Do you need accounting software?
Many people come to us asking whether they need Accounting software. If they already use software that finds clients, creates jobs, and maybe even tracks invoices sent and when clients pay them, do they really need a more robust or expensive system specifically for Accounting?
Small businesses that really do not need accounting software
Many people run small income-making enterprises where an Accounting system such as QuickBooks would be too robust and expensive for what they really need. These are typically businesses with a small transaction load and little or no assets, making maybe $20,000 to $50,000 in Revenue each year. For example, selling cupcakes from their home on weekends to friends, driving for Lyft or Uber in the evenings, or doing DoorDash or Instacart part time.
At most, an inexpensive system that can track mileage, or even a separate bank account they can give to their tax preparer at the end of the year showing income and expenses for this small business, would generally be sufficient.
There are also less expensive software systems called CRMs (Customer Relationship Management) that can store Customer information, generate invoices, and track payments. Examples of these are
- Housecall Pro
- Service Tital
- Knowify
Small Businesses that will benefit greatly from having accounting software
However, if this small business becomes a part-time or full-time job and its Revenue grows to $100,000 to $250,000 each year, a full Accounting system will become necessary.
Accounting systems will allow a small business to be able to:
- Track Expenses
- Track Income
- Have tax-ready Financials for the year-end
- Determine if the fees being charged are high enough.
- Determine if the business is making a profit.
While a small business that makes maybe $20,000 to $50,000 per year may not need to know this, a larger company with higher sales and more expenses will want to know not only the revenue it made, but how much of that Revenue was actually kept as Profit. This allows a small company owner to determine whether the stress and work of starting and running their own company is more financially beneficial than simply getting a similar job working for someone else.
Accounting systems detail how much income the company brought in, where the funds were spent, what net profit was, and, ultimately, what happened to those funds.
- What did the company sell?
- What expenses did the company incur?
- What net income did the company make that will be reported on the tax return?
- Where did the money go after it was earned, but was not considered an expense? Examples might be:
-
- Personal withdrawals
- Loan payments attributed to the principal balance
Again, as a small business continues to grow over time, other factors begin to come into play in addition to Profits. Managing the company becomes a priority over growing and running it personally.
- What is the company’s KPI, or Key Performance Indicators?
- What are the material margins?
- What are the labor margins?
- Are specific jobs or job sites repeating work?
- What does it cost to maintain current vehicles versus acquire new ones?
- What is the return on advertising costs, and which advertising companies or venues generate more revenue?
- What is the company’s leverage? What does the company owe versus what it has in revenues to repay this and stay solvent?
Larger companies will also acquire assets and will want to determine depreciation on those assets. These assets and their depreciation must be tracked on the Balance Sheet. While CRM platforms used for small businesses allow tracking and invoicing Customers, they don’t support asset management, financial reporting, or cash analysis and projections.
Overall, Accounting software lets a company see its financial health and viability over the next year, 3 years, 5 years, and beyond.
Contact Us
Here at Waterford Business Solutions, we can help you choose and set up your Accounting software, make sure you understand how it works, how to understand your finances, and ultimately your business.
You can call us at 864-351-0852 or email info@waterfordbusines.com.
You can also like and subscribe to our channel here on YouTube. Each week we put out videos to help you understand your business, taxes, and software options so that you can learn the best ways to manage your finances.
Further Resources
For our previous Video on QuickBooks vs Wave
For our previous Video on QuickBooks vs Sage
For our previous Video on Quickbooks vs Freshbooks
For more information on KPI’s for your business, please see:
For more information on the usage of “yada yada yada,” please see:
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