Accounting systems are designed to track expenses, sales, liabilities, and all types of transactions that affect the financial status of a business. While manual calculations and written recordings of transactions were the earliest forms of accounting systems, technological advancements have paved the way for innovations in the accounting industry. In the 1990s, businesses started to use computer applications for recording transactions and balancing sheets. In the 21st century, the demand for more intuitive accounting systems grew, requiring reports for BI (Business Intelligence), integration with POS, and client sales monitoring to name a few. Further developments in technology now allow software companies to offer sophisticated solutions to cater to different accounting needs, whether as an installed software or as a cloud also known as SaaS (Software-as-a-Service) accounting solution.
Why Use an Accounting Software System?
Small to medium businesses, especially those that are starting out, may choose to do it themselves either manually or with the use of spreadsheets and formulas on their computer. Maintaining books the DIY way might seem less costly than the alternative, however, it can lead to problems in the long run. Manual accounting brings uncertainty to the process, is prone to human errors, and is seen by accounting firms and auditors as an unreliable source of information.
The difference between businesses geared for the long-term is foresight. A business focused on immediate and short-term results may opt to handle accounting manually or assign it to an untrained personnel. However, a business that has vision, aims for sustainability and reliability in terms of handling their numbers.
The Top 10 Reasons Why Businesses that Focus on Growth use an Accounting System:
Most accounting software are scalable and equipped to handle growth and expansions. Your software provider can either give you or, with additional licenses, allow you access for your devices or additional backend capacity for cloud-based systems. Once the business grows and transactions become more complex in nature, entering values in a spreadsheet is no longer a viable and sustainable solution.
2. Secure data storage
Software providers offer data security unlike when running your accounting system manually or DIY using spreadsheets. Most software provides security measures such as device or location-based authentication and encryption to prevent unauthorized access to your data.
3. Data backup and restore
Corrupted hard disk, power loss at office location, or natural disasters can cause business interruptions and possible data destruction. With accounting system software, you can be assured that a backup of your data is saved in the cloud and on off-site servers, providing both business continuity and recovery. Most software run regular automatic backups that you can access and restore from in the event of system failure.
4. Save up on time and resources
Accounting software, especially SaaS, are designed for an intuitive user experience thus making the system easier to understand. User-friendly software simplifies the data entry process which in turn leads to faster reporting and reduced delays between functions (eg. sales and generating invoices).
Take advantage of the capability of most software to automate tasks such as payroll computation, payslip printing, VAT calculation, and reports generation. While using a software may cost you more upfront during setup and installation, the time you save during personnel training and in maintaining the system will be worth the investment.
5. Tracking the business history
How did your business fare in the last 5 years? With an accounting software, this could easily be done by generating a report of profit and customer-related data. You can also perform comparative reports to see how your financial activities have changed yearly.
If your accounting books are poorly maintained throughout the year, then chances are it’s always crunch time when you are randomly selected by the IRS for an audit . The IRS might request copies of receipts, bills, employment documents, and other pertinent reports pertaining to your business operations.
With an accounting system software in place, you can generate reports and submit accounting data as requested by auditing bodies.
7. Easier reconciliation
Tracking discrepancies are easier with an accounting system as you can readily pull data for reconciliation. While it still depends on how accurate your reporting is, an accounting system makes the process easier and more convenient, thus encouraging regular reporting.
8. Track customers and suppliers history
To review the relationship with a supplier or a customer, all you have to do is to generate a report of all transactions with them. This will seem like a horrendous task when running a manual or DIY system unless if the system was designed to cater for this requirement right in the beginning. Accounting software system allow you to do this simply by filling in report parameters.
The capability to create customized reports allows businesses to extract the data that they need. For example, businesses can use these reports as a basis for targeted marketing campaigns (eg. loyalty rewards, add-on sales).
9. Compliant record keeping
Depending on the business that you are in, the records you need for tax reporting may vary. It is best to check with your accountant prior to setting up your accounting software so you may incorporate reports and record transactions that you need for federal taxes. This will make it easier for you and your accountant during tax season or when your business is audited by the IRS or other external auditors.
10. Reliable taxation
When it’s tax season and it’s time to send your reports to your accounting firm, an organized computerized report will immensely help your accountant in filing your tax return. Boxes of receipts and outdated reports need more explanations and can possibly raise flags at the IRS.
Using an accounting system software with diligent reporting ensures that all income and expenses are properly accounted for. This form of report also comes across as professional and formal which can also reflect the manner of the way the business is run.