Running a business without accounting software is like piloting an airplane without a navigation system: You don’t know exactly where you are, whether you’re truly headed in the right direction and when you need to course-correct to avoid upcoming light bumps or an outright emergency. From a financial standpoint, accounting software provides insight on all of the above. The question is, which solution hits all of the marks? The answer will emerge only after a comprehensive assessment of what a business requires — including purchasing considerations, specific features and overall characteristics —and which accounting software can best meet those specific needs.
What Is Accounting Software?
Accounting software helps businesses manage and often automate their financial processes and record-keeping tasks. Typical capabilities include tracking income and expenses, generating invoices, creating financial statements, reconciling bank accounts and managing taxes — all time-consuming, error-prone tasks when handled manually.
Accounting software can range from simple on-premises applications to real-time, cloud-based systems that run across multiple company divisions and locations. Truly robust accounting software integrates with other business systems, such as human resources and inventory management, or connects via modules within an enterprise resource planning (ERP) system to share data and streamline processes.
- Accounting software increases the efficiency of financial processes, improves accuracy and saves time, especially when it is configured to automate many accounting tasks.
- How the software will be deployed — on-premises or cloud-based — and whether it can increase in functionality as the company grows are two important purchasing considerations.
- Accounting software should be capable of automating processes associated with the general ledger, accounts payable, accounts receivable, fixed assets, payroll, tax management and much more.
- Ask vendors how much training they provide, during implementation and ongoing.
Accounting Software Requirements Checklist
Evaluating accounting software is about more than merely ensuring it is capable of specific functions. The assessment should include a higher-level look at the system itself: Can it scale? Is it accessible from the cloud? Is it affordable? Is it secure? Does it use automation? Following is a breakdown of the many requirements a business will want to consider, organized into three buckets: purchasing considerations, accounting software requirements and accounting software qualities.
Before drilling down into specific accounting software features, it’s important to assess whether the overall software solution checks all the right boxes regarding company fit. Considerations include:
- Company size: Different accounting software applications are designed to meet the needs of different sizes of companies. The bigger the company, the more transactions, accounting needs and financial reporting requirements it tends to have. For their part, small and growing companies need to consider not only their current needs, but what they might require in just a few short years. Can the accounting software scale when the time comes?
- Deployment: Where does the business want the accounting software to reside — on-premises, in which case the business is responsible for the software, hardware, maintenance and upgrades; in the cloud, where a business subscribes to the accounting software, which a third-party company hosts; or perhaps a hybrid of both? The choice will depend, in part, on the degree of flexibility and control the business requires.
- Budget: Expenses associated with accounting software vary widely and are very much intertwined with the type of deployment model. For example, upfront costs for on-premises accounting software are typically much steeper than a cloud deployment. The amount of required software functionality is another cost consideration. So is the return on investment and potential cost savings that result from greater efficiencies and productivity.
- Modules and functionality: A business needs to invest in accounting software that provides not only the features and functions it needs in the short term, but also the ability to add new functionality, over time, in the form of modules that plug into the software and expand its capabilities. For example, every accounting package typically includes a general ledger, accounts receivable (AR) and accounts payable (AP) functions. Depending on the business’s needs, it may also decide to purchase modules for additional tasks, such as payroll and tax management.
- Integrations: A critical consideration is whether accounting software can connect to other software to communicate and share data. For example, connecting accounting software with a customer relationship management (CRM) system helps businesses consolidate the management of financial data and customer information. It also eliminates the need for manual data entry from one system to the other (read: saves time, improves accuracy) and improves customer service when, for example, a customer calls with a billing question.
- Ease of use: Even the most feature-packed accounting software is of marginal use if it’s too difficult for employees to learn how to use it. Ease of use begins with accessing the software and having an intuitive interface. Cloud-based accounting software fits that bill, with familiar browser-based controls that are accessible to any subscription holder with an internet connection.
- Easy implementation: This is another area where cloud deployments have an advantage because the cloud software vendor handles the heavy lifting. That includes the setup and customization of software, software maintenance and updates, and oversight of security. In contrast, on-premises deployment means the onus is on the business to purchase, install and configure the necessary hardware, software and infrastructure.
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Accounting Software Requirements
Businesses must always be planning. A checklist of immediate accounting software requirements is a great start, but it’s also wise to consider future needs as the business grows and whether the software can take on additional functionality. Importantly, the more tasks and processes the software can automate, the more efficiently the accounting department — and, in turn, all areas of the business — will run.
Following are 19 important accounting software requirements to look for during the evaluation process.
- General ledger: The general ledger (GL) is the heart of any accounting solution because it contains records of every financial transaction made by the business. Software automates the associated intensive record-keeping, including creating detailed journal entries; crediting and debiting the transactions in the proper account categories and subledgers, in compliance with the double-entry accounting method; reconciling discrepancies; updating the GL in real time; and ensuring the accounts are in balance.
- Order management. From the time an order is placed to when it reaches the customer, order management is hard at work. Some related accounting software attributes include receiving, tracking and fulfilling orders; automatically updating inventory levels; billing customers and managing their data; handling post-sales and returns; and analyzing performance trends.
- Accounts receivable and advanced billing: AR is the money customers owe a company for purchased goods and services. Accounting software can automate the AR process, too, including creating, sending and tracking invoices, and processing inbound payments. Leading accounting software allows for a variety of digital payment options, such as ACH payments and peer-to-peer payment apps. It can also handle more advanced billing options, such as deposits and partial payments, and properly account for them in the GL and subledgers.
- Revenue recognition: Accounting software should ensure that a business recognizes revenue when it is earned, as required by the accounting method it follows (cash- or accrual-basis), its business model (such as a subscription service) and geographic location. This requires accounting software with configurable revenue recognition rules based on specific milestones and the ability to integrate with billing, project management and sales systems.
- Purchase order processing: The purchase order (PO) process is part of the larger procurement process that focuses on the creation, management and fulfillment of POs. Common accounting software features include customizable PO forms; automated tracking, approval workflows and transaction recording; and integration with procurement and inventory management systems.
- Accounts payable: Accounts payable (AP) is the money a business owes its vendors and suppliers for purchased goods and services. Of course, all businesses want to remain in good standing with their partners so as to negotiate better prices and discounts. Accounting software can automate the AP workflow, including capturing and extracting details from invoices, coding them for the GL, routing them for approval (if needed), issuing payments and reconciling invoices against banking statements.
- Inventory management and costing: Inventory management is the practice of maintaining the right amount of stock to meet demand. Because inventory is an asset, the value of how much the business has on hand and associated carrying costs must be continually updated in accounting records. That requires integration between accounting and inventory management systems. The accounting program should support the main inventory costing methods — first-in, first-out (FIFO), last-in, first-out (LIFO) and weighted average cost. These methods are used to calculate the cost of goods sold (COGS), which is reported on a company’s income statement and is part of several important financial calculations.
- Fixed asset management: A fixed asset is a long-term asset — such as property, plant and equipment (PP&E) and intangible assets, such as patents and copyrights — used by a business for at least 12 months. Accounting software manages the fixed asset’s life cycle. That includes recording the detailed breakdown of an asset’s cost, calculating and properly recording depreciation, adjusting the asset’s value in the event it becomes worth more or less and tracking its sale or disposal.
- Amortization schedules: Amortization schedules help businesses manage their fixed assets by calculating and scheduling depreciation over time. Software can accurately calculate the depreciation expense for each fixed asset and generate reports that comply with accounting standards. The software also tracks the remaining value of each asset and provides information on when it needs to be replaced or upgraded.
- Tax management: Accounting software should automate calculation of the variety of taxes associated with every business transaction. As such, the software must be able to integrate with every other system that handles transactions, such as procurement, ecommerce and order management systems. Simultaneous compliance with tax laws across multiple jurisdictions is another important capability that helps ensure the business pays the right amount of taxes. Naturally, the software should also provide an audit trail to prove it.
- Payroll management: For most companies, payroll is their largest expense. It’s also a complex process that includes calculating gross and net pay, withholding taxes and deductions, issuing payments, paying payroll taxes to the IRS, updating GL accounts after employees are paid and distributing year-end tax forms. Accounting software that includes payroll capabilities or integrates with separate payroll software automates these steps, in compliance with current tax laws and other labor regulations.
- Employee expense management: Often associated with travel, employee expense management covers all of the processes and policies for reimbursing employees for the business expenses they pay out of their own pockets. Accounting software should automate the workflow, enabling employees to create and submit their expense reports and then automatically route them for approval, schedule them for reimbursement and, ultimately, execute the payment. The software should also include controls that ensure expenses are legitimate and documented for tax purposes.
- Banking management: Banking management refers to the oversight of banking activities. This can include any or all of the following features: account reconciliation (including bulk reconciliation), transaction tracking, check printing, payment processing, reporting, multicurrency support and bank feeds. Overall, banking management features in accounting software help businesses manage their cash flow more efficiently and accurately, while reducing the risk of errors and fraud.
- Close process management: Closing out the books at the end of an accounting period is a multistep process that culminates in the generation of financial statements and reports. Accounting software should be able to automate much of the process in real time, so that a business is continuously closing. Features should include automated journal entries and adjustments, reconciliation capabilities, financial statement preparation (including income statements reset to zero for the new period and locked-in balance sheets) and even the use of AI and machine learning to help optimize the process over time.
- Financial controls: Financial controls within accounting software include a range of tools and processes designed to catch and prevent errors, fraud and other financial irregularities. Some common examples of financial controls include hierarchies that establish a system of approval levels for financial transactions, and separation of duties, which prevent fraud and errors by ensuring that more than one employee is involved in a financial process. In addition, the creation of audit trails provide a record of all financial transactions and any changes made, while access controls limit the ability of individuals to access and modify financial data.
- Financial statements: These are important analytical tools for internal business executives as well as interested outside parties, such as investors and lenders, all of whom use financial statements to inform strategic decisions. Accounting software should be capable of automatically producing balance sheets, income (aka, profit and loss) statements and cash flow statements. It should automatically document changes in equity, too, and do all of this in accordance with accounting rules that are built in and/or customized, if necessary, to the needs of the business.
- Reporting, forecasting, business intelligence and analytics: Accounting software contains a wealth of insight that drives important decisions for the entire organization and individual departments. Leading solutions can drill down deeply on real-time financial data to demonstrate whether the company is meeting its goals, identify trends, create financial forecasts, predict cash flow and generate reports, to name some critical capabilities. Dashboards visually displaying key metrics and patterns and breaking down multidimensional data also lead to actionable reporting.
- Budget management: Budget management in accounting software refers to the ability to create, manage and monitor budgets automatically. This means businesses can track their financial performance against budgeted goals and adjust spending as needed. Specific budget management features include real-time tracking, customizable alerts, forecasting, expense management and reimbursement automation integration, and automated reporting.
- Project accounting: Also known as project cost accounting, project accounting follows specialized processes and standards for managing the many detailed expenses associated with individual projects. Advanced accounting solutions can track project costs, such as time and materials and employee hours; recognize revenue for an ongoing project in accordance with any of several methods that can be used to assess project completion; handle budgeting and different types of billing methods, such as time and materials or progress-based; and monitor project performance in real time, among other features.
Accounting Software Qualities
In addition to the competencies described above, it is important to choose accounting software that is:
- Flexible: Flexible accounting software adapts to the specific requirements of each business. It also means new functionality can be added when needed, either through the purchase of additional modules or integration with separate software. From a data perspective, flexible accounting software can handle, parse and analyze multidimensional data, uncovering trends and other insights.
- Scalable: Scalability is another important quality for growing businesses. When accounting software is scalable, it is able to accommodate an increasing amount of users, data and workloads — all hallmarks of a growing business — without being overwhelmed. Scalability dovetails with flexibility because as a business grows, it typically requires more than just bigger user and data capacities — it also needs new kinds of accounting functions.
- Secure: Accounting software is a treasure chest of sensitive financial information, private customer data, transaction details, bank account numbers and more that must be protected. Core software security features include role-based access control, data encryption, multifactor authentication, security updates, and backup and recovery.
- Collaborative: Accounting software can improve communication and real-time information-sharing among staff, reducing the likelihood of miscommunication and errors. Teams are also more efficient because staff members can simultaneously work on the same project. As a result, they can make more informed decisions and respond quickly to changing circumstances.
- User-friendly: User-friendly accounting software helps staff complete tasks quickly and efficiently. Navigation should be intuitive, features easy to find, design uncomplicated and support materials at the ready. User-friendly accounting software helps employees more easily adapt, increasing the software’s overall effectiveness and value .
- Connected: When accounting software is connected to other business systems, data can be automatically synced in real time, reducing the risk of data inconsistencies, the need for manual data entry — and ensuing errors. Employees also can move seamlessly between systems. And by integrating data from multiple sources, connected accounting software delivers more accurate and comprehensive reports.
- Reliable: Financial data is crucial to a business’s operations and decision-making. Companies must be able to rely on their accounting software to accurately record and process financial transactions, handle the close period and comply with financial regulations and standards, such as Generally Accepted Accounting Principles (GAAP). Reliability is also synonymous with stability, with minimal chance of software downtime.
- Automated: One of the main advantages of using accounting software is its ability to automate various tasks and processes. These include the financial close, invoicing, expense tracking, payroll, financial reporting and reconciliation. Accounting automation saves staff countless hours of work while boosting productivity and maintaining the highest level of accuracy.
Questions to Ask Accounting Software Vendors
Just as important as deciding which accounting software to select is whether its vendor is a good company to do business with. This is the time to ask questions, such as:
- How much consultation and staff training is needed to get up and running? Software ease of use is a key consideration. Not only will it determine staff productivity once the software is deployed, but it will impact its total cost in terms of training resources and staff time.
- Which of my requirements need custom work? Customization is essential to some businesses to ensure that the accounting software meets their unique needs. For example, a business may need to customize its chart of accounts to suit its specific industry. Integration with other systems is another aspect of accounting software that may require customization. Unsurprisingly, customization will raise implementation costs, so that’s another question to ask.
- What support and product resources are available after adoption? After-sales support is always a key consideration. The accounting team needs to be confident that when they need help, it will be available, from self-service — sometimes the quickest and easiest way to get an answer — to community-based support to a real customer tech person, when necessary.
- What can be configured out of the box? Cloud-based accounting software tends to have more configurable features than an “out-of-the-box” on-premises solution. Customization options can include workflow setup, invoice details, GL/chart of accounts details, financial reporting and integration with other software systems.
Accounting Software Requirements Checklist
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Choosing the right accounting software is essential for any business because it can have a significant impact on the company's financial health and overall success. Companies may have different accounting software requirements, but the need for accuracy, efficiency, compliance and automation is universal. A complete list of requirements is necessary to put a company on the right path toward finding the accounting software that will best fit its business.
Accounting Software Requirements FAQs
How long does it take to implement accounting software?
Implementation time varies depending on business needs and deployment method. Cloud-based accounting software can often be up and running in a matter of hours or days since it’s hosted by a third-party provider, whereas on-premises accounting software requires additional time, possibly weeks or months, for hardware and software installation, configuration and customization.
How much time does accounting software save?
The exact amount of time saved depends on the size of the business and the complexity of its accounting tasks. Leading accounting software automates many of the repetitive and time-consuming tasks that are part of manual accounting, such as data entry, bank reconciliations and financial reporting.
How does accounting software save money?
Accounting software saves businesses money in many ways, especially when it automates accounting and other business processes and functions. Savings result from improved efficiencies, reduced staffing costs and access to real-time financial data that leads to better decision-making and compliance with regulations and standards, to name a few ways.
What is accounting software and what are its required features?
Accounting software helps businesses manage their financial transactions and accounting processes. Required features typically include:
- General ledger: Tracks all financial transactions of the business, including sales, purchases, payments, receipts, and other financial activities.
- Accounts payable and receivable: Manages the money the business owes to others and the money customers owe to the business.
- Invoicing: Allows businesses to create and send invoices to customers, track outstanding payments and manage the invoicing process.
- Financial reporting: Generates financial reports, such as the balance sheet, income statement and cash flow statement.
- Bank reconciliation: Matches the business’s bank statements with its accounting records to ensure accuracy.
- Payroll: Manages employee pay and calculates taxes and deductions.
What are 4 factors that should be considered when selecting accounting software?
Four factors that should be considered when selecting accounting software are ease of use, scalability, security and the ability to integrate with other software.