Small Business Accounting Software Buyers Guide
This detailed guide will help you find and buy the right small business accounting software for you and your business.
Last Updated on November 07, 2023What is small business accounting software?
Small business accounting software is software used by small businesses to track incoming and outgoing financial transactions as well as financial statements and cash flow. While traditionally small businesses have tracked financial information on tools such as spreadsheets, these manual methods are time-consuming and less accurate. Spreadsheets also do not offer the automation and notification capabilities of a dedicated tool.
With small business accounting software, users can eliminate the need to create a spreadsheet and manually enter each transaction detail. Instead, they gain the flexibility of integrating with third-party tools such as point-of-sale software to automatically input data. These tools can also generate branded invoices, send notifications upon certain financial transactions or milestones, and provide an overview of the business’ budget.
Given all this, it can be tricky for small businesses to identify the right accounting software for their needs. We developed this guide to help buyers understand exactly what these products offer, so they can select the solution that is the best fit.
What are common reasons small businesses seek accounting solutions?
Thousands of small businesses contact us every year looking for help selecting the accounting solution best suited to them. Some of these buyers are just getting started, while others are looking to replace an outdated or problematic system.
Small businesses most commonly purchase an accounting system because they are:
Seeking to upgrade to a software system with more advanced features.
Seeking to automate functions that were previously done manually.
Looking to generate better financial reports.
In need of specific features (e.g., project or job accounting).
Frustrated with their current accounting software (e.g., it is not user-friendly).
Common Features of Small Business Accounting Software
There are several different applications for buyers to choose from, which can be purchased either as a standalone application or along with other related applications, as part of an integrated software suite (more on this below). Make sure the system you purchase covers all the functionality you’re going to need.
Here are some of the most common small-business accounting applications:
Application | Function | Best for... |
Accounts payable / accounts receivable (AP/AR) | The fundamental bookkeeping application, which tracks what is owed to a company by its customers (accounts receivable) as well as what the company owes its suppliers, also known as its liabilities (accounts payable). | All small businesses (especially those without a dedicated bookkeeper); this is an essential accounting function. |
Financial reporting | Reporting applications allow businesses to export data from their accounting system in a structured manner that communicates financial history as well as financial projections. Some may include compliance-related functionality for government or industry audits (e.g., in banking and financial services). | Any small business with seasonal or otherwise dynamic cash flow that needs to be tracked closely. Also, businesses that need to provide financial reports to stakeholders or to regulatory institutions for compliance. |
Budgeting & forecasting | Budgeting applications allow small businesses to model potential financial outcomes and to compare actual profit and loss to planned budgets, which helps with decision-making about workforce, spending and growth. Some systems have dashboards that display information visually. | Small businesses that are currently growing or considering expanding. |
Fixed asset accounting | Fixed asset applications focus on tracking assets that aren’t easily converted to cash: For a small business, assets will typically be “tangible,” such as land, buildings or equipment. These applications calculate the value of such assets over time, allowing for depreciation due to wear and tear. | Small businesses with substantial tangible assets, or any business that, for tax purposes, may benefit from reporting depreciations to assets. |
How is small business accounting software priced?
Most small businesses will want to consider cloud-based accounting solutions. Because these systems are hosted online by the vendor, they eliminate the need for you to have a dedicated IT team for managing and maintaining your own server. Conversely, an “on-premise” deployment means the software is hosted locally, on your company’s own servers (which you are responsible for maintaining).
Choosing a Web-based system drastically reduces upfront investment and installation costs. In addition, these systems typically offer monthly subscription pricing, which makes them scale well for fast-growing companies that need to add additional user licenses or features down the road. On-premise systems, on the other hand, come with a steeper, one-time fee to use the software in perpetuity.
At present, some businesses may still see savings with an on-premise system, especially if they already have the necessary hardware to host the software on-site. While on-premise solutions usually require purchasing an expensive perpetual license up front, this may still be the cheaper option if you use the same system over an extended period of time. However, keep in mind that with on-premise solutions, you might also pay additionally for upgrades, customizations and maintenance.
Our recent report shows that the great majority of accounting buyers are undetermined about whether they want Web-based or on-premise deployment. Among those with a preference, buyers are split approximately 50-50. According to experts, these preferences may soon change, as Web-based accounting programs become more widely available and as on-premise options are no longer supported. This change will likely mirror preferences in other software markets, where Web-based systems are more popular and have surpassed preferences for on-premise.
What should you consider when purchasing accounting software for your small business?
With so many options and feature sets to choose from, selecting the right accounting solution can quickly become an overwhelming task. To narrow things down, here are three key factors for small businesses to keep in mind while evaluating different products:
Best-of-breed vs. integrated suite options. Because accounting encompasses so many functions, from fund accounting to billing and invoicing, many entry-level products are actually “best-of-breed” solutions. This means they focus on only one of the core applications listed in the table above. “Integrated suites,” meaning solutions combining multiple applications in one software package (often billed as “professional” or “enterprise” editions), have much greater functionality, but are also are much more expensive.
So before you begin shopping, start with a clear assessment of exactly which functions you need. The “Best for...” column in the chart above provides recommendations as to which applications are best for which types of businesses.
Automation capabilities. Many small businesses we speak with say they’re replacing their accounting system in order to reduce the inaccuracies that come with manual entry and to automate more of their processes. Small businesses should pay particular attention to the degree of automation that a system provides as they evaluate accounting software for small business. If your company is growing, it's especially important to track everything in a system that can verify entries for accuracy and automate recurring functions to ensure that nothing slips through the cracks.
Integration with other programs. While small businesses may not have as many integration requirements as larger companies, your accounting software’s ability to sync with other programs could still be a factor. Consider whether your desired accounting system can integrate with any of your company’s current stand-alone applications—for example, if you have a payroll system designed to support small businesses, or a retail point-of-sale (POS) system that will need to integrate with restaurant accounting software functionality.
Moreover, integration with banking institutions and credit cards can make it much easier to keep track of your company financials in real-time. Accounting software can sync with your online accounts automatically, so you don’t have to enter transaction information manually.