As the founder/business owner, it’s important that you’re keeping a close watch on where your finances are heading. You must keep a track of every penny that goes in and out of your organization, but that isn’t humanly possible every time especially if you’re exponentially growing. To cut back the extra hours you put in for manual tracking, you need a dedicated online accounting software – one that can help you accomplish your daily accounting tasks like tracking expenses, recording the payments, invoicing the customers, etc.
In this article, we give you a fair insight into different aspects like – what happens when you rely on spreadsheet tools rather than accounting software, why do you need a software to manage your accounts, steps to choose perfect accounting software, different types of accounting software, their functionality, and how can you make a good choice.
So, without further ado, let’s dive in.
Not so “Excellent”
Since the 1990s, Excel has ruled the spreadsheet market. It continues to be a powerful tool for data analysis. However, even with experienced users, there can be some unfortunate cases and it can prove to be extremely dangerous. For those who use Excel in their expense-report templates, it is important to note that many times fatal errors tend to creep in. The results are then skewed which can further mean huge financial losses for your company. If you still do not believe it, then we give you some serious examples where basic spreadsheet errors have led to extreme outcomes.
TransAlta lost $24 million from an Excel copy-and-paste error in 2003. The Canadian power company was in for a rude shock when an employee misaligned the Excel spreadsheet rows. This error in copy-and-paste resulted in bids aligning with the wrong contracts, which further wiped out 10% of TransAlta’s profit. All of this in just one click.
Kodak had to suffer a severance error of $11 million in 2005 – all because of an Excel typo. A last-minute accounting adjustment to correct an Excel error, which was a simple typo, led to Kodak’s loss. All that the employee did was add a zero too many, to a particular severance accrual record. Such a typo can have a dramatic ripple effect on an Excel expense report.
Barclays Capital spent millions on worthless contracts in 2008. All of this was only due to one Excel reformatting error. This happened during the Lehman Brothers bankruptcy proceedings. There was an Excel report prepared by Barclays Capital which listed the Lehman Brothers contracts that it intended to purchase. However, some spreadsheet rows which had contracts that Barclays did not intend to buy, were mistakenly hidden within the Excel. These were not deleted and when this spreadsheet was reformatted as a PDF, the version had those rows! While the formatting options in Excel make it versatile, it can be highly dangerous in the hands of an average user.
MI5 bugged the wrong phones in the year 2010 –all due to a spreadsheet formatting error. The number of people who were tapped was 134 and all of them were completely unrelated to the investigations. What happened was that the formatting error changed the last three digits of these phone numbers to 000. The suspects went unobserved while random British citizens had their phones tapped by the government.
All these examples are clear indicators of how Excel spreadsheets are prone to significant errors. All of these could happen due to simple mistakes and to protect your business from such errors, make sure you invest in an expense system coded and reviewed by experts. This will reduce the likelihood of errors. A good accounting software can help avoid these goof-ups and therefore it is best to transition.
Perils of using a spreadsheet tools instead of accounting software
We give you some reasons to ditch that spreadsheet tool and opt for some of the best accounting software available in the market instead.
No control or security
A very large data file can cause the Excel program to run slow. When and if you try to break this down to smaller files, data may get lost. The fact remains that Excel is not user-friendly and rounding off could lead to imprecise calculations. Since it is not a standalone application, Excel does not give sufficient control. Every time changes are made, there is a likelihood of compromising on accuracy.
Likelihood of fraud or corruption
Excel files are prone to fraudulent manipulations. The underlying reason for this is lack of controls. This further makes it easy to alter formulas, data, etc.
Human errors can happen frequently
Excel is very susceptible to mundane human errors. Be it missed negative signs or misaligned rows, we have seen the damage and havoc it can wreak through the examples cited above.
Difficulty in troubleshooting or testing
Often interrelated spreadsheet data could be scattered across different folders, workstations, offices, or even geographical locations. Even if you are able to pinpoint the locations, tracing the formula logic can be a cumbersome process. Similar issues can arise when troubleshooting as well.
Not meant for agile business practices
Often, it is individuals with very little IT practice who create spreadsheets. Eventually spreadsheet files tend to become highly personalized. Thus, when a new person becomes in charge, they may need to start from scratch or spend weeks on end understanding the previous employee’s style of work.
Not meant for collaborative work
The final excel spreadsheet that is created is the result of data from multiple departments and several inputs. If the company has several offices, then these spreadsheets are often exchanged through emails. This exchange makes the spreadsheet susceptible to duplication and often, even incorrect data can be entered. It becomes hard to track the most recent version and at times, even outdated versions may be exchanged.
Hard to consolidate
It can become very cumbersome to consolidate excel spreadsheets. The process of consolidation and collation goes on until the file reaches the top management.
No quick decision-making capabilities
When one works in a spreadsheet-based environment, it can be very time consuming to extract data from different departments, consolidating it, and summarize it to make the right decision. It becomes important for everyone involved in the process to manage and maintain the integrity of the data.
Not suitable for business continuity
Spreadsheet data is never usually in one place and could exchange hands with non-IT personnel or others unfamiliar with storage and back-up best practices. In case there is an untoward incident, it can become very difficult to get full data recovery.
Should I buy an accounting software
Accounting is integral to any commercial business; and therefore, there is a need for an accountant or simple accounting software. This can help them in managing the business effectively. Different types of accounting software make it easier for entrepreneurs and organizations to manage their financial transactions. One mustn’t forget that accounting software cannot replace the role of accounting managers, but can greatly enhance their productivity. There are multiple accounting software in India like GIDDH with GST compliance that can immensely help businesses complete their tax obligation successfully.
A simple accounting software is imperative to track the success of your business and allows users to store all information. This will further give an accurate picture of your business and its financial health. The simple accounting software will further be able to manage aspects like bookkeeping and help in monitoring costs and revenues. Some other attributes of such software are as follows.
Even people with no knowledge of accounting can manage a simple accounting software. They can maintain proper bookkeeping since the accounting software is user friendly. It helps in performing accounting tasks quickly thereby saving time and money. It also allows for efficient management of a company’s information and finance.
Speed of Completion
Accounting software is better and faster in processing accounts than doing it manually. Additionally, organizations can improve their efficiency by introducing automation with the help of online accounting software. To give an example for accounting software benefits of automation, let’s say that there is a firm that wants to record sales tax for each of its transactions. Instead of having a staff member from their team manually work out on the tax transactions, the firm can just configure the accounting software to record every entry automatically saving a lot of time and effort.
A simple accounting software helps in generating reports which speak about the overall financial health of a business. These software have audit trail reports provided in easy to understand formats to help business owners understand their financial health.
Helps in improving financial performance
A simple accounting software provides insights into your business’ overall financial performance. All the financial aspects of your company are handled, and it also keeps a transaction record for you. From managing general ledger and accounts receivable and payable, it also tracks cash flow, etc.
GST ready features
Managing GST can be a very cumbersome and time-consuming process for any business. However, with a simple accounting software, it is possible to use the GST ready feature to handle such tasks. Apart from tracking payments, the software helps with GST reconciliation and tracking in just a click of a button.
Accurate and fast
A simple accounting software is highly accurate and fast. It helps in streamlining business transactions by providing real time data.
A good accounting software can help your business improve cash flows and make profits in turn.
Reduced Overall Costs
With the accuracy and speed of online accounting software, your firm can also ensure reduced overall expenses. As a major part of your accounting tasks can be handled by the software, your team members can direct their entire focus on other tasks and do more in a certain time. As a result, you can get things done with a smaller team and cut down on payroll and administration costs. However, you need to balance these savings against the software’s cost of operation.
Steps to Choose the Perfect Accounting Software for Your Business
Having understood why is accounting software important for you, it’s time to make the final choice. But that’s easier said than done. You need to pick one, that gives you an unbiased overview of your business’s financial health, helps you generate financial reports, and analyzes its performance from varying angles.
However, the multitude of features, the number of users supported makes the decision more confusing. So, if you too are confused, about which accounting software to pick, the following five-step rule can come to your aid:
Take inputs from your team who will be using the software
Talk to your team and find out what pain points you actually have that can be addressed with the software. Once you have a proper understanding of your accounting requirements, prepare a list of it and look for a product that will fit these requirements.
Plan your budget
The accounting software available in the market offers several features and are priced accordingly. You don’t have to pay for all the features. Instead, make use of the list you created in step #1 and pay only for those features that you and your team plan to use. Moreover, having a set budget will help you skip through many of your options.
Research about software that you want to invest in
Living in the era of digitization, we have a plethora of options for everything which often confuse us especially when we have to choose out of the lot. To avoid those confusions, it’s best to check the customer reviews and testimonials on the official site and other websites. A simple Google search can help you get a quick overview of the different features offered by the software and a quick comparison of its pricing from different vendors. A quick review of the features and pricing will help you shortlist the best accounting software that meets your requirements.
Ask for a demo of the accounting software from the vendor
After shortlisting your accounting software choices, simply request the vendor for a demo.
Ask relevant accounting questions during the dem
o and see if your chosen vendor offers you a quick walkthrough video of their software applications.
Take a trial of the software
Needless to say, you must always take a trial of the accounting software that you are planning to purchase. You can prepare a sample transaction of your business and check whether the software can deliver accurate reports. If things look good, you can go with the software.
It can be a big headache if you don’t get the right accounting software for your business. It’s again quite frustrating to switch to a new accounting system later. With Giddh, one of the best accounting software in India, you can rest assured that you have timely and accurate reports of your revenues, it can help you manage your expenses, customer information, and other financial data to make informed decisions.
Types of accounting software
If someone asks you to give an example for accounting software, you will surely think twice before recommending it. It’s because choosing accounting software depends on the requirements of the organization which can never be the same.
Thus, depending on the type of operations, accounting and finance systems are of four different categories:
Billing and invoicing systems
These help in managing the day to day and basic tasks such as check writing and informing customers about their due payments. They help control the accuracy of accounting figures and make the service seem more professional and credible to the users. This system helps the business record financial activity and prepares it for authorization and validation.
Payroll management systems
For businesses that are looking at preserving control over their account payables and receivables, a payroll management system is the best bet. This tool develops several different tasks such as calculating salaries, deductions, and helping deposit the salary directly into staff members’ bank accounts, arranging for tax forms and pay slips, etc.
Enterprise resource planning systems
This is one of the most important categories and combines all systems used for product planning, material purchasing, inventory management and control, distribution, accounting, marketing, finance, and HR. Some of the most recent ones offer modules for CRM and business intelligence. The company can thus learn from its practices and plan its strategies better in the future.
Time and expense management systems
These systems expedite billing cycles and approve expenses on-the-go. They can be configured according to the business and adjusted to their pace. These systems help in collecting payments faster and detect slow and ineffective practices that may not have been obvious earlier. The biggest advantage perhaps is that they give detailed graphical reports on the usage of time and resources in a company.
What does accounting software do?
Here are some things that an accounting software helps a business with.
This is the main component of any financial accounting software and hence must be considered when you are looking for a reliable solution. Some basic processes include general ledger, fixed assets, accounts payable and receivable, and bank reconciliation. Other advanced systems have more to offer.
Billing & Invoicing
Certain financial accounting systems are exclusively devoted to billing and invoicing. However, these are also integral to any finance operation and therefore, such software lets users adjust operations and prepare accurate and in-time invoices for their clients.
Budgeting and Forecasting
This is also a common module in financial accounting systems. It helps in calculation and interpretation of financial performance for the current year. It also helps in estimating the budget of the upcoming one. With this system, a company can prepare its estimates and set up feasible and optimistic sales targets.
Management of fixed asset
Be it as a separate tool or an inclusive module, fixed asset management allows you to manage your organization’s financial data accurately. The module has a combination of features including audit history, cost records, depreciation calculation, resource allocation, etc.
A financial accounting software also helps calculate and process employee payments, prepare and print checks without delays, and respond to all active legal and tax commitments without errors.
These are usually found in accounting software which is designed for government agencies and nonprofit organizations. This includes tracking donation expenditures, grant management, GASB (governmental accounting standards board) regulations, apart from a special suite of financial reports.
This is a very specific toolkit that is developed for stock control. It has all the tools necessary to give your product a higher shelf-life. You will be able to control the availability and movement of products apart from avoiding all the delivery issues etc.
Things to consider while choosing an accounting software
This depends on the specific needs and priorities of a business. However, despite this, there are some key criteria which must be met for the system to be worth the money you invest.
An integrated invoicing module
Whatever your business’ core operations, the accounting system should be complete (inventory management, for instance). You should always try to acquire a system which offers basic billing and invoicing functionality. This will save you the trouble of buying additional software or migrating data to another system.
Just like anything else, there is no “one-size-fits-all” even in an accounting system. The reason is that every company has specific finance calculations with a different set of rules. If you are not able to find a particular system matching your business model, then try looking for a flexible program with which you can adjust your operations.
Ease of use
Given that there is nothing simple about accounting procedures and calculations, the least that your new accounting system should be able to do is to give an intuitive environment/interface to work with. From arranging information clearly to making functions available on a single dashboard, it should allow you to complete operations within minutes with a navigation pattern you already know.
Given that a financial accounting system deals with the most important aspect of a company, which is data, its security cannot be compromised. Choose a reputable vendor and check security mechanisms in advance.
To make sure you do not need to change your entire software infrastructure for the needs of a single program, do it the other way around. Get a system which integrates with the tools you already have or even better, a cloud based accounting tool that can be accessed from any platform.
Mobile-ready accounting systems are no longer a luxury that only enterprises can afford. Choose one for your needs as the most popular vendors offer native Android and iOS apps also for their users today. In such cases, operability is just about the same as with the desktop version of the system.
In this case, the software logic applies again. The more a system can do, the more it will cost. If you can afford an accounting system with all the features and one that is ahead of its time, choose it. Know that quality accounting systems can be purchased at a fraction of that price, and some of them also offer free trials.
Most accounting software vendors are knowledgeable and fast to respond. However, their efficiency is always under radar and questionable until you use them. To prevent disappointment, test support in advance and then make a choice.
Picking the right type of accounting software accounting/tool can help your business reach newer heights, provide detailed insights, enable transparency and give business owners complete peace of mind.