For any startup founder, accurate and reliable financial tracking and reporting is essential. Like many early-stage founders, you probably contracted a part-time accountant or decided to document transactions the old-school way using Excel.
But eventually, you start to notice missing transactions when you reconcile your books each month, vendor relationships become strained over missed payments, and mismanaged budgets start leading to inaccurate forecasts.
Fortunately, tools like accounting software help founders properly manage cash flow, track mission-critical KPIs, close books quicker, and more accurately budget to ultimately make smarter business decisions. Furthermore, accounting software helps founders identify growth opportunities and understand the financial implications of their decisions.
Let’s dive deeper into how and why accounting software is important for startups at all stages.
What Is Accounting Software?
As we touched upon briefly above, accounting software enables startups to record, track, and report on their financial information. Accounting software comes in all shapes and sizes but typically includes many features, like:
- Creating invoices
- Tracking operating expenses
- Generating balance sheets, profit and loss statements, and income statements
- Managing receivables and payables
- Reconciling bank accounts
In addition to these basic functions, the level of data and pace of automation that accounting software solutions provide determines the degree at which a founder can swiftly make decisions.
Accounting Software Benefits
We know from experience that the advantages of accounting software for startups heavily outweigh any cons. The right will save you time and frustration and simplify all the complexities of bookkeeping so that you can focus on being a founder, not an accountant. The best accounting software will support you by:
- Streamlining financial processes: Accounting software can automate daily accounting tasks. Automation ensures improved accuracy over manual entry. It also accelerates the process, so you get accounting data faster.
- Improving decision-making: Accounting software is efficient and accurate, allowing you to easily view data and pivot as needed from month to month or develop long-term financial planning for a clearer, actionable path to growth.
- Reducing mistakes and costs: Miscalculations are costly in terms of time and money. Accounting software eliminates manual data entry, reducing the number of mistakes.
- Reporting and analytics: Accounting software breaks down your financial data in various ways. You can easily pull up financial reports and analyze key metrics like operating expenses and income. This will help you, and your investors better understand your business's financial performance.
- Enhancing security: Accounting software keeps financial data secure through encrypted security measures.
- Simplifying tax time: Accounting software makes it easier to access the data you need to prepare for tax season. You'll spend less time dealing with the IRS and more time on what matters most — growing your business.
2 Main Types of Accounting Software: Cloud vs. On-Premise
When it comes to accounting software, there are two main types – cloud-based and on-premise. The best choice for your startup depends on your budget and customization needs.
Cloud-Based Accounting Software
Cloud-based accounting software is a software-as-a-service (SaaS) solution hosted on remote servers or “in the cloud.” As a result, it typically requires less upfront investment because you won’t need to install and update the software on individual company computers.
Some advantages of using cloud-based accounting software include:
- Easier access: You can log in anywhere, anytime, and from any device with an internet connection. Data will also sync between devices and users, so you’re always looking at the most accurate information.
- Reduced need for IT resources: The vendor typically manages cloud accounting solutions. This means the software won't require you to set up or manage servers. Software updates are also automatically pushed through by the vendor
- Greater scalability: Cloud-based solutions easily scale up or down to accommodate changing needs by adding or updating plans.
On-Premise Accounting Software
On-premise accounting software is installed directly on your business's computers, which often requires more upfront investment in time and money, depending on how many computers need the software or the number of licenses. Ongoing maintenance and upkeep are also additional costs, and you have to be on-site to access your data. However, some advantages of on-premise accounting software include:
- Greater control: You have complete control over the system, including access to data and customization options.
- Total Cost of Ownership: While you may have a greater upfront expenditure, you typically only need to pay once for a user license, reducing how much you’ll have to pay overtime to keep using the software.
- Reduced Downtime: No internet connection? No problem! You’ll always be able to access your software regardless of connectivity.
When Should Your Startup Start Using Accounting Software?
The answer to this question will depend on the size and complexity of your startup. One example is if you're just starting and don't have a lot of transactions or data to manage. While you can get away with using software like Excel to track your finances, it's best to get proper accounting software as soon as possible. This will help you stay organized and avoid potential problems down the line.
Some other factors to consider:
- You’re scaling rapidly
- You’re spending more time on bookkeeping than running your business
- You’re constantly finding bookkeeping errors
- Your investors don’t have a clear picture of your financial health
Regardless of size, all startups can benefit from using accounting software, because the success of your organization depends on having accurate financial data.
How To Choose The Right Business Accounting Software
Every startup is different. Your size and business model affect what type of software you’ll need. But, if you're unfamiliar with the different types of software available, it's challenging. Here are some essential factors to consider when evaluating accounting software solutions:
- Price and features: Understand each solution's features and associated costs. You may not need features like invoicing or payroll initially, but add-on costs vary. Check how much additional features will cost you as your startup grows.
- Usability and ease of use: An intuitive and easy-to-use software solution is essential. You don't want to waste time figuring out how it works. Other usability factors include automated features, reporting options, and integrations with other software.
- Cloud or on-premise solution: Determine whether you prefer a cloud-based or on-premise solution. Then evaluate which one best meets your organization's needs.
- Integrations: Analyze the different integrations and plugins available for each software solution. This ensures that it will integrate with your existing systems. Some popular integrations include payroll, invoicing, and CRM systems.
- Security: Ensure the software you choose is secure and compliant to protect your data. You should evaluate encryption protocols, authentication methods, and other security measures.
- Customer support: The software you choose must provide reliable customer support. Vendor support should include a help desk, online documentation, and tutorials.
- Scalability: Evaluate each solution's scalability. Find software that seamlessly grows with your business as it expands. Look for automated processes, increased storage capacity, and the ability to add users.
While these factors are important, taking the time to research and always demo software solutions before deciding is essential.
What Is the Best Accounting Software for SaaS Companies
The best accounting software for SaaS companies will depend on the size and needs of your business. Here are some popular software solutions that can benefit SaaS startups:
- Spreadsheets: For smaller businesses or startups, spreadsheets are a great way to manage simple data. It's an easy solution that won't cost much but is missing features that are essential to managing a startup’s finances.
- Commercial Accounting Software: This type of software fits best with small to medium-sized businesses. It's affordable and offers features like invoicing, reporting, and payroll.
- Custom Accounting Software: Custom software is tailored to your organization's needs. It provides a unified system for managing customer data, inventory, and finances.
- Online Accounting Software: Online solutions are cloud-based and accessible from anywhere. They offer features like task management and collaboration tools that benefit SaaS companies.
Depending on the stage of your business, each software option has its strengths and weaknesses. As a SaaS company, you should prioritize features like scalability, security, and customer support.
Comparing The Best Accounting Software
When comparing accounting software, it's crucial to determine what you need. This means evaluating many factors which define your business structure and goals.
Below, we will examine the features of a few of the best accounting software solutions for startups. We will also look at what limitations each option presents. Keep in mind that most of these software options give businesses basic features like invoicing and expense tracking. But, as a technology startup, they may fall short of your needs. It's essential to choose accounting software that meets your specific requirements.
Zeni is an AI-powered finance solution designed to simplify the financial operations of SaaS companies. It offers a variety of features, including daily bookkeeping, automated processes, real-time reporting insights into KPIs and trends, and more. Plus, you can rely on its dedicated finance team for any difficult questions. While Zeni does not offer a free trial period, its finance team can give you an in-depth consultation and customized demo before you commit.
Sage is an on-premise accounting software solution with a comprehensive financial management and accounting tools suite. It includes automated invoicing and expense tracking. However, users have noted its lack of integrations with other services.
Zoho has an easy installation process and a limited learning curve, making it ideal for smaller startups. In addition to basic accounting software features, Zoho offers AP and AR management, vendor portals, and audit trails. Users can choose from various plans and move tiers as their needs change. However, Zoho’s scalability is incredibly limited. The maximum number of users allowed is 15, and there aren’t any payroll services in any plans. Startups that use various apps or software to automate other tasks may have issues with integration. Compared to competitors, Zoho's integration options are limited.
QuickBooks is an online accounting software better suited for small businesses. Its features include payroll, time tracking, and inventory management. It is easy to use with a user-friendly interface. Quickbooks lacks more advanced features. Multi-currency support and the ability to customize reports are not available.
Xero is a cloud-based accounting software designed for small businesses. It has features such as invoicing, expense tracking, bill payment, and payroll management. Xero also offers integrations with popular services like Stripe, Shopify, and PayPal. However, its customer support can be slow to respond. The user interface can be challenging to navigate.
FreshBooks is an easy-to-use accounting software designed for small businesses. Features include invoicing, automated time tracking, expense tracking, and project management. FreshBooks also offers integrations with popular services like Stripe and PayPal. But, fewer reporting capabilities are available.
Why Is Accounting Software Important To Startups?
Investing in accounting software is one of the most pivotal decisions a startup can make. The Zeni team has been a part of the startup lifecycle many times and understands the common problems that growing startups face – many of which boil down to not having a solid grasp on your financial health.
Accounting software is the key to solving many of these problems by giving you a clear understanding of critical metrics, KPIs, and trends within your business. As a result, you'll be able to see how your startup is performing and make informed decisions about future growth.
You’ve already taken the first step in exploring how accounting software can benefit your startup. Remember, it’s never too early to stop crunching numbers in Excel (and the best accounting software will ensure you never go back).