which priorities are most important to you and make your decision to build or buy a business based on sound reasoning.
Setting Up Your Own Books
There are many different ways you can set up the books for your bookkeeping practice. You may not have given this much thought, because primarily you help others with their bookkeeping. However, as a bookkeeping practice, you will need to keep the following goals and objectives in mind when considering what type of system to use:
• You will need to track your time spent on each client. Even if you don’t do your billings based on time spent (more on this in chapter 3), you will still need to assess what your recovery rate is so that you can understand your efficiency. The system you choose should be able to track time by client in a clear, concise way.
• You will need to track separately the revenues from each of the services you offer. When you analyze your financial statements, you will need to know which of your areas of practice (such as monthly business bookkeeping, taxes, and investment tracking) are growing and which are the most profitable.
• You will need a system that can be updated quickly and easily. You don’t want your own set of books to be onerous and take up time that could be spent on client work.
Choosing Your Accounting Software
Given these general system requirements, what accounting software should you choose? And how will you know when it’s time to upgrade? Your considerations when choosing your first system are the same as when you will upgrade in the future. If you keep in mind your potential future record-keeping needs, this will help with your initial decisions.
You will at some point outgrow your current accounting system, whether you started out with a manual ledger, an Excel or Lotus spreadsheet, or simply a shoe box (or refrigerator box, depending on the number of receipts your business accumulates).
The need for a new accounting system may manifest itself in many different forms. You may find that payroll is becoming more onerous to calculate and track as you hire more employees. A manufacturing or resale business may keep running out of stock on high-turnover items because they are out before they know it. In a service business, you may start losing track of how much time should be billed to each customer. Regardless of the various symptoms, the problem remains the same: your bookkeeping system is taking more of your time than it’s worth.
There is always a balance in any business enterprise between time and money. You can spend either time or money (or both). Scrimping on one will cost you more of the other. For example, if you decide to buy the least-frills accounting package you can find on the shelves of your local office supply store, you may spend an extra ten hours per week forcing it to do what you want it to do. If you could take that ten hours and use it to sell more to your customers, then perhaps it would be worth spending more on the software package.
Recently, Deloitte & Touche did a study of the top criteria used by businesses when selecting their bookkeeping software. It’s quite interesting to see that first-time business owners and seasoned entrepreneurs have different priorities in this regard. This would suggest that experience teaches business owners what’s really important when choosing financial software.
The top three criteria used by first-time business owners when selecting bookkeeping software are —
(1) price of software,
(2) ease of implementation, and
(3) ease of use.
These reasons make sense. They are all important things to consider in the purchasing decision. But now take a look at the top three criteria used by businesses selecting their second bookkeeping system —
(1) level of support provided by the local firm
(2) developer’s track record of performance
(3) software’s ability to fit the business
What do the experienced business owners know that the neophytes don’t? Let’s take a look at each point separately.
Level of support provided by the local firm
Many of the entry-level accounting systems are billed as being turn-key systems; you just load the software and you’re up and running. However, setting them up is never quite that simple. It’s important to make sure that you can easily and economically access customer and technical support for your new system. Some software companies charge for support calls, which is fine as long as you can get hold of someone when you need them. You will also want to consider whether there are consultants based locally that can come into your business and provide customized setup and training. When you’re looking at consumer reviews of the product, pay special attention to what they say about support.
Developer’s track record of performance
A first-time software buyer may very well discount the importance of how well the software has worked in the past, but seasoned entrepreneurs understand how much time it takes to work around bugs in the software or to install patches to fix problems as they arise. Keep in mind that bookkeeping software is generally updated annually, so there are many opportunities for programming errors to arise. Knowing that the company has been in business for several years with little incidence of major programming bugs can ease your mind in this area.
Software’s ability to fit the business
Entry-level bookkeeping software systems try to be “one size fits all.” They allow you to customize the chart of accounts to make sense for different types of businesses. For example, for a computer consultant, it doesn’t make any sense to have inventory accounts showing up in the books. However, each software system has strengths and weaknesses for every type of business. Some handle real-time inventory better than others. Some track billable time better. Having a good understanding of what’s important to track for your particular business will help you assess which package is best for you — and help you advise clients on choosing bookkeeping software as well.
As you can see, there are more considerations than just price when purchasing accounting software. Spend time to understand all of the critical considerations. You should also ask fellow business owners what they use and how it’s working for them. Another important source of information is your accountant. One caveat is to make sure that your accountant is familiar and comfortable with all of the popular accounting packages. For example, if your accountant has worked only with QuickBooks, more than likely it will be QuickBooks that he or she recommends. Not exactly an objective opinion! All of the major software websites have either screen shots of the program or downloadable test versions. This gives you the opportunity to “test drive” the package to make sure you’re comfortable with it.
Selecting your bookkeeping software is an important task in your small business and may seem daunting. Keep in mind, however, that most systems can be converted to other systems fairly painlessly. Mistakes are not terminal. Take your time up front in the selection process and you will be making the best decision regardless of the system you choose.
You’ll Need a Business Plan
You no doubt have heard it from your banker or your accountant: “Prepare a business plan!” Everyone advises it (and you can advise your bookkeeping clients to
