Map Your Workflow First: The Essential Guide to Choosing Small Business Accounting Software
Map Your Workflow First: The Essential Guide to Choosing Small Business Accounting Software
"If I had an hour to solve a problem, I’d spend 55 minutes defining the problem and 5 minutes thinking about solutions."
— Albert Einstein
In previous posts, we discussed the pros and cons of whether or not a small business owner should consider using an automated accounting software program versus sticking with a manual approach. However, choosing the right small business accounting system can feel overwhelming. With dozens of tools promising to simplify your life, how do you decide which one truly fits your business? A common mistake small business owners make is focusing on fancy features and price before understanding their core accounting workflow. Our goal is to ensure you select the best accounting software that saves you time and reduces tax preparation stress. You need to find a tool that seamlessly fits into how you already do business.
Defining Your Accounting Workflow (Crucial First Step)
You can’t really simplify your process until you fully understand it. The goal is to establish the current financial process of your business, which is really your true bookkeeping workflow. This foundation is paramount and the only reliable basis for your software decision.
First, you begin by listing out your tasks that touch money. Start with how your customers pay you. Is it via credit card, bank transfer, or a third-party app like Stripe or PayPal? The software you choose must seamlessly integrate with these tools to automatically record income and accounts receivable. Next, look at your expenses. For example, how do you pay vendors? Do you use a credit card, checks, or some type of online bill payment system? Documenting this will highlight for you which features are necessary for saving you time and improving efficiency.
Second, what financial reports do you absolutely need to run your business? Think about what helps you stay profitable. Having a Profit & Loss (P&L) statement, weekly or monthly cash flow statements, and creating an accurate balance sheet are most essential. How you answer these questions will help you decide if a simple or more robust accounting tool is needed.
Evaluating Essential Features of Online Accounting Programs
Once you have your small business workflow mapped out, you can use your checklist to compare against the features of a particular accounting software program. This way you can avoid, if possible, paying for features you might not use. Let’s review.
Example: Solo Entrepreneur Service Technician
A service tech could be working out of his home. Here is a possible list of tasks that relate to his workflow:
Pre-Service:
1. Generating an estimate including possible parts cost, shipping those parts, labor and trip charge (to and from client)
2. Collecting a deposit (request credit card)
Post-Service:
1. Log parts cost, freight cost, billable hours, and mileage
2. Create and send the invoice with clear payment terms and applicable taxes
Collections:
1. Processing payments (credit card, check)
2. Track which invoices are paid and which are past due
3. Account for processing fees deducted by the bank, PayPal, etc.
Purchase/Pay:
1. Document all receipts physical or digital whether they’re for supplies, tools, gas, oil change, etc.
2. Categorize each expense properly (for taxes)
3. Track payments to a vendor including utilities, rent, materials, etc.
Inventory:
1. Evaluate the cost of goods sold (COGS)
Paying self:
1. Track transferring funds from business account to personal account keeping records clean for taxes
Keeping records:
1. Matching all transactions to the bank statement (and credit card statements) to the entries you’ve recorded yourself
2. Confirm all income and expenses are categorized properly for tax purposes (under Chart of Accounts)
3. Record purchases for items that need to be depreciated (e.g., truck, tools, computer)
Reporting:
1. Create a profit & loss statement monthly
2. Monitor cash flow in and out of the business
Taxes:
1. Track and record sales tax
2. Calculate both state and federal income taxes, and include self-employment taxes
3. Put together end-of-year reports for annual tax filing
Software Features
Per the example above for the solo service technician, he will look for a system that is able to create estimates for his customers including labor, materials and mileage. This will include the ability to mark up these costs, display hourly or flat-rate fees, add additional notes about the job, and have a way of adding his company logo. The estimate should also be easily converted into an invoice.
Whatever system is chosen, compatibility is everything. Does the program easily integrate with payment systems such as PayPal or Stripe? Can the software connect directly to your bank account? Accurately categorizing and reconciling transactions with your bank statements are crucial time-savers.
Is there a way for the software to estimate your quarterly taxes? Can you quickly assess profit & loss for a certain period of time? If you use subcontractors, 1099 forms should be easy to send.
For the service technician who spends most of the day in the field, does the program offer a mobile app? If yes, then download it to see if it’s easy to navigate. He might reserve more detailed tasks to do at home, but recording receipts and notes during the day in real time would be so helpful.
Tech Support & Security
Does the software program have phone support? Offering only email and a “chat bot” are not sufficient when you are (for this example) a one-man show whose time is too valuable. Speaking to a real person is far more efficient than trying to translate a bot’s response or wait for an email. If the learning curve is minimal, then you can spend more time on your billable work. Also, see if the software program has strong community support either on its website, or even YouTube tutorials and other such platforms.
Importantly, you also need to verify if the program uses industry-standard encryption (e.g., 256-bit SSL). Data integrity for cloud-based accounting systems is non-negotiable and crucial for financial compliance. Safeguarding your data and that of your clients is paramount.
Scalability & Cost
If your business grows, will this software program still work for you? Think about if you decide to hire an employee which would mandate payroll features. If you have a bookkeeper or want to hire one, will the software allow new users without paying for that upgrade? Are you able to add another business entity to the same program? These questions are important as to avoid the headaches down the road if you are forced to migrate to another accounting tool.
Evaluate if the subscription cost is worth it to you. What will you need for future growth? Some programs have multiple pricing tiers so you need to read through them carefully to see exactly what you need. Try to weigh the time spent on manual tasks versus the time saved if the software can do those for you. Especially as a solo entrepreneur, you want to devote as much time as possible to revenue-generating activities.
Conclusion
I hope you now have a better understanding of how to approach choosing an accounting software program. Of course, the type of business you operate will determine what workflow tasks you need to consider. Doing the workflow exercise first can eliminate the guesswork. You want to position yourself for future growth while spending the least amount of time possible on tedious tasks. In future posts, we’ll begin to review individual accounting software programs and what they can offer you and your business.