Software Advice is a trusted resource for software buyers across industries looking for guidance on selecting the right tools to support and help grow their business.
Hundreds of buyers from small and midsize businesses (SMBs) contact our software advisors every day for a free consultation. These interactions provide us with valuable insight into emerging trends within specific fields.
To better understand trends within the accounting software marketplace, we’ve analyzed a random sample of consultations from the past year with buyers looking for accounts payable (AP) solutions. We examined the buyers’ current accounting methods, the pain points driving their search and what features they want most in new solutions.
This report, which highlights our findings, can guide future buyers as they search for the right accounting software to fit their business needs.
- Nearly 60 percent of SMBs are looking to replace their existing accounting software with a more advanced system, while roughly 30 percent are first-time buyers.
- Common purchase drivers include wanting to increase system capabilities (40 percent) and the need to automate processes (21 percent).
- Features most often requested by accounting software buyers are financial reporting (82 percent) and billing and invoicing (52 percent).
To gain insight into the unique needs of accounting software buyers, we spoke with Maria Rollins, CPA MST at Kreinces, Rollins & Shanker, LLC, an accounting firm specializing in various financial services and management consulting. Her expertise sheds light on the following accounting buyer trends.
Rollins has been a CPA for over 20 years and specializes in tax planning and compliance. She has unique experience helping clients—family-owned businesses, international companies and start-ups—set up their accounting systems.
Most SMBs Looking to Replace Existing Software
Roughly 60 percent of the buyers in our sample are using accounting software in some capacity and are looking to upgrade to a more advanced system. It’s notable that of these buyers, 35 percent are using some version of QuickBooks.
The first-time buyers in our sample breakdown as follows:
- 24 percent are managing accounting processes with manual methods (e.g., spreadsheets, pen and paper)
- Six percent have no accounting system in place
- Six percent are outsourcing their accounting and want to bring it in-house
The percentage of buyers marked “other” are using either non-accounting software, a proprietary system or an otherwise unnamed solution.
Many businesses are well served by these products because they provide the basic financial information needed to prepare tax returns.
However, Rollins notes that basic solutions often have limitations on the following:
- Users, both in number of user licenses and the ability to set user permissions
- The number of inventory items and SKUs tracked in the system
- Capabilities for tracking edited/deleted transactions (audit trail)
- Integration with operational, industry-specific software
As organizations grow and eventually require additional concurrent users and a greater depth of functionality, they’ll need to upgrade to a more comprehensive accounting package.
SMBs Replacing Software Need More Advanced System
The top purchase drivers for the buyers in our sample include:
- Looking to increase accounting capabilities (40 percent)
- Want to automate processes (21 percent)
Some of the key functionality buyers say their current system lacks and thus are looking for in a new solution include:
- The ability to handle multiple entities
- The ability to consolidate data and accounts
- In-house payroll
Rollins explains that handling multiple entities is often a tipping point for businesses progressing from basic to advanced solutions. When businesses try to perform the function with a solution that isn’t designed to support multiple entities, the process is time consuming and error-prone.
“Software applications that allow for multiple entities removes the duplication of data entry in each stand-alone entity. For example inter-company transactions processed by larger software applications are handled in one entry. If the application does not offer multi-entity access then the entry must be recorded in each entity separately, causing more time and chance for error.”
Maria Rollins, CPA MST, at Kreinces, Rollins & Shanker
Consolidating data and accounts is another function that can be time-consuming without the right tools, according to Rollins. She says that basic solutions likely do not have the backend to support these calculations, which is why SMBs are looking for more advanced systems.
The 21 percent of buyers wanting to automate processes correlates with the same percentage currently managing their accounting with manual methods. These buyers are looking to improve efficiency by reducing the time spent on manual data entry.
Many of these buyers say they are currently tracking their finances in Excel, but say that doing so is time-consuming and error-prone. Eventually, they come to point where Excel is no longer capable of scaling with their growing company and managing their changing needs.
Financial Reporting Is the Most Requested Capability
As this report examines accounting software buyers, we should note that 100 percent need a solution with core accounting features. This category includes accounts payable (AP) also known as “liabilities,” accounts receivable (AR) also known as “assets” and general ledger (GL) or the overall financial records for a company:
- 97 percent of buyers request a system with AP, AR and GL
- Three percent request a system with AP and GL
For this reason, and because nearly all accounting systems are designed to manage AP, AR and GL in some capacity, “core accounting” is not included in the chart below.
Aside from core accounting, the top requested accounting capabilities in 2016 include:
- Financial reporting (82 percent)
- Billing and invoicing (52 percent)
- Payroll/HR (30 percent)
- Budgeting/forecasting (17 percent)
Top Four Accounting Capabilities Requested By SMBs
Top-Requested Accounting Software Functionality
Rollins says that the basic reports every system should have include the balance sheet, profit and loss statement (P&L) and cash flow report. The P&L acts as the starting point for tax planning, while the balance sheet reports cash levels, debt and retained capital in addition to assets and liabilities.
Accurately tracking this financial data gives business owners insight into various aspects of the business including financial history, department efficiency and the profitability of different ventures. This allows them to make more informed decisions regarding future investments.
“Reviewing these reports on a regular basis as well as comparing these reports to prior periods will allow the business owner/management to review the operations of the business and make management decisions regarding cash flows, budgets and projections.”
Maria Rollins, CPA MST, at Kreinces, Rollins & Shanker
Accounting Trends: 2015 vs. 2016
For insight into the year-over-year trends among accounting software buyers, we looked back at our Accounting Software Buyer Report from 2015 and compared the top-requested features to that of this year’s report.
It’s interesting to note that the number of buyers requesting systems with financial reporting and billing and invoicing capabilities has grown by roughly 25 percent. This trend tells us that SMBs are increasingly finding value in automating and tracking these important accounting functions.
Budgeting and forecasting is critical for businesses looking to make long-term decisions regarding growth and development.
As such, SMB buyers are encouraged to evaluate the drop in requests for budgeting/forecasting with caution—It may indicate a significant market shift, but it may also represent an anomaly or be indicative of the differences in business size between samples (see demographics below). Additional year-over-year data is required to say with certainty.
Another accounting trend buyers should be aware of is the growing popularity of cloud-based solutions. In a previous report, users reported several benefits of moving their accounting to the cloud, including:
- Greater ease of access
- Better security
- Improved ease of use
Additionally, Rollins notes that cloud-based systems provide more integration and add-on options, which allow users to extend the reach of their existing system and serve many industry-specific needs.
Conclusions and Next Steps
Based on the results of our research, SMB accounting software buyers should keep the following accounting trends in mind when evaluating solutions:
Support for critical capabilities. Ensure the system supports your core accounting needs as well as the degree of financial reporting, billing and invoicing and budgeting/forecasting your organization requires.
Many SMBs choose to outsource payroll and accounting, but if your business is like the 30 percent of buyers in our sample, you’ll need to ensure the accounting system can perform that function as well.
Support for growing businesses. For businesses experiencing growth, it’s important to evaluate how well the accounting platform will scale to meet your changing needs. If you have multiple entities (or may in the future), make sure your system can process inter-company transactions in one action, to avoid duplicate entry.
If you’re not ready to invest in an advanced solution, but think you may want to upgrade your system in the future, make sure your vendor provides data migration services to streamline this process.
If your organization is ready to evaluate accounting software, here are a few next steps to help start your search:
- Take our online accounting software questionnaire. After answering a few questions about your business and industry needs, we’ll match you with several products suited to your organization and provide you with a FREE custom price quote.
- Use our interactive Accounts Payable Buyer’s Guide to filter products by criteria such as industry served, price and customer ratings. Read reviews and see how your peers have rated leading solutions for qualities such as depth of functionality, product quality and customer support.
The demographics for the SMB accounting software buyers in our sample are as follows:
- The majority of buyers are from small businesses with $25 million or less in annual revenue (87 percent).
- The greatest percentage of businesses employ between two and five employees (24 percent).
- The majority of SMBs are looking for accounting solutions to support five or less users (68 percent).
By Annual Revenue: Prospective Buyer Size
By Number of Employees: Prospective Buyer Size
By Number of Users: Prospective Buyer Size
A detailed methodology for this report can be found in the Buyer Report section of our methodologies page.
If you have comments or would like to obtain access to any of the charts above, please contact me at email@example.com.