CHOOSING ACCOUNTING SOFTWARE IN THE US

 Please note that the guidance below is not a substitute for professional legal and/or tax advice. Any tax advice contained in the body of this e-mail is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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Much like the development of a chart of accounts, entrepreneurs often leave the choice of appropriate accounting software to their bookkeeper. Unfortunately, the typical bookkeeper will generally fall back on the software that is most familiar to them rather than the one that is best adapted to the business in question.

Among a multitude of factors to consider when choosing software are the following:

INDUSTRY-SPECIFIC SOFTWARE

(Does more expensive always mean better?)

Surprisingly, the answer is often “no”. Some businesses invest significant amounts of money in fly-by-night, supposed industry-specific accounting systems that are entirely inadequate and fail to offer even some of the most basic features otherwise available in off-the-shelf $500 packages.

Industry-specific often translates into:

• Lack of flexibility
• Difficulty in obtaining any assistance from outside consultants (no one outside the industry may be familiar with the product) and, as a result, excessive dependence on the vendor
• Expensive interfaces with other necessary systems (such as POS software)

Don’t forget that accounting is virtually the same regardless of the industry. Almost any general accounting system can be adapted to your specific needs.

HIDDEN COSTS

Be careful with the way costs are presented by software companies. Many mid-level to high-end accounting software comes in parts, referred to as “modules”. The core system is often the only price put forth by vendors, while additional modules (many of which will invariably be deemed necessary) will often represent more costs than even the core system.

Furthermore, adapting the software to your business needs (i.e. customizing) may require a significant investment on your part. The complexity of the business and the realism of the entrepreneur’s wish-list will largely determine how significant.

DATES

Does the system allow for separate tracking of system dates and transaction dates? Without this ability, how does a business treat an invoice for which the date precedes the most recent period cut-off? There are work-arounds, of course, but none that offer as good a solution as the “real deal.”

SECURITY

How general or specific can security profiles be tailored to any given user? Some systems either give 100% or 0% access to entire groups of activities. It is much more advantageous to be able to allow or disallow access to each activity separately. That ability will provide an entrepreneur with much more latitude in delegating the use of the system to various employees.

REPORTING CAPABILITIES

You may find a cheap software package that requires you to spend thousands on supplemental reporting software and custom design of additional reporting. No matter how much planning is done up front, entrepreneurs rarely anticipate all the questions they will have over the years. Accordingly, the software’s ability to adapt to a multitude of reporting needs is crucial to avoiding future extra costs.