Small Business BuyerView | 2014
Every year, Software Advice talks with buyers searching for the right accounting software for their business. The great majority of these buyers are from small businesses, providing us with unparalleled insight into their unique needs and motivations as they evaluate new software.
We recently analyzed a random selection of 385 of our interactions with these buyers, most of which represent small businesses, to learn their biggest pain points and what features and functionality they want most in new accounting software. Our research suggests that, while many buyers continue to use more traditional accounting methods, there's an increasing preference for more advanced features and functionality.
The majority of buyers in our sample were looking to replace an existing solution: 63 percent were currently using some form of accounting software. Meanwhile, 15 percent of buyers were still using manual methods, such as spreadsheets or pen and paper.
Drilling deeper into the data, it’s notable that, among buyers using existing accounting software, 25 percent were using Quickbooks by Intuit—either on its own, or in combination with other tools.
Gene Marks, owner of The Marks Group, P.C., a consulting firm that helps companies implement new software, says one reason for this high percentage is that many customers are frustrated with the older architectures of traditional on-premise solutions.
“QuickBooks, Peachtree (now Sage 50), Microsoft Dynamics GP, Macola, Epicor—these applications were [originally] built years, sometimes decades ago,” he says. “QuickBooks’ file structure and architecture is very much the same as it was 15-20 years ago.”
As such, Marks believes clients using these older solutions will increasingly shop around for newer, Web-based products, especially as on-premise options are retired and no longer supported by vendors. However, he says that many QuickBooks customers shopping for new options will likely migrate to QuickBooks Online, a Web-based system which has a newer architecture and better functionality.
Of the buyers we sampled, 41 percent said they were seeking greater functionality in a new accounting system, making this the most-cited reason. Many said their current systems “couldn’t handle” the scope of their accounting work, and that they needed to be able to generate reports more easily.
Seventeen percent of buyers also cited the need to automate processes. This makes sense, given that (as mentioned earlier) 15 percent of buyers were using manual methods of some type.
One buyer, for instance, complained that their current system was a “huge mess” because of how many invoices the company was receiving from various locations that had to be processed manually.
Meanwhile, 32 percent of buyers said they needed to improve efficiency and accuracy, 17 percent expressed a desire to update or modernize their technology and 11 percent reported that their current system was too cumbersome or slow.
Core accounting was the most commonly-requested application among the buyers we spoke to, with 67 percent of buyers seeking this functionality. (Core accounting includes basic bookkeeping and general ledger functions, such as accounts payable and accounts receivable, fixed assets, and bank reconciliation.)
Other top-requested applications were financial reporting (48 percent) and billing and invoicing (44 percent).
Accounting software encompasses many different types of applications, from fund accounting to billing and invoicing. Some vendors offer a set of applications together, called an integrated suite, while others offer them as stand-alone, or best-of-breed, applications.
The vast majority of software buyers in our sample (64 percent) were interested in purchasing an integrated suite of two or more applications, such as core accounting, financial reporting and billing and invoicing. Only 36 percent of buyers were looking for a best-of-breed application. Less than 1 percent of buyers had no preference either way.
A majority of the buyers we talked to (76 percent) had no deployment preference. Of those with a preference, they were almost evenly split: 52 percent preferred cloud deployment, while 48 percent requested on-premise. Accounting’s 52:48 spread is much different than in other software industries, where cloud-based software is often favored by most buyers.
Software Advice analyzed software deployment preference across similar samples of buyers in 11 other markets in 2014. On average, 77 percent of these buyers preferred cloud deployment—32 percent higher than accounting software buyers.
It is important to note that the data sets within each market may vary slightly based on precise timeframes, which may limit our ability to compare accounting to other markets. However, the difference in preferences is still striking.
A preference for Web-based systems is not as widespread among accounting buyers, Marks says, because many accounting systems have traditionally been on-premise, which means the transition to the cloud is slower than other markets.
While there are more Web-based accounting systems available today, buyers may also be reluctant to make the switch. According to Marks, this is because accounting software, which he describes as “a system of transactions” (e.g. invoices, orders, purchase orders, payroll) is generally harder to migrate than say, a customer relationship management (CRM) system, where customer data can often be easily downloaded and exported directly into the new software.
In the end, however, Marks says a company’s decision to adopt Web-based software will be dictated by vendors. ”I don’t think business owners will have a choice in the next five to seven years,” he says. “We’re going to move to the cloud whether we like it or not.”
While our sample spanned a wide range of business sizes and revenues, the majority (62 percent) of accounting software buyers were from companies with 1-100 employees. Meanwhile, 31 percent were from businesses with less than 1,000 employees.
When we drilled deeper into the data to look at the annual revenue of these buyers, we again found that the majority fell on the lower end of the spectrum: 49 percent represented companies with annual revenue between $1 and $25 million.
Every year, Software Advice speaks to businesses looking for accounting software. We randomly selected 385 of our phone interactions with these companies to analyze when compiling this report.
To further discuss this report or obtain access to any of the charts above, feel free to contact me at email@example.com.