GAAP accounting standards may seem intimidating, but they're an important step in helping startups lay a solid financial foundation. Why GAAP for startups? Learn more here.
September 11, 2020
If you’re like most business owners, you might have initially used a spreadsheet to track your finances. That’s a good tactic to start, but as your business grows, it will almost certainly become a challenge to stay on top of all your transactions with this kind of manual accounting system. That’s where accounting software comes in.
Accounting software is capable of recording and categorizing financial transactions; many products can also help you pay bills, send customer invoices, manage payroll, and run standard reports directly in the platform. There are a few different types of accounting software available to businesses; some large companies use customized accounting software or enterprise resource planning (ERP) software, while small businesses and startups may use off-the-shelf solutions such as Quickbooks, Wave, or Xero, with modern finance services like Zeni to keep their accounting processes running smoothly.
For some startups, the cost of accounting software packages and the technical know-how required to set it up can be daunting. But remember, accounting software is not just for accounting professionals. In our experience, the advantages of accounting software far outweigh the difficulties of getting started. So whenever someone asks us, “What are the benefits of accounting software?” we have the following answers at the ready.
Like any new software system, there is an investment of time upfront to set up your accounting software, but once you do, it will save you hours of work each week by handling time-consuming manual bookkeeping and accounting processes automatically. For example, you won’t need to download CSV files from your credit card or bank accounts and manually enter data on your spreadsheet in order to review your transactions: Accounting software pulls all the data for you automatically.
No more waiting while your administrative assistant puts together your monthly reports: Accounting software platforms have built-in reports that are automatically updated. With the click of a button, you can download your P&L Statement (or Income Statement), Balance Sheet, and Cash Flow Statement, showing key insights like income and expenses for the month, quarter, or year. If you have more specific reporting needs, you can usually customize reports by filtering the data or adding extra detail, and save these reports to run again in the future.
If your data is stored across multiple platforms—bank accounts, credit card accounts, and payroll services—it can take hours of going back and forth between the platforms to collect the data you need. Accounting software will sync the data from all your online accounting tools via API, so you don’t need to download financial information from each individual source and spend time on data entry to put together a complete financial record.
With accounting software, you don’t have to manually update multiple cells in multiple sheets if you make a change to your records. Instead, your financial statements and reports will be automatically updated to reflect any changes you make, helping you keep your data free of errors. (Not convinced data accuracy is a major concern? Here’s why it matters.)
Once you start getting external requests for financial statements, it’s important to present documents that look professional rather than DIY. Particularly when you’re dealing with potential investors, the financial statements you share need to be accurate, properly formatted, and delivered on time. If they aren’t, they give a negative impression of the state of your finances and you could lose out on deals. Accounting software produces financial statements in standardized formats that are ready to download and share when requests come through.
While you’ll likely need a specialized payroll system at some point, many small businesses use accounting software to handle their payroll while their business is still growing. With accounting software, you can automate payments to employees, calculate healthcare and insurance contributions, and get accurate payroll tax information.
If your chart of accounts is set up properly, you can use accounting software to track your transactions by departments, projects, locations, or classes. This gives you a clear picture of what your income is attributable to and your areas of expense, helping you generate more specific reports and make strategic decisions.
Having standardized financial statements and accurate, categorized data makes it easier for your tax accountant to file your return and calculate available tax credits. Some accounting programs also have specific tax reports (for example for sales tax and payroll tax) built-in.
Some accounting software platforms include basic inventory management tools that automatically updates to show the number of each product you have on hand, what’s been sold, and when you need to restock. Accounting software is an easy way to get accurate, real-time information on your stock levels, instead of relying on error-prone manual data entry.
When is the right time to ditch spreadsheets for software?
Most startups make the switch from spreadsheets to accounting software when the number of transactions they’re dealing with grows to the point that manually processing them takes too much time. Using accounting software frees up your team, reduces human error, and allows you to continue scaling. Also, if your company is starting to engage with consultants and deal with inbound requests for information on a regular basis, this is another indicator that it’s time to use accounting software. The right accounting software will help you respond to requests with accurate, professionally-presented data.
Zeni is a full-service finance firm that takes care of all your startup’s bookkeeping, accounting, and CFO needs. When you work with Zeni, you get 100% accurate AI-powered bookkeeping, a 24/7 finance concierge, and instant access to real-time financial data in the Zeni Dashboard.
To help you benefit from all the advantages of using accounting software, Zeni’s team of finance experts manages your accounting system in the best way to support your startup business operations, from categorizing transactions with departments and classes to setting up your chart of accounts. We’re on hand to set up the sync between your accounting software and other finance tools, and to make recommendations on how your accounting software can support your business as it grows.