Every year, thousands of buyers contact Software Advice in search of the right accounting software to fit their needs. These interactions help us better understand the accounting software market and advise buyers in choosing software that helps them achieve their business goals.
We recently analyzed a random sample of consultations with prospective software buyers. This report, which highlights our findings, can guide other buyers in the market for new accounting solutions.
- A majority of buyers surveyed (58 percent) are replacing existing accounting software, while nearly one-quarter (22 percent) currently rely on manual accounting methods.
- The highest percentages of buyers are seeking new software in order to gain more advanced functionality (48 percent) and automate processes (36 percent).
- The most frequently requested applications among buyers in our sample are financial reporting (56 percent) and budgeting and forecasting (53 percent).
For any business to succeed, regardless of industry or segment, finances must be accurately measured and managed. Some businesses take on this task with manual methods alone—but most will require accounting software to help them track and evaluate finances in the most efficient and effective way.
With so many different industries requiring an accounting system, Software Advice sought to examine the current market and determine trends among prospective buyers. In our 2014 analysis, we isolated our findings to only include buyers from small businesses; this year, however, our report covers businesses of all sizes.
58 Percent of Buyers Are Replacing Existing Accounting Software
First, we looked at the methods buyers are currently using to perform accounting processes. As is usually the case with software purchases, buyers in our sample are split into two categories: first-time buyers (those transitioning from manual methods to an accounting program), and buyers looking to replace or upgrade their current system.
The largest percentage of buyers in our sample (58 percent) are replacing existing accounting software. Of these buyers, we find that 19 percent currently use some version of QuickBooks.
Roman Kepczyk, CPA.CITP and CGMA, is director of consulting at Xcentric, a software and technology consulting firm. He explains that many businesses—particularly smaller ones—use QuickBooks because it is well known, user friendly and well supported. It’s also a system that provides a broad range of functionality for a relatively low price.
Going back to the chart above, it’s notable that 22 percent of buyers are currently managing their accounting using only manual methods, such as pen and paper and/or Excel spreadsheets. According to Dennis Najjar, CPA and CGMA and co-founder of online accounting service AccountingDepartment.com, using manual methods is typical of many smaller businesses that have less resources to spend on an accounting program.
Kepczyk suggests that buyers moving from manual methods to accounting software start with a simple system (such as QuickBooks) to ease the process of learning this new technology. Without a base understanding, he says, users may end up throwing out a more complicated solution and reverting back to a manual system.
However, most buyers in our sample represent midsize businesses (see “Demographics” section below), and many say their business needs are becoming too complex for their current accounting system to handle. These buyers cite the need to consolidate multiple entities, departments or business segments into one system, which their current platforms are unable to provide.
Top Purchase Drivers Are Need for Greater Functionality and Automation
When asked why they are looking to purchase software, 48 percent of buyers say they want more advanced accounting functionality. This is further evidence that simple solutions just aren’t keeping pace with the complexity of many buyers’ companies.
However, both Kepczyk and Najjar note that basic accounting programs will include the essential functionality required for not only most small businesses—but many midsize ones as well. The problem may not be with the software itself, but rather that users don’t know how to access the desired capabilities or understand the accounting required to use them properly.
“Most businesses are not even using anywhere near the full potential [of the software],” Najjar explains, adding that many users may simply need more training on their existing system.
Given that accounting spans all industries with a variety of complex needs, Najjar says those seeking greater functionality might benefit from choosing a basic system that offers easy integration with industry-specific, third-party applications. He gives the example of an HVAC company that uses third-party apps to track service orders and warranties and handle employee scheduling. These apps are then integrated with the company’s accounting software to generate specialized invoices, reports, payroll and more.
Among our respondents, the next most common reason for seeking software is the desire to automate business processes (36 percent). Automating regular tasks can help users save time and effort on manual data entry and reduce the margin for human error. This makes sense, given the number of buyers currently using manual methods.
Of course, as Najjar reiterates, it’s important that all staff be fully trained on how to use the software properly to ensure that processes are automated correctly. Otherwise, he says, businesses’ use of software will result in ‘G.I.G.O.: garbage in, garbage out.’”
Nearly one-third of buyers (30 percent) say their purchase is motivated by the desire to update or modernize their system. Kepczyk advises these buyers to consider the advantages provided by cloud-based systems when making a purchasing decision.
Najjar agrees, saying that cloud-based software brings “tremendous benefits to business owners,” such as real-time software updates and easy access to information from anywhere on any Internet-connected device.
Indeed, cloud software—which is hosted remotely, on the vendor’s servers—can be particularly beneficial for smaller businesses with tighter IT budgets. Many cloud solutions are priced on a subscription basis (with fees often charged per user, per month), which covers the software license as well as upgrades and maintenance to the system. These ongoing fees are generally more affordable than the sizable up-front fees typically charged for more traditional, on-premise systems (which are hosted on-site, on the business’s own servers).
Most Seek Financial Reporting, Budgeting and Forecasting Applications
With the desire for increased functionality driving many prospective buyers’ purchase decisions, we next examined what specific functionality they are seeking. The majority of buyers in our sample (69 percent) request software with core accounting functionality. “Core accounting” encompasses the fundamentals, such as accounts receivable, accounts payable, general ledger and bookkeeping, bank reconciliation and more. However, since this is standard in virtually all accounting software, it is not included in the chart below.
Aside from core accounting, the most commonly requested functionalities are financial reporting (cited by 56 percent of buyers) and budgeting and forecasting (requested by 53 percent).
Financial reports, including balance sheets and profit and loss statements, provide companies visibility into key financial metrics, allowing decision-makers to track trends and relationships that affect profitability. A business can see its financial history, measure the effectiveness of departments and be proactive when it comes to correcting errors.
On the other hand, budgeting and forecasting functionality allows businesses to plan for different potential financial outcomes by predicting revenue, expenses and cash flow—then comparing actual profit and loss to those planned budgets. This helps businesses make decisions regarding long-term growth and development.
Kepczyk notes that he has seen a growing demand for software with more complex predictive tools, such as key performance indicator (KPI) dashboards. This is supported by our findings, both in the high number of buyers requesting reporting and forecasting functionality as well as those seeking more advanced functionality in general.
Najjar adds that when it comes to cloud-based programs, reporting, budgeting and forecasting tools have become even more valuable. In the past, these applications were used to look back over the performance data from the prior weeks or months; but now, in the cloud, data is synced in real time, lending of-the-minute accuracy to this information.
Based on the results of our research, prospective accounting software buyers should consider the following before making a purchase decision:
Functionality requirements. Buyers should choose a software platform that includes not only core accounting, but more advanced applications that will enable them to meet their business goals (e.g., reporting and budgeting and forecasting, or the ability to integrate with industry-specific, third-party applications). Demoing products and providing sufficient training can help ensure that employees are using tools in the most effective way.
Product scalability. While some software programs can accommodate growth, others are not equipped to handle multiple entities, departmental budgets or advanced inventory and payroll. Buyers should evaluate software based on current needs as well as plans for future growth (the number of users who will need to access the system, complexity of the business, industry-specific functionality etc.).
Cloud deployment. Cloud-based solutions can be beneficial to any business, providing real-time updates and data sync and allowing access to the system from any Internet-enabled device. These more affordable solutions may be especially helpful for smaller companies with strict budgetary considerations.
The majority of buyers are from midsize businesses with between 21 and 500 employees (65 percent, combined) and from businesses with between $1 million and $50 million in annual revenue (a combined 66 percent). Additionally, the majority of buyers in our sample are purchasing software for between two and 10 users (a combined 70 percent).
By Number of Employees: Prospective Buyer Size
By Annual Revenue: Prospective Buyer Size
By Number of Users: Prospective Buyer Size
If you have comments or would like to obtain access to any of the charts above, please contact firstname.lastname@example.org.
Our advisors regularly speak with buyers who contact Software Advice seeking new accounting software. The data used to create this report was collected by our advisors during those interactions for business purposes rather than for market research. We randomly selected 200 of our advisors’ phone interactions from the United States during 2014 to analyze for this report.
These findings exclusively represent those buyers who contacted Software Advice for guidance on software selection, and may not be indicative of the market as a whole. Expert commentary solely represents the views of the individual. Chart values are rounded to the nearest whole number.