Starting and running a small business isn’t easy—and relying on spreadsheets and manual methods can make it much harder to manage financials. In contrast, modern, online accounting solutions—such as Intuit QuickBooks, Xero, Zoho Books, FreshBooks, and others—give small businesses the tools they need to automate routine accounting functions, track invoices and payments, reconcile the books, understand cash flow and more.
But our recent survey study, What’s Ahead for SMBs in Financial Management, revealed that 51% of small businesses with 1-19 employees don’t use accounting or financial management software. 30% said they use spreadsheets to manage the books, while 21% said they don’t use any software at all to manage this function.
Which begs the question: With so many easy-to-use, affordable, cloud-based accounting small business accounting solutions available (including Intuit QuickBooks Online, Xero, Zoho Books, Wave, and others) to choose from, what’s holding them back?
According to survey results, 50% of small businesses said that they don’t use accounting software because “manual methods/spreadsheets have worked well for us.” This far outpaces other reasons, including that they use a third-party accountant or bookkeeper for this task, they lack the budget, or they don’t have the time to learn about a software solution.
The data also reveals another key factor at play here. Most small businesses have a dearth of accounting expertise on staff. In many cases—particularly in very small businesses–the owner or president is managing company financials. Most business owners lack an accounting background and may underestimate the benefits of using software to manage their financials.
Compounding the problem, many small businesses don’t contract for services from an external accountant or bookkeeper—providers that can not only take care of accounting chores for them, but help them to understand how an accounting solution could benefit their businesses.
Why Small Businesses Should Invest in Accounting Software and Expertise
If you’re using manual methods or spreadsheets to manage your company’s finances, you’re probably spending a lot of time on routine tasks that accounting software could automate. It’s also likely that you’re not getting accurate, up-to-date, and complete financial information to help you to make the best decisions for your business. And almost undoubtedly, you’re spending too much time finding and reconciling information from different sources when tax time rolls around.
Here are some of the benefits that a dedicated accounting solution can provide to your business.
- Time savings. Online accounting software enables you to automate routine tasks, such as issuing repeat invoices and payment reminders and categorizing expenses. Many of these solutions also feature tools to help you automate tasks such as payment processing, payroll, payment processing, inventory management, contact management, and more. By automating these types of repetitive functions, you can focus more of your time on growing the business.
- Fewer errors. Online accounting solutions feature capabilities such as receipt capture and banking reconciliation. Capturing information directly from the source helps to dramatically reduce the odds of human errors that come from manually entering financial information into spreadsheets, and prevents data loss due to missing documents. Banking reconciliation ensures that any differences between your account balance and your books will be flagged and corrected. And captured receipts are stored online, so they’re easy to find when you need them for tax purposes.
- Streamlined reporting. Accounting software also puts reporting tools at your fingertips. All of the major online accounting software vendors provide basic reports, such as balance sheets, cash flow, and income statements. They also provide other reporting capabilities to help with things such as payroll, taxes, time tracking, and more. These reports make it easier to evaluate business performance in multiple areas and to course correct as needed.
- Less stress at tax time. Instead of pulling together spreadsheets, receipts, banking, and paper information manually, you’ll have most of the information you need in one place. Accounting applications are rules-based, so they can also help ensure that you’re following relevant tax regulations and that you’re applying the correct taxes to different types of transactions throughout the year. Reporting tools can generate tax summary reports at any time to help you stay on top of your financials, and be better prepared for tax time.
And remember, you don’t need to pay a lot for most small business accounting software solutions. Pricing typically begins at under $20 per user per month, and some vendors even offer free editions.
Perspective
The U.S. Small Business Administration reports that about one in five businesses fails within their first year. About half survive five years or longer, and roughly one-third make it to the 10-year mark.
Cash flow issues are the leading cause of business failures. According to a study by U.S. Bank, they account for 82% small business closures. Other reasons include not being able to attract enough customers (42%), running out of cash (29%), not investing enough in human resources (23%), and getting pushed out by competitors (19%).
These statistics underscore the common sense knowledge that having an accurate view of financial data is a must for business viability, let alone growth. Dedicated accounting software can keep your finances in order, and help you manage vital tasks such as invoicing, expenses and payments much more efficiently than spreadsheets and pen and paper. In addition to these basics, the right accounting application can help you to manage inventory, reconcile bank accounts, make tax time easier, and easily access the data you need to guide your business forward.
© SMB Group, 2022
Source: Laurie McCabe’s Blog