Why accounting software is a must-have for most businesses
In my business as a tax professional, I've seen only one business client in the past six years who has come to me with all of her income and expense statements written out by hand.
To be honest, I was stunned when I first saw these statements. But I was even more stunned to see that they had been done correctly.
I asked this business owner why she kept her books manually. Her response: "I just like doing it this way. Can you work with me even though I don't do this on a computer?"
The answer was yes, absolutely. This client understood what she was doing, kept meticulous records — and had fabulous penmanship.
But just the rarity of seeing hand-written financial information drives home for me the logical preference that most small businesses have for turning to software for help with their basic record-keeping needs. If you keep track of your business expenses and revenues yourself and you use a PC in your business — and if you're reading this, you must be using a computer — then you should be using an accounting software application to make your life easier.
Accounting software today is better, easier
That's a pretty strong statement, especially in the area of accounting and taxes, where the answer to a question so often is, "It Depends." But basic small-business software programs have gotten relatively inexpensive and easy to use that there's really no question that you need accounting software in your business today.
The question today is what kind of solution should you be using? For startups and other businesses with basic accounting needs, Microsoft has added to the offerings on the market with the new Microsoft Office Small Business Accounting 2006, scheduled for release in September 2005 as part of the new Microsoft Office Small Business Management Edition 2006.
(For small businesses with more than basic accounting needs, and 10 or more employees, there's Microsoft Small Business Financials, which provides big-business tools and benefits in an affordable, user-friendly package.)
Software can handle basic bookkeeping duties
Most tax pros are set up to handle client bookkeeping needs with the client's own staff or on-contract bookkeepers. But most tax pros also can easily work with clients who use accounting software for their basic bookkeeping. The tax pro will still take care of tax returns and such matters as consolidated statements for banks, while you'll handle the basic inputting of financial data. Instead of literal hands-on data input, your tax pro will be more of an overseer for the work you're handling in-house.
With your accounting software, you could handle some bookkeeping tasks that you might otherwise outsource. That can save you money, especially if you don't have significant bookkeeping needs and if you have someone who can handle bookkeeping tasks in addition to other duties. Most businesses, however, will still ultimately end up hiring someone to handle their bookkeeping (see this article).
But don't skimp on training
A key to doing your own bookkeeping with an accounting software application is, of course, learning to use the software properly.
For example, most business accounting programs will create balance sheets for you that always balance. That's the nice thing about them. The problem, in fact the danger, is that the balance sheets will balance whether or not the information recorded by the user makes any sense. I've seen accounting-program balance sheets that showed negative depreciable assets and negative loans from shareholders. I've seen a cash-basis taxpayer with accounts receivable on the balance sheet — something you only have with accrual-basis taxpayers.
In short, accounting software programs, like most financial management software, run on the GIGO concept (Garbage In, Garbage Out). They can be tremendous time-savers, and we benefit enormously from them. But you have to take the time to learn to use them properly, and to teach your employees to use them. You'll want an expert to review your work periodically.
Working with an accounting program in-house can reduce the amount of time and number of tasks for which you need a tax pro. It probably does not reduce the desire most businesses have for a tax pro who can deal with higher-level financial issues, such as your tax returns and overall planning.
It tracks money matters and more
Accounting software programs can be used for a lot more than just tracking a business's annual receipts and expenses.
They also can:
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Generate payrolls, track and pay corporate tax and employer tax liabilities, print out employee W-2s and contractor Form 1099s, and track overdue bills.
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Link to online banking services and accounts, so that banking information is automatically incorporated into the software program.
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Integrate with Microsoft Office and other business applications, and can ideally be used to do things such as keep track of your inventory, track your project expenses, assemble job bids, break down profits or losses by client or category, and bill clients.
(For more on all the things that Small Business Financials can do for your business, see this page.)
And if you're keeping your books on your computer, giving them to your tax pro for review can typically be done by sending an e-mail with your company data file — which your tax pro will then load into the same software program that he has on his computer. Ideally, both you and your tax pro will save time and money.