Accounting Software

What is Accounting Software? 

Business accounting software keeps track of the financial transactions within an organization. A core package includes general ledger, accounts receivable, accounts payable, payroll, and reporting modules. These systems occasionally come with specialized functionality for particular types of businesses or companies. An example is fund accounting for nonprofit organizations and government entities. Because it's a critical business process, accounting software is often a central component of an organization’s enterprise resource planning (ERP) system.

Application Categories

Core Accounting	Core systems assist with the basic functions necessary to balance a business' books, including general ledger functionality, the ability to track accounts payable (A/P) and accounts receivable (A/R), fixed assets, and bank reconciliation. Every business requires core accounting to manage its finances.
Project Accounting	Project accounting software helps project-oriented businesses maximize job profitability and efficiency by tracking detailed project costs. Businesses can examine past job costs and estimate future costs to choose the jobs which will achieve adequate profit. Project accounting software tracks by project factors like labor, overhead, materials, and equipment to improve decision-making.
Fund Accounting	Fund accounting software supports non-profit and governmental entities in tracking their development and spending of funds. Non-profit organizations can track their expenditures of donations or grants to make sure they meet fund provider requirements. The software also allows government entities to make sure they meet unique Governmental Accounting Standards Board (GASB) regulations.
Inventory Management	Inventory management software helps companies keep the correct inventory levels to maximize profit, avoid overspending, and minimize the costs associated with inventory depreciation. The right software keeps inventory information up-to-date by tracking product levels as well as orders, sales, and deliveries. The Generally Accepted Accounting Principles (GAAP) stipulate specific ways to account for inventory to ensure proper reporting of value for inventory that has depreciated or undergone other changes. Software with inventory management capabilities ensures this is done correctly.
Billing & Invoicing	Billing software automates the collection of payments from customers to enable timely and consistent collection with minimal human error. There are many different types of billing and invoice software designed to support the wide range of industries, business models, payment methods, and scale of operations.
Budgeting & Forecasting	Users can leverage budgeting and forecasting software to project a company’s financial outlook from historical data and estimates of future conditions. These systems are typically used in businesses that must consolidate multiple departmental forecasts and budgets. The systems are most helpful where multiple variables drive the ultimate forecast.
Fixed Asset Accounting	Fixed asset software tracks fixed assets by providing a central database of important asset information, including location, check-in and check-out, due date for return, maintenance scheduling, audit history, cost and depreciation. Depreciation schedules are a core element of fixed asset accounting.
Payroll Management	Payroll software helps businesses track and process employee payrolls. It also composes and prints paychecks, automatically withholds and pays government taxes, and generates the necessary legal and tax reports on a regular basis. Automated reminders to pay required fees help businesses avoid legal penalties.

What Type of Buyer Are You?

Before evaluating software, you must determine what type of buyer you are. Over 90% of buyers fall into one of these three categories:

• Growing small business buyers. These small businesses are on the verge of upgrading basic systems, like QuickBooks, to support more sophisticated functions (like demand forecasting, intercompany accounts, increased data storage, and others). Growing businesses upgrade software for a range of reasons. Industry-specific functionality will become important when a small company reaches a certain size threshold.
• Enterprise buyers. These buyers represent businesses and organizations that need the functionality of a full enterprise resource planning (ERP) suite. Usually, these systems will include functionality for multi-company consolidation, international operations and foreign currency, and other concerns relevant to large entities. Seamless integration is usually more important than specific features; however, there is considerable differentiation in both of these areas, and buyers should examine both. SAP and Oracle, two of the largest vendors, have some of the most feature-rich systems on the market.
• Best-of-breed buyers. These buyers are focused on specific functions. For example, non-profit organizations need to look specifically for systems that can perform fund accounting. This method tracks funds in such a way that different grant providers can see the right report on how each fund amount has been used. Construction companies or engineering firms, on the other hand, usually need a system that can break down costs by each project, location, and other characteristics. For best-of-breed buyers like these, functionality is often more important than integration.

Market Trends You Should Understand

As you evaluate software, consider these current market trends.

• Software as a Service (SaaS). SaaS is picking up speed as buyers realize the advantages of lower up-front costs and quicker implementation time. NetSuite is a prominent example of a SaaS system. In fact, it is available only as a SaaS offering.
• Mobile apps. Mobile applications are gaining popularity across the board, and accounting is no exception. Check to see how each vendor is innovating on this front.
• Increased specialization by industry. Increasingly, consumers are demanding more industry-specific features, and vendors are listening. Products that were once “horizontal” - such as Sage MAS 90/200, QuickBooks, and Microsoft Dynamics - are increasingly adding new vertical features to cater to buyers’ specific industries. Make sure to keep a lookout for features that fit your particular industry when investigating tools and solutions.
• Business intelligence. Interest in business intelligence is on the rise. Business intelligence takes the massive amount of data collected and organizes it into reports designed to support business improvement. Many vendors are now integrating business intelligence into their ERP and financial management systems. 

Benefits & Potential Issues

The key benefits of financial management systems are clear: better visibility of costs and expenditures, which leads to more financially responsible decision making. In addition, systems can generate reports in a variety of ways to summarize this information cleanly for the right audience. For example, non-profits can generate reports specific to a particular grant provider, detailing exactly where every cent of the funding ended up. This allows an organization to be accountable to investors, donors, and lenders, maintaining trust and avoiding financial damage. Accounting software also allows companies to ensure compliance with reporting standards and federal requirements.

There are a number of issues that should be avoided when selecting software. Buyers in certain vertical industries must make sure the appropriate modules are included in the system they purchase. For example, engineering firms and construction companies should choose a system with a project accounting module. Another issue is a company’s rate of growth; the buyer should consider how fast the company is growing at the time of purchase. This way, the company will not grow out of a system immediately after investing considerable time and funds in the selection and implementation processes.