Accounting Systems are many and varied; it pays to understand your options. Choosing one of the many accounting systems and putting it in place is crucial to the success of any business. This is especially true for start-ups and small businesses when considering their typical resource constraints of time, people and free cash flow.
Accounting systems can provide valuable information for decision makers ranging from identifying profitable and unprofitable product/service offerings to excessive spending to monitoring of payables and receivables and beyond. Without proper accounting systems, it will be challenging to gain an accurate picture of these and other performance metrics. The wrong system may also become a massive consumer of time – possibly taking staff away from more important revenue generating activities.
Choice in turn-key accounting systems for small businesses has come a long way in a relatively short period. It wasn’t long ago that alternatives boiled down to one of two options: QuickBooks or Simply Accounting (now known as “Sage Accounting”). I’m of course ignoring manual and spreadsheet systems as neither are viable options for any business that has moved past its very early stages. This two-player supply market did not do new business owners any favors in terms of cost.
The rapid progression of the internet, mobile phones and tablets and more recently “the cloud” has ushered in a renaissance of sorts in the field of accounting packages – both in terms of selection and application.
Before describing some functional innovations, I’ll break down product options into three broad categories.
- On-Premise: These are are off-the-shelf packages in the truest sense – bought in-person and loaded onto business computer(s). The in-person purchase gave way to downloading online some time ago but the breadth of product offerings remained slim (QuickBooks and Simply Accounting remained dominant).
- Online Apps: These brought real innovation and came into being over the last few years as tablets and even cell phones became worthy alternatives to desktop and laptop computers. This caused the number of online accounting apps for use across these platforms to explode (we all have a friend or friend of a friend who is an app designer right?).
- Cloud Based: This category is really just a subset of the second, but is used in “the cloud.” In other words, the primary differentiator is where your data is stored. Standard apps store data on the device (computer, tablet, phone) and/or onsite servers whereas cloud-based apps, of course, store data in “the cloud.”
Innovation and change brought about by online apps
- Many online accounting systems will sync with electronic bank and credit card records to pull in transactions and record them through a near automated process. For example, users might create rules whereby a specific vendor or dollar amount is automatically recorded to a particular expense account. Some packages will automatically associate a recurring vendor with an expense account once a pattern is formed.
- Another neat feature allows businesses to facilitate prompt online payment when electronic invoices are emailed to customers. For example, invoices include a link which takes customers to an online payment option such as PayPal or their online banking (in a sense the opposite of receiving an email money transfer).
- The ability to snap pictures of receipts for upload into the accounting records. This feature might be used in concert with the automatic expense account classification. When putting this to use, be sure to still file away originals to satisfy requests from the CRA, your external accountant or other interested parties that may come knocking.
- A new pricing model: whereas on-premise systems are usually an all-in upfront cost, online apps tend to charge on more of an ongoing subscription basis, typically a recurring monthly or quarterly charge. This usually means paying more overall but less in the early going. This can mean freeing up much needed cash flow for the cash-strapped start-up. Note that adding or subtracting user licenses under either scenario can complicate this discussion.
- Many online apps are free. The downside here is that users may have to put up with ads and/or less functionality than the full scale paid versions. Part of the decision here will boil down to how much functionality is required. It’s fair to say that many QuickBooks and Sage users do not venture into the advanced options. Are they paying a premium for features they don’t need (or at the very least don’t use)?
Innovation and change brought on by cloud based systems
- Servers and other IT infrastructure are moved off-site and maintained with no direct company involvement. This means back-ups, upgrades and other maintenance are handled by the cloud provider.
- They’re relatively secure and generally more secure than the average internal business server (ask yourself – how secure is your own internal network?).
- Eliminates the need to install software on each laptop/desktop computer. Instead software is installed once on the cloud and becomes available to all users. For balance, automated “push” technology can automate installations/upgrades in a non-cloud setting.
- Cloud based accounting systems work great for remote employees as they can typically log-in from anywhere. Again for balance remote log-in can be achieved in a non-cloud setting; but on the whole cloud systems are considered the “Cadillac” of remote working.
In terms of cost, I’m sure it comes as no surprise that all the upsides of a cloud-based system are reflected in the price tag. Like any potential business expense, management must conduct careful analysis of the pros and cons before making a decision
As you may have suspected, QuickBooks and Sage have not disappeared in the age of online accounting apps. In fact they are still the dominant players. Their respective cloud-based products are QuickBooks Online and Sage One Accounting.
This can only be a brief introduction to accounting systems and how they may benefit small businesses. I’ve only scratched the surface and therefore these considerations should not be seen as exhaustive.
Every business is unique and therefore proper care should be taken in sourcing the right accounting package. parker simone has extensive experience advising start-up and entrepreneurial organizations on key business decisions. If you’re in start-up mode or re-evaluating your current accounting system consider reaching out to us to sort through your options – we’re here to help.
Pat, CPA, CA, is a senior manager with parker simone LLP and a ten year veteran of the public accounting space. He is a self-described student of all things business, accounting, taxation, personal finance and current events (thank you Steve Paikin and John Moore). Pat’s interest in sports and local organized runs was the driving force behind his existing stance as a fitness and wellness enthusiast at-large. Pat is active in community based volunteer work focused on financial literacy and societal integration of new immigrants.
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