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An effective founder must know where their company stands financially at any given time. Selecting accounting software systems to serve as the 'home base' to track every aspect of your company's finances is a lackluster but important step in setting your business up for success.
There is no shortage of bookkeeping software and accounting tools on the market to chose from, but few are agile or intelligent enough to keep pace with a start-up's accounting needs.
In this post we will review baseline questions to ask yourself when evaluating the best accounting software for your start-up, along with comparisons of the accounting software landscape through the lens of what start-ups need today: Quickbooks Online, Xero, Freshbooks, Zoho Books, NetSuite Cloud ERP and Sage 50cloud (formerly Peachtree).
You don't have to be a financial accounting expert to make an informed decision about your company's accounting solution.
Your accounting software will serve as your business's ultimate financial record. Every transaction is recorded in detail and categorized within the software, which organizes the data to enable reporting and analysis. This will help you gauge the health of your business at any given time.
Generally speaking, if you plan to grow and scale your business you'd benefit by leveraging accounting software from the time of your first transaction. Think of it like this: Have you ever had to submit an expense report and labored over tracking down long-forgotten receipts? Now imagine dealing with this while running your business. Jumping through administrative financial hoops is the last thing you'll want to deal with 6-, 9- or 12-months down the road when you're firing all cylinders to build your business.
The nominal monthly costs associated with most accounting software solutions for start-ups — we'll break this down in a minute — are well worth the time and energy it'll save you down the line.
Accounting software solutions are more or less" DIY" systems; many offer some form of automation to assist with the data entry, categorization of expenses and basic financial reports. But the more sophisticated accounting functions such as your month-end reporting (profit & loss, balance sheet and cash flow statements, for example), financial statements and projections will need to be completed by a finance expert.
There are various types of start-up accounting services available to consider as solutions, like Zeni, to help to manage your accounting system; we discuss this in greater detail later on.
It's important to understand how, as your company grows, your accounting needs will also evolve. Things like simple setup and management, number of features and pricing plan are important considerations.
The biggest difference between accounting for small businesses as compared to start-ups is the method of accounting used: Cash Basis vs Accrual Accounting. If you plan to grow your business to more than $5MM in annual sales you will need to manage your books using the accrual accounting method, as required by the IRS for all major companies and entities.
The accrual accounting method also helps speed up a start-ups reporting process. If you plan on fundraising, or have already raised funds and need to prepare updates for your board or investors, the reports created based on the accrual accounting method are aligned with the types of financials potential and existing investors may ask for.
The majority of accounting solutions offer both cash and accrual accounting methods so this is a pretty simple but important distinction to understand when reviewing software for factors such as ease of use. Cash basis accounting is a much simpler method, while accrual accounting requires a bit more know-how.
Takeaway: Take your accounting method into consideration as you compare accounting software systems.
Every company has a general ledger which is organized by a chart of accounts (COA). Simply put, the COA is how you will categorize and track different types of financial transactions within your accounting software.
As your company grows, your COA will expand to include various types of financial transactions you're recording. When evaluating accounting software systems, get a sense of the process for creating and managing the chart of accounts. Systems where these controls are buried in a settings menu will be more cumbersome to keep organized and properly updated over time.
Takeaway: Simple, intuitive COA management processes result in more organized books.
As a start-up, every decision has an associated cost — from how you as a founder are spending your time, to the hires you make, vendors you work with and the software you enlist to help power your business operations.
Accounting software is available at a range of costs, from around $10 per month to $1000+ per month, depending on the software provider, plan and number of seats purchased, additional features and add-ons selected.
While cost should and will always be a factor in making decisions on your company's behalf, it is important to gut-check that you're not being “penny wise and pound foolish” — so to say, its worth making a reasonable upfront investment in certain forward-looking solutions now to save the time, cost and headache of switching later.
Takeaway: Think through the types of finance-related elements your business requires today and in 12-, 18-, 24-months' time, and apply that to your decision making process.
Depending on the type of business you are building, you will eventually leverage a variety of financial services to facilitate everything from recurring subscription payments to ecommerce sales tax collection, to employee reimbursements.
You'll want to understand how 'plugged in' your accounting software is to the rest of the financial software ecosystem. At the very minimum, every company must manage payroll services, payables and receivables on a monthly basis, and always be keeping tabs on bank accounts and credit card accounts.
Takeaway: More powerful business accounting software will allow you to leverage direct integrations with other financial service providers to help automate data retrieval. This will help reduce the amount of work necessary to keep your books up-to-date on an ongoing basis.
There will be a learning curve associated with any accounting software you decide to use if you're entirely new to the world of business finance management. It's not just the software you'll be learning, but also the regulations, processes and best practices associated with financial accounting got your start-up.
The level of support and access you can expect from your accounting software provider is an important factor to consider when evaluating potential solutions related to your business needs.
Takeaway: Founders managing their own accounting need reliable support, and the ability to access their finances whenever, wherever.
Even the most sophisticated tools with A+ customer support programs still need to be gut-checked for usability among general users.
As a start-up founder, you'll spend a considerable amount of time pulling figures and crunching numbers related to your company's finances. Usability is an important decision factor when selecting the best accounting tools for your start-up.
Takeaway: Select an accounting software system that you feel comfortable using to not only keep your books in order, but pull insights and detailed reports as needed.
One final question to ask yourself when selecting the accounting software to run your business on is: Is this something I will manage on my own?
Keeping costs down is a priority for every start-up, but there are big advantages to outsourcing accounting and bookkeeping functions. Keeping your books up to date is only one small portion of the overall financial responsibilities that come with running a start-up (or any form of business ownership, for that matter).
Solutions with the best customer support offerings will still require expert-level accounting capabilities to complete your full monthly close functions, understand your burn rate, run reports and projections for fundraising efforts, issue invoices and process payments, administer payroll and help to turn your accounting data into actionable insights.
Takeaway: You do not have to DIY. Have a solid understanding of what support is available to start-up founders when needed.
You're now equipped with a baseline understanding of the most relevant accounting available for start-ups, and the questions to gut-check when you go through the process of evaluation. Now it's up to you to decide which solution is best for your business.
At Zeni, we offer a team of finance experts working seamlessly with powerful artificial intelligence dedicated to managing every financial function for your business with speed and accuracy. When building Zeni we evaluated each of these accounting software solutions and determined Quickbooks Online to be the best option for the early- to growth-stage start-ups we serve. Learn more and try Zeni today.
Download the Accounting Software for Start-ups comparison chart and checklist here. And best of luck in your search for the perfect accounting software for your start-up. Like what you read? Sign up to receive the latest blog posts, event invites and updates from Zeni.
Note: Blog post and comparison chart updated as of November 2019