the software and you're up and running. However, it's never quite that simple. It's important to make sure that you can easily and economically access customer and technical support for your new system. Some bookkeeping software companies charge for support calls, which is fine as long as you can get hold of someone when you need them. You will also want to consider whether there are consultants based locally that can come into your business and provide customized setup and training. When you're looking at consumer reviews of the product, pay special attention to what they say about support.

Developer's track record of performance- a first-time software buyer may very well discount the importance of the how well the software has worked in the past, but seasoned entrepreneurs understand how much time it takes to work around bugs in the software or to install patches to fix problems as they arise. Keep in mind that bookkeeping software is generally updated annually, so there are many opportunities for programming errors to arise. Knowing that the company has been in business for several years with little incidence of major programming bugs can ease your mind in this area.

Software's ability to fit the business- entry level bookkeeping software systems try to be "one size fits all". They allow you to customize the chart of accounts to make sense with your particular type of business. For example, if your business is computer consulting, it doesn't make any sense to have inventory accounts showing up in your books. However, each software system has strengths and weaknesses for every type of business. Some handle real-time inventory better than others. Some track billable time better. Having a good understanding of what's important to track for your particular business will help you be able to assess which package is best for you.

As you can see, there are more considerations than just price when purchasing accounting software. Spending time understanding all of the critical considerations will help. You should also ask fellow small business owners what they use and how it's working for them. Another important source of information is your accountant. One caveat is to make sure that your accountant is familiar and comfortable with all of the popular accounting packages. For example, if your accountant has worked with only QuickBooks, it is more than likely that it will be QuickBooks that he or she recommends. Not exactly an objective opinion! All of the major software websites have either screenshots of the program or downloadable test versions. This gives you the opportunity to "test drive" the package to make sure that you're comfortable with it.

Selecting your bookkeeping software is an important task in your small business and may seem daunting. Keep in mind however that most systems can be converted to other systems fairly painlessly. Mistakes are not terminal. Take your time up front in the selection process and you will be making the best decision regardless of the system you choose.