All too often, new start-up businesses go with the accounting software that seems to be cheapest, or most popular, or as recommended by their father-in-law (even though his business is totally different). A couple of years down the road, it becomes clear that their choice is not really meeting their needs — costing them time and money that could have been better spent.

Now they need to go shopping for software again. Here’s how to not make the same mistakes this time.

1. Know What’s Available

There’s an ever-increasing variety of software products designed for small businesses. They fall into four broad categories:

• Accounting and payroll: Provides tools and reports for tracking and utilizing your financial data. Pay bills, send invoices, record expenses and income, manage inventory, calculate profit and loss, process employee paychecks and benefits. Some options are tailored to specific types and sizes of business, avoiding unnecessary expense on features and capacity that you won’t use.

• Business management: All-encompassing solutions integrate data-based processes throughout your business, such as customer relationship management, sales, marketing, job costing, and crew/equipment scheduling. Great efficiencies can be achieved by eliminating duplicated effort, reducing human error and preventing information silos.

• Cloud-based accounting: Ideal for business owners who can’t sit in front of their desktop computers all day. Provides the same features as traditional accounting software, except that it’s web-hosted rather than stored on a company’s own servers. Xendoo uses one of these, Xero, which offers a secure, user-friendly interface that can be accessed from anywhere, anytime.

• Free programs: There are many free accounting tools out there, but you should bear in mind the classic saying that “you get what you pay for.” We would suggest limiting their use to when you’re just starting up and need to create invoices or print checks in a hurry, but keep sensitive financial data away from them. Also, consider their scalability: will they be able to handle a growing business?

2. Figure Out What You Need

For most small business owners, accounting is not their area of expertise. However, if you want to stay in business, you’ll need to learn some basics, no matter how boring or frustrating you think it is. The software can’t control what data you enter into it, so you should at least know what processes your business performs (paying bills, receiving customer payments, paying employees, etc.) as well as what financial reports you’ll need to generate for taxes and growth planning.

Also, think about the specific activities of your business. Retailers and restaurants need a point of sale system that integrates with the accounting software. Contractors and landscapers need to send crews and equipment to multiple locations, with correct job data in hand. Look for a software solution that targets your industry, or has an optional add-on for the extra features you need.

If you don’t know all the answers, talk to your staff.
• Your accountant can help guide you through the jungle of choices, and ensure that what you buy is compatible with what you already have.

• Your production manager knows the processes — what needs to happen and when.

• Your IT manager will tell you what your current hardware can handle, how soon it will need to be updated, and whether your back-up procedures are adequate. Business accounting databases gobble up disk space really fast, which is one reason why cloud-based accounting services are so popular now.

3. Make a Short List

Now that you have clear objectives, it’s time to review what’s on offer and eliminate the ones that don’t make the grade. Some things to consider:

• Budget: Most of the well-known software is reasonably affordable. It’s when you add on industry-specific upgrades that things can get pricey. If you hire a consultant to help with installation and training or opt for an annual maintenance fee to receive software updates, those costs need to be accounted for as well.

• Quality: Research the software’s reviews, on both the vendor’s and independent websites. Ask for opinions from other business owners in your industry. You want to know if it has the functionality you need, is easy to use, and is supported with good customer service.

• Free trials: Some business accounting programs offer a limited-time test run, so you can get a real-life idea of how it performs. It can be labor-intensive, though, so save your demos for the shortlist.

• Priorities: What’s most important to you. It could be functions, ease of use, scalability, or budget.

Now You’re Ready to Buy

Congratulations, you’ve become an expert in choosing accounting software. Even better, you’re the expert in choosing the one that’s right for your business.