Choosing Accounting Software
In This Chapter
- Why you need accounting software
- Comparing desktop and cloud-based software
- Looking at point-of-sale software
- Changing to different software
- Finding help when you get stuck
You might be surprised to learn that modern accounting has roots that date to the late 1400s. Luca Pacioli, an Italian mathematician and Franciscan friar who lived from 1445 to 1517, is widely acknowledged as the father of accounting.
Fortunately, you don’t have to—and shouldn’t—use Pacioli’s ancient accounting methods for maintaining your books. Even the smallest businesses should adopt some sort of modern accounting software, right from the start.
The Importance of Accounting Software
With the wide variety of easy-to-use accounting software available, there’s no reason not to use it. Sure, it’s entirely possible to maintain your books without the assistance of software, but it’s also very possible you’ll transpose two numbers, omit a transaction, or tally an invoice incorrectly when you’re working without software. It’s better to take advantage of the many ways accounting software can help you.
Prebuilt forms walk you through transactions such as invoices and check writing. The software handles all the behind-the-scenes entries for you, so you only have to handle each transaction once. This can be especially valuable in the sale of inventory items that can require two entries—one to record the sale and another to reduce the inventory and recognize the cost.
And with software, accounting statements and reports are just a few mouse clicks away. In addition, most programs enable you to drill down into reports. So if a number doesn’t look quite right, you can investigate further, clicking your way into a series of reports to find the transaction screen where you originally entered the amount.
Although it might feel quick and easy to handwrite a check or invoice, this actually adds extra work because you have to then enter the data into your software. And if you don’t do it right away, all that paper can accumulate into piles or easily get lost. Accounting software enables you to handle a transaction once, a key best practice for successfully maintaining accurate books.
What’s more, the standard structure and methods built in to accounting software greatly simplify filing the various tax returns you’ll learn about in Chapters 18 and 19.
BOTTOM LINE
Every business of every size should have an accounting software program. There’s simply no better way to keep tabs on your revenue and expenses. Plus, it’s much harder to keep tabs on your bank balance if you don’t have software to refer to.
Desktop Versus Cloud-Based Software
Traditionally, accounting software had to be physically installed on your computer from a floppy disk or CD. When new versions were released, often on an annual basis, you had to purchase the new version and reinstall or update your software. Early on, it was often worthwhile to purchase the updated versions to gain new functionality.
These days, however, desktop accounting software has matured to the point that software vendors have to stretch to come up with new features that warrant purchasing an upgrade. So although a company such as Intuit, which makes QuickBooks, might issue a new software version each year, not all customers purchase the upgrade—and some might let years go by before paying for a newer version.
As a result of fewer purchases and upgrades, software vendors began supplementing their reduced cash flow by offering recurring services, such as payroll processing, credit card processing, and other add-ons. A condition to subscribing to such ancillary services is that you had to upgrade your software at least every 3 years. If you failed to upgrade, you might lose access to certain services, such as payroll processing.
In more recent years, software vendors have found a better model for delivering accounting software—via the cloud. Software that resides solely online is known as cloud-based software. You access the software via the internet, usually using a web browser. This type of software makes it easy for you to access your books and enter transactions from just about anywhere. The trade-off is that cloud-based accounting packages aren’t nearly as mature as their desktop-based brethren, so working in the cloud often means settling for less functionality.
DEFINITION
Cloud-based software is housed on remote servers so users access the software online.
The rise of cloud-based accounting software has been a boon to software developers, as the subscription model for cloud-based accounting software ensures a reliable and monthly revenue stream. Fulfillment is easier as well because manufacturers don’t have to create physical CDs of their product that must be boxed and shipped.
We think it’s fair to say that over time, desktop-based accounting software will go the way of the traditional hand-written accounting ledger, but we’re still a number of years away from that eventuality. However, what’s good for software vendors isn’t necessarily good for accounting software customers.
When you purchase a desktop-based program, you’re buying a license to use that software on a single computer. If you have multiple users who need to access your books, you must purchase a license for each user. Most desktop accounting programs don’t expire after a period of time if you don’t upgrade, or at least you won’t be directly cut off. Instead, access to certain services is discontinued after 3 years, as mentioned earlier.
Depending on the software you buy, you might only have to purchase the software license, or you might be required to subscribe to a support plan. Pricing for support plans varies widely but commonly costs around 20 percent of the license amount. You might be able to opt out of the support plan and continue using the software, although you then wouldn’t be able to call the software company for help if you had a problem. Regardless, with desktop software, you’re able to establish as many sets of books as you want at no additional cost.
With cloud-based accounting software, you have ongoing monthly fees for each set of books you need to maintain. You also might have fees for other services such as payroll processing, credit card processing, and so on.
Historically, the screens within your desktop accounting software only changed when you installed a new version. However, QuickBooks in particular is starting to add and remove features during the year through regular software updates. Conversely, the screens within cloud-based programs can and do change, often without notice. New features are added, and old features may be dropped. All of this is beyond your control because you’re signing into a central version of the software.
Common Desktop Accounting Packages
Many long-time desktop accounting programs have been purchased by larger software vendors and discontinued. For instance, Sage is planning to discontinue DacEasy, with support ending as of September 2016. As time goes by, fewer and fewer options for desktop-based software are available, but we’ll cover some current options here. Most of these programs are only available on Windows-based computers. We’ll note which ones are available for Mac computers.
Quicken
We’re going to be specific here about suggesting Quicken (quicken.com) as an accounting software—as you’ll see, only two versions of Quicken qualify as such. Quicken itself is a personal finance program that’s well suited to managing records for your personal or household finances. Typically, using Quicken to manage the books for a business is like trying to fit a square peg into a round hole. With that said, two versions of Quicken can be suitable for the smallest of businesses. These two versions are only available for Windows and cannot be used on a Mac:
Quicken Home and Business: This hybrid version of Quicken enables you to manage your personal finances and a very small business at the same time. The accounting features are limited, and in some cases rudimentary, but it’s a starting point, particularly if you’re already using Quicken. In fact, current Quicken users can simply unlock the business features by paying a small fee. Once your business grows to the point that you need more features, it’s an easy transition to QuickBooks Pro.
Quicken Rental Property Manager: The collapse and subsequent resurgence of the housing market has spawned a large number of owner-investor landlords. If you own rental property, you might find Quicken Rental Property Manager a suitable accounting program for managing your portfolio.
QuickBooks Pro
QuickBooks Pro (quickbooks.intuit.com) is the base model of the QuickBooks family of desktop-based accounting products. Designed to offer basic accounting features for new businesses, it allows up to three users to work simultaneously within the software.
QuickBooks is easy to get up and running with, and in some cases, Intuit has gone to great lengths to remove as many vestiges of accounting as possible. This can be helpful for nonaccountants, but sometimes the simplicity means certain tasks you could carry out with ease in other accounting programs become difficult in QuickBooks.
As shown in the following example, QuickBooks’s simple flowchart interface makes it easy to jump right to the task you need to carry out. You’ll typically need to look pretty hard to find any mention of debits and credits in QuickBooks.
QuickBooks Pro offers an accounting flowchart that makes it easy to follow the trail of transactions.
Mac users can purchase QuickBooks for Mac that’s very equivalent to QuickBooks Pro for Windows.
The QuickBooks Premier line offers additional functionality beyond the Pro level, including the ability to have up to five simultaneous users working in the software and an expanded slate of reports.
You also can use the generic version that’s designed to apply to almost any business or choose an industry-specific version, such as Contractor, Non-Profit, Retail, Manufacturing and Wholesale, Professional Services, or Accountant. The industry-specific versions turn on additional reports and features that apply to those industries, some of which aren’t available in the Pro version.
QuickBooks Premier includes industry-specific versions, such as this one for manufacturing and wholesale businesses.
The Premier version is not available for Mac computers.
QuickBooks Enterprise
As your business grows, it’s easy to reach the upper limits of what QuickBooks Pro and Premier have to offer. For example, those versions restrict you to a total of 14,500 customers, vendors, and employees, and each list is limited to a total of 10,500 names. Similarly, you’ll be held to 14,500 inventory items, which can pose a problem for some businesses.
Fortunately, QuickBooks Enterprise (enterprisesuite.intuit.com) provides an easy transition to a more robust accounting package. QuickBooks Enterprise allows between 1 and 30 simultaneous users, with lists for up to 100,000 items each. You also can benefit from advanced features such as expanded inventory tracking and costing capabilities and custom financial reporting by way of the QuickBooks Statement Writer that integrates with Microsoft Excel.
QuickBooks Enterprise shares the same look and feel as the Pro and Premier versions, but within the menus, you’ll find commands and options that aren’t offered in those versions.
One limitation of QuickBooks Pro and Premier is that you can only have open one set of books at a time. If you need to enter transactions in another set of books, often referred to as a company inside most accounting programs, you have to close the first company and open the second. QuickBooks Enterprise (and most of the Sage 50 product line, discussed next) allows you to open two companies or sets of books simultaneously.
Enterprise is not available for Mac computers.
RED FLAG
If you want to move from one version of QuickBooks to another, you simply purchase the requisite license(s), open your software in the new version, and go through a one-time conversion process to migrate your data to the new format. Unfortunately, there’s no path backward. So if you upgrade from QuickBooks Pro to Premier, you can’t go back to using Pro unless you start all over again. Premier costs more than Pro, so you’ll be locked in to purchasing Premier upgrades in the future. The same goes for Enterprise.
Sage 50
Sage 50 (sage50.com), formerly known as Peachtree Software, actually beat QuickBooks to market in 1982. Sage 50 hews fairly closely to the definition of traditional accounting software. There’s an informal monthly closing process by which you physically switch the software to a new accounting period. You can go back in time to previous accounting periods, to an extent.
Sage 50 allows you to access two fiscal years concurrently and switch to any month within those years. At the end of the second year, you need to close the fiscal year, which then allows you read-only access to accounting periods in the year you closed. You won’t be able to enter new transactions in that time frame.
Sage 50 is typically best suited for users who have an accounting background. Although the software offers some ease of use aspects for nonaccountants, the concepts of changing accounting periods and closing fiscal years isn’t something users of QuickBooks, for example, have to think about.
Sage 50 offers a flowchart-based interface in addition to traditional drop-down menus.
Similar to QuickBooks, Sage 50 offers three product levels:
Sage 50 Pro Accounting: The functionality in this version closely parallels QuickBooks Pro; however, this is a single-user product. Only one user has access to the accounting records.
Sage 50 Premier Accounting: This version is similar to QuickBooks Premier, but it allows up to four users at a time. The software offers expanded capabilities beyond QuickBooks Pro, such as being able to open more than one set of books at a time.
Sage 50 Quantum Accounting: This version competes with QuickBooks Enterprise, and it allows you to have up to 40 licensed users at once. This goes beyond the 30-user limitation of QuickBooks Enterprise.
Accountant Edition: This software is designed for professional accountants and bookkeepers who maintain or review books for multiple clients. It also provides access to industry-specific features, such as the unique construction or manufacturing software, without requiring users to install multiple versions.
Sage 50 is only available to Windows users, not Mac.
In recent years, Sage 50 has been tinkering with the licensing of its desktop-based products. For a time, you couldn’t purchase a perpetual license to the software and instead had to rent it on a subscription basis. Sage has backed away from the enforced subscriptions, and you can now purchase perpetual licenses again or use it on a subscription basis. Read the fine print carefully to ensure that when you purchase this software you get the license you’re expecting.
Mid-Range to Enterprise Accounting Software
We’ve written this book primarily for introductory accounting software users, so the programs we mention specifically are well suited for entry-level users. As your business grows, however, you might reach a point where the top-tier versions of programs such as QuickBooks Enterprise or Sage 50 Quantum are insufficient for your business’ needs.
At that point, you’ll need something beyond the basics, both with software functionality and pricing. The accounting programs we cover in this chapter are typically priced from $200 to less than $10,000. Mid-range accounting packages such as Intacct, Microsoft Dynamics, Sage 100, and so on generally run tens of thousands of dollars for the software licenses, plus you generally need the expertise of a consulting firm to implement the software.
Common Cloud Accounting Programs
At first glance, cloud-based accounting systems seem like the way to go. Sure, these programs have benefits for end users, but if you’ve worked with desktop-based accounting software programs at all, you’ll find the cloud-based versions markedly different.
The following sections review some of the more popular cloud-based accounting programs. You can generally access these programs on any internet-enabled device—PC, Mac, smartphone, or tablet.
QuickBooks Online
QuickBooks Online (qbo.intuit.com) is cloud-based accounting software that’s offered on a subscription basis. As of this writing, QuickBooks Online is available in three versions, with three different price points:
Simple Start: This basic version enables you to track income and expenses, create estimates and invoices, and sync your bank account with your accounting records. It’s best suited for business owners who have little or no accounting experience and few transactions to process.
Essentials: This middle-tier version provides all the functionality of QuickBooks Simple Start but adds the capability to pay bills online along with an expanded group of reports. Reporting is meager in the Simple Start version.
Plus: Plus has all the features of Essentials plus the capability to track inventory and prepare and print 1099s. Creating purchase orders, entering billable hours for a customer, using classes (departments), and accounting by location (branch offices, etc.) are other Plus features.
BOTTOM LINE
You can migrate between the desktop and cloud-based versions of QuickBooks with relative ease. So if you’d like to give cloud-based accounting a try and you’re already using QuickBooks, it’s a simple process to move from your desktop to the cloud.
An important distinction about QuickBooks Online: you can easily upgrade from Simple Start to Essentials, or Essentials to Plus, but once you move to a given tier, you can’t downgrade. The only way to move from the Plus version to the Essentials plan is to cancel your Plus subscription and start over with the Simple Start or Essentials plan. This catches many QuickBooks Online users by surprise; other users are frustrated because a key feature such as generating 1099s can cost an additional $150 a year if you don’t need any of the other Plus features.
You can access cloud-based accounting programs such as QuickBooks Online online.
One of the main companies going head-to-head with QuickBooks Online is New Zealand–based Xero (pronounced zero). Xero (xero.com/us) first launched in 2006 and was designed to be cloud-based. It shares similar functionality to QuickBooks Online, and it even offers a free conversion service from QuickBooks to Xero. It’s designed to appeal to all types of small businesses.
Some of Xero’s key features include connectivity with banks around the globe and automatic reconciliation features; inventory tracking; dashboards that show at a glance how your company is doing; and of course, the cloud capability that enables you to view and work on your accounting records online. Xero partners with more than 400 add-on products that enable you to customize your accounting experience to fit your business or your clients’ business.
Xero offers a company dashboard where you can keep tabs on key metrics for your business.
FreshBooks
FreshBooks (freshbooks.com) started as cloud-based software designed for professionals who bill by the hour or project to send invoices. It’s since grown into a full-fledged cloud-based accounting software. Ideal FreshBooks users are freelancers, consultants, or micro businesses that utilize contractors. The program includes automatic bank feeds, expense management tools, time tracking, and document sharing.
You don’t have to make any irretrievable decisions when settling on an accounting package. Each program we discuss here either offers a free trial, money-back refund period, or dummy demonstration company you can play around with before you purchase. To determine if an accounting package offers a free demonstration version, do a web search for “online demo” and the name of the software you’re interested in. In some cases, such as with Xero or FreshBooks, you must sign up for a free trial.
Click a tab at the top of FreshBooks to select your next activity, such as entering business expenses.
Point-of-Sale Software
Most of the time, when you make a purchase in a store, you benefit from point of sale (POS). These types of programs allow retail businesses such as stores and restaurants to manage sales, inventory, and sometimes payroll all in one place.
Small business owners who frequent trade shows at various locations across the country or globe might find POS software useful. If you’re a very small business owner or run a mobile business, some of the apps you can use on your mobile device to accept credit cards might be more suitable. Larger businesses and establishments such as retail stores or restaurants typically require a more advanced solution.
Because POS is a specialized need, we’ll only discuss two of the many options available.
QuickBooks Point of Sale
QuickBooks Point of Sale (quickbooks.intuit.com/point-of-sale) is an accounting program geared toward retail establishments that require a cash drawer and other hardware such as scanners and receipt printers. This software requires a PC and is a supplement to, and not a replacement of, the QuickBooks desktop program.
Revel Systems POS
As more and more businesses become mobile, chances are you’ll soon pay for a purchase on a tablet-based POS solution, if you haven’t already. The market leader in this area is Revel Systems POS (revelsystems.com). With this setup, you reduce paperwork by having customers sign for credit card purchases on-screen and opt to get their receipt by text or email.
A testament to the success of this platform is that Intuit, the maker of QuickBooks, has licensed Revel Systems POS as a cloud-based solution to integrate with QuickBooks Online. In this case, the tablet computer takes the place of a PC or Mac that other platforms require.
Changing Software
Don’t obsess too much about which accounting software you should start with. As long as you choose a major brand, you’ll be able to easily migrate to another platform if you find that you need to at some point. As we’ve noted, many of the major programs have built-in conversion tools that let you move from one program to another.
Let’s say you start with QuickBooks Online, but discover that you need features or functionality offered only in the desktop versions of QuickBooks. Within QuickBooks Online, you can request an export of all your accounting records for use with QuickBooks Desktop. Keep in mind that this is an either/or proposition. You can’t use QuickBooks Online and QuickBooks Desktop simultaneously. The platforms are distinct and you can maintain your books in only one platform. But let’s say you start with QuickBooks Desktop and then decide you’d rather use Sage 50. The latter has a built-in QuickBooks conversion tool that makes moving easy.
Many cloud-based programs also let you to covert from another cloud-based platform or from your desktop-based software. Keep in mind, though, that in some cases, not every bit of activity from your old accounting software will be migrated to the new accounting program. Carefully check or do a test run on a software conversion before you finalize your move to a new platform.
If you want to move from one accounting program to another, the start of a new fiscal year is a good time to convert. You might have to enter the ending balances from your trial balance (a report we discuss in Chapter 7 as the starting point for your books).
If you’re migrating from a desktop-based accounting software, you can keep the old software installed on your computer as long as you like to reference old transactions. If you cancel a cloud-based service, you’ll still have read-only access to your old accounting records for a period of time that varies by service provider.
Getting Help with Your Accounting Software
You’ll never be completely on your own when it comes to accounting software. Many entry-level programs such as QuickBooks and Sage 50 offer tips that pop up throughout the software while you work. The vendors’ websites typically feature elaborate support sections, and numerous user communities are online where accounting software users help each other.
In addition, many software companies have certification programs accountants and bookkeepers can take to become certified users of the accounting software and then offer personalized assistance with your accounting software.
If you don’t have the budget for professional assistance, many universities and colleges have business development resources where accounting students can help you with software planning and implementation at little or no cost. If you currently use an outside accountant, he or she might be a member of the Intuit network and can offer you a 50 percent discount off the regular monthly fee for assistance.
The Least You Need to Know
- You should use accounting software, even for a very small business.
- A variety of desktop and cloud-based accounting systems are available, geared for businesses of all sizes and types.
- You have to pay a license fee for desktop software, but you get the capability to set up multiple users and companies.
- You pay a subscription fee for cloud-based systems, typically one per company.
- Point-of-sale programs let retailers integrate inventory management and other functions with accounting systems.
- It’s typically fairly straightforward to migrate from one system to another, although once you upgrade to a more robust or complex system, it’s often impossible to downgrade.