As a business grows in size and complexity, spreadsheets and other simple do-it-yourself bookkeeping systems will be increasingly time-consuming and cost-inefficient, and it will be worthwhile investing in accounting software.
The ideal time to invest in accounting software is a grey area and will occur at a different time for each business, so in this post I outline a few points to consider.
‘Accounting software’ is a broad term that covers desktop-installed software, web-based services (I recommend Xero), mobile apps and similar solutions.
Volume of Transactions
Many accounting software packages have time-saving features, such as shortcuts, templates, rules and import options. If accounting software will save you or your staff more than an hour each week, it is probably time to switch.
You may benefit from the access limitations in accounting software, if more than one person is involved in your bookkeeping and/or if you have inexperienced staff involved. Depending on the software package selected, there may also be options to record the actions taken by each user, including the date and time.
Inventory makes the decision easy: if you have inventory, use accounting software. Ensure staff know how to use the inventory systems properly, and conduct regular stocktakes for verification.
Another easy decision: unless you only have one or two staff with set hours each week, use accounting software. Most accounting software packages contain a payroll module that is easier to use than any spreadsheet could be. You could use a cheaper payroll-only software solution until your business requires the other functions provided with full accounting software packages.
Debtors / Accounts Receivable
If you extend credit to many customers, the debtors reports in accounting software are very important for ensuring your customers pay on time. These reports are automatically calculated for you, and it is easy to drill down into the individual invoices.
Creditors / Accounts Payable
Similar to the above point about debtors, creditors reports help you keep track of who you owe and when it will be due for payment. It is important to pay your creditors on time, or they might stop supplying your business at a critical time.
If you enter in the due dates on your invoices and bills, your accounting software package can estimate your cash position over the coming few months. This gives you plenty of time to prepare for an upcoming dip in cash, e.g. when a lot of creditors are due in the same week.
Expectation of Future Growth or Seasonal Factors
Consider moving to accounting software packages before any fast growth or seasonally-busy periods. You and your staff will be able to focus on new work and customers easier if the software is set up and running in advance.
I hope this has helped those of you who are considering making the move to accounting software. These are the most common factors I consider before providing advice, but every business is different and it is ultimately the choice of the business owner(s).