In the early stages of starting up your company, managing your accounts via spreadsheets may suffice.
But as your business grows, you may find yourself spending an inordinate amount of time on getting your business finances and accounts sorted out.
Perhaps you're not entirely sure if you should stick with our current practices-or seek out a new way to handle your accounting.
We'll explore this in our article below, where we dive into five signs that indicate it's time for small business owners to make the switch to accounting software or online accounting software.
<p>In the early stages of <a href="https://www.goforma.com/self-employed#how-to-start" target="_blank">starting up your company</a>, managing your accounts via spreadsheets may suffice. </p><p>But as your business grows, you may find yourself spending an inordinate amount of time on getting your business finances and accounts sorted out.</p><p>Perhaps you're not entirely sure if you should stick with our current practices-or seek out a new way to handle your accounting. </p><p>We'll explore this in our article below, where we dive into <strong>five signs</strong> that indicate it's time for small business owners to make the switch:</p>
5 Signs it's time to make the switch to accounting software
1. You're experiencing growth
Spreadsheets can by a handy tool when you're just starting out - such as when you're in the initial stages of budgeting and planning out your business finances.
Yet, as your operations continue, you'll find that things can easily get out of hand.
Even simple tasks, such as keeping track of invoices or cash flow projections can be time-consuming and tedious when you're juggling between multiple spreadsheets and paperwork.
There may also come a point in time when you'll have more than one person managing your accounts - whether that's hiring an accountant, or assigning a team member to handle tasks like recording new information, generating reports or approving payments.
In such cases, accounting software features like multiple device access and user restriction configuration can come in handy. Plus, many online accounting software solutions (or cloud-based software for small businesses) also allow users to login remotely and work simultaneously. If you want different individuals or teams to manage your business finances more efficiently, this is the way to go.
2. You require faster access to information
Over time, you'll find that you're handling an increasing volume of business data.
If you're relying solely on spreadsheets to manage your business's financial data, decision-making can become a challenging process as you're unable to analyse the financial position of your business quickly.
That's because you won't be able to access information immediately; you'll need to be familiar with spreadsheet commands and formulas in order to derive insights from your data.
And unless you're updating your spreadsheets as new data flows in, the reports that are generated might not paint an accurate financial snapshot of how your business is performing.
When this happens, it can create delays in how you make business decisions - whether that's deciding on the amount of stock you need to order, or how you should manage your cash flow.
Here's where the best accounting software comes into the picture: it provides a range of tools and analytics, so you can obtain detailed summaries of your profit, expenses, cash flow and more. All you need is an internet connection!
What's key is that should any issues crop up with your accounting or business finances, you'll be able to identify where the problems lie - and take steps to rectify these instantly.
3. You're spending valuable time on manual, repetitive tasks
As a small business owner, you wear all the hats at your company; juggling between multiple tasks and conflicting priorities is all in a day's work.
While administrative tasks, such as inventory tracking, processing transactions and invoicing customers are necessary, these are often repetitive and can be a huge time suck.
With accounting software for small businesses, you'll be able to automate most of these tasks. This leaves you with additional time that you can spend on growing your company - rather than flicking through documents and spreadsheets.
4. You're experiencing an increase in manual errors
Given that nine out of 10 spreadsheets (88%) contain errors, it's unsurprising that the number of errors that occur can easily add up if you're mostly working with spreadsheets.
Let's say you're manually keying in all your invoice data into a spreadsheet. You'll need to record the date, invoice number, customer name and invoice amount, and then update the spreadsheet a second when the invoice is paid up. That's quite a lot of data to key in, which leaves room for error.
While it's inevitable that seemingly minute mistakes occur from time to time, these can create adverse impacts on your business - such as inaccurate statements or lost tax credits.
5. You lack technical accounting skills or a proper accounting system
While many small business owners are highly skilled or experienced in their field, tackling their accounting and bookkeeping often aren't tasks that they're comfortable with.
As Steve Strauss, president of TheSelfEmployed.com shares, having "a firm understanding of finances and business performance is crucial for a small business to be successful" - yet a lack of financial literacy is a common problem small business owners face.
This is highlighted in a report by JPMorgan Chase Institute, which details an analysis undertaken on the cash flow transactions of 1.3 million small businesses.
The report indicated that small businesses failed due to highly volatile cash flow transactions - an outcome that could have been avoided if they had a better knowledge of cash flow management practices.
The problem is further compounded when small businesses don't have a proper accounting system in place. As indicated in a Clutch survey, one quarter of small businesses (25%) still record their finances on paper.
To better navigate their way around these pit holes, small business owners can tap into the features and tools that an accounting software offers.
You'll be able to generate comprehensive finance reports, balance your books without having the technical accounting skills, and opt for additional services that come with your accounting package - such as personalised consultations and financial reviews.
Choosing the Right Accounting Software for Small Businesses
Choosing the best accounting software for a small business requires careful consideration of various factors. Keep these in mind when you set out to choose the correct solution:
- Assess your business needs: Determine your specific accounting requirements. Consider factors such as the size of your business, number of employees, volume of transactions, types of financial reports you need, and any specific industry-related needs.
- Identify key features: Make a list of the essential accounting software features you require in an accounting software. For example, do you need invoicing, expense tracking, financial reporting, inventory management, payroll processing, tax support, bank reconciliation, and integration capabilities?
- Set a budget: Determine how much you are willing to invest in accounting software or tax digital software. Consider both upfront costs and ongoing subscription or licensing fees.
- Research available options: Explore the market and identify accounting software options suitable for small businesses. Look for reputable vendors and consider popular solutions such as QuickBooks, Xero, FreshBooks, Zoho Books, Wave, or Sage Intacct. Read reviews, compare features, and consider user feedback to narrow down your options.
- Evaluate ease of use: User-friendliness is crucial, especially if you or your staff have limited accounting knowledge. Look for the easiest accounting software to learn and use, and see whether they have an intuitive interface and a clear learning curve.
- Security and data protection: Ensure your software provider prioritizes data security. Look for features such as data encryption, regular backups, user access controls, and compliance with relevant privacy regulations, such as GDPR or HIPAA (in many cases, free software will not include these features).
- Seek recommendations and expert advice: Consult with other business owners, small business accounting professionals, or industry professionals to gather insights and recommendations. They may have firsthand experience with different software options and can provide valuable perspectives.
Making the switch to an accounting software
If the points we've outlined above apply to your situation, you may decide that the timing is apt for making the switch to a paid or free accounting software.
You'll then need to spend time figuring out factors such as the key features you require, scalability and flexibility of the software, level of support offered and your budget.
If you only have a rough idea of what you're looking for and you need help finding the best accounting software, feel free to reach out to our accountants at Forma. We'd love to help you figure out what you need, as well as advice you on how to connect your software to your bank accounts or bank transactions, make your tax digital, integrate inventory management, and much more.