What Is Accounting Software?
Accounting software at a minimum keeps track of financial transactions. Core functionalities include general ledger (GL), accounts payable (AP), and accounts receivable (AR). Common additional functionalities include payroll, billing, and inventory management.
Many industries have customized functionalities/requirements like fund accounting for nonprofits, job costing for construction firms, or DCAA compliance for government contractors. In larger organizations, the terms “accounting software” and “ERP” are often used interchangeably.
Common Accounting Software Features
|Core accounting||Tracks revenues and expenses. Includes modules such as accounts payable, accounts receivable, and a general ledger.|
|Payroll||Manages employee compensation: wage calculation, ACH deposits, check printing, and compensation tax reports|
|Billing & invoicing||Create, send, and manage outbound invoices for client work.|
|Fixed asset management||Track, depreciate, and amortize large company assets. With standard or custom decay models.|
|Inventory management||Record inventory as current assets on the balance sheet. Track the cost of goods sold on your income statement.|
Industry-specific Accounting Software Features
For some industries, some of the common components above are referred by a different name. Sometimes with different functionality.
|Fund accounting||Nonprofits, government agencies||Core accounting for companies that are funded by donations and/or grants. Emphasizes accountability to donor/grant requirements over profitability.|
|Job costing||Construction, manufacturing||Track costs/accounting/profitability on a job-by-job (project-by-project) basis. Often called construction or project accounting.|
|DCAA compliance||Government contractors||Defense Contract Audit Agency (DCAA) compliance. Specific accounting standards for government contractors as required by the Department of Defense|
Advanced Accounting Software Features
As accounting systems get more advanced, they tend to include more specialized industry components, but here’s some common advanced components for all industries
|Budgeting||Reports on finances, personnel, operations, and more. “Intelligence” can range from simple reports to historical and predictive analysis.|
|Business Intelligence (BI)||Reports on finances, personnel, operations, and more. “Intelligence” can range from simple reports to historical and predictive analysis.|
|Currency Exchange||Allows organizations to manage international cash, trade for currency of choice, and view reports in single consolidated currency value.|
|Bank reconciliation||Imports bank records, often in real time, and attempts to auto-match bank and accounting records|
|Customer Relationship Management (CRM)||Manages customers and prospects to aid marketing, sales, and customer service efforts|
What Does Your Business Need?
The recently published Accounting Software Buyer Trends report reviewed more than 3,000 accounting software projects and found the needs and motivations of many buyers. While many types of buyers exist, most can fit into these common categories below.
New buyers and small businesses: 37% of the companies we surveyed are buying accounting software for the first time. Many small businesses were looking for increased functionality over their current methods, which ranged from a manual bookkeeping method (pen and paper) to a popular starter solution such as QuickBooks or Sage 50c (Peachtree).
Existing users desiring functions beyond core accounting: Over 20% of buyers said they need software that handles payroll, inventory, and invoicing.
Large companies: Businesses with 50+ employees are more commonly shopping for ERP software options that will include a full suite of functionalities to go along with their accounting. More than 70% of large businesses surveyed desired software that handles budgeting/business intelligence (BI) and fixed assets. Larger businesses also expressed desires for functionality such as fund accounting and procurement.
Popular Accounting Products
With how many accounting solutions exist on the market, it can be hard to decide which one is right for you. Many small businesses will start with an off-the-shelf product that has a small barrier to entry, such as being affordable and easy to learn. For many, that solution is Quickbooks.
The above video demonstrates the use of Quickbooks for accounting purposes and offers an insight into the layout and functionalities offered in the program.
Upgrading From QuickBooks?
Undoubtedly, QuickBooks is a massively popular product. While QuickBooks can serve many needs, it’s also the most commonly replaced accounting software on the market. Our previously mentioned buyer trends survey found that 33% of upgraders are coming from QuickBooks.
We conducted a study on over 4,000 previous users for their most popular quickbooks replacement options. The solutions will vary by industry, but these options were found to be the most common choices for companies to review:
Common Accounting Software Pain Points
Integration with other business software. Companies that do not have a complete (all-in-one) software will look to combine more than one software to meet all of their functionality needs. An off-the-shelf software that handles core accounting may lack additional functionality such as payroll, advanced reporting, or more involved inventory. Once the need for these features arrives, many buyers may lack the means necessary to integrate the programs together.
Difficulty finding industry-specific tools. As consumers demand functionality more in-tune with their industry needs, software developers are doing everything they can to make those dreams a reality. While a super-niche industry may not have a software option exclusively developed for them, be on the lookout for specialized vendors. These are companies that pride themselves in implementing specific software solutions into certain environments, and will offer customizations or add-ons for a generic-product that will make it more in line with what the business expects on a day to day basis.
Low levels of customization available. Many companies will try to make due with a lower-cost solution at the expense of advanced functionality. Options such as Sage 50c and Quickbooks are great low priced options for new businesses, but they’ll lack ways to customize the software towards your business. Popular accounting software customizations include tailored reports, role-based dashboards, custom data fields that can be added to invoices and reports, and more.
Accounting Software Trends
The landscape of features and technology offered by software vendors is constantly changing. And as software changes, so do the demand for specific features.
Increased adoption of cloud software. Also known as software-as-a-service (SaaS), cloud adoption rates have picked up over the past decade. In 2015, 76% of the buyers we spoke to indicated a receptiveness have their software hosted externally, off-premise. In 2017, this percentage rose to 84%. With cloud-based software, products are leased, rather than licensed, which becomes more attractive for smaller businesses with limited funds. The software industry has responded by making software more available on a cloud basis.
More tablet & mobile applications. In 2016, mobile web browsing surpassed desktop browsing in user counts. Naturally, usage has translated into business demands. Accounting software developers have responded in kind, especially within fields that require on the site analysis such as construction & field service.
Developer & product acquisitions. As markets mature, often companies will acquire, reposition, and/or consolidate their product lineups. This is especially frequent as of late. Sage’s acquisition of Intacct is a notable example.
More data. More intelligence (BI). Over the past five years (2012-2017), we’ve seen a whopping 42% increase in end users looking to evaluate Business intelligence software. Business intelligence software is used in virtually every industry. Consulting firms need to track employee productivity by project/company. Retailers need to track profitability by SKU. Financial institutions set new account goals for personal bankers.
More integrations and APIs. Integrations, or APIs, allow distinct products to talk with one another. Your payroll system could update your HR team in Slack of any processing errors. Your payment processor might automatically push new receivable entries to your accounting system. Your accounting software could share available funds with BI systems. Expect inter-software communication abilities to increase in most products.