Why is small business accounting software unique?
I think this question about why is small business accounting software unique gets asked because of the phrase small business that is embedded in the question. Accounting software has to handle a variety of different businesses; some large, some small, some manufacturing, some services, but small business accounting software needs to be designed to fit the specific requirements of the small business.
So what are those needs? If we were to list the top 10 things an accounting package for small business should be designed around what would they be? Well, here’s my list in no particular order of importance:
- The ability to invoice customers.
- The ability to organize and pay bills.
- The ability to do complete financial reporting, including a balance sheet.
- A check register (aka journal) based transaction entry system.
- A means of reconciling those accounts
- Connection to and download of transactions from your bank (new!)
- Effective systems of automatically categorizing those transactions (also new!)
- Efficient methods of reviewing that auto-categorization (again new!)
- Cloud based (new!)
VERY IMPORTANT: a specific need of your business may or may not be on this list!
The list is derived from years of experience serving thousands of small businesses, and is intended as an average answer. Your business may very well be different.
For example, if you’re running a small auto parts store, you will require software to manage your inventory. No small business accounting software built today will allow you to manage a parts inventory, including the automatic reordering, inventory counts, pick locations (the list goes on) that are an absolutely essential part of running a modern day auto parts store. You will normally use specialized software to do so, which won’t be accounting software.
Large businesses, on the other hand, have need far more sophisticated systems. They will be more complex, require substantial training to understand, be more expensive, but also in the long run be more efficient as a central means of managing an entire enterprise. In fact, this is what such software is often called: ERP, which stands for Enterprise Resource Planning (personally I think it needed a better name, but that’s what stuck).
Very small businesses, which could be defined as those with less than a few hundred transactions a year, may not even need accounting software (yes, may not need it!). Often times the easiest way to handle accounting for very small business is to just add up the receipts they paid during the year after sorting them into piles by type, like say Advertising. This not only groups the receipts together for later review, but quickly substantiates any number you need to report on say a tax return.
At a certain point, however, a successful small business usually grows to the point that this annual sort and add up routine isn’t enough. They need to know and manage their company by seeing periodic financial information, like a profit and loss for the last month. This is what makes small business accounting software unique: great ones help small business owners easily and efficiently see just what their business did, as well as provide the reports they need to handle their taxes and other needs.