Finance and Accounting 101: The Tools Your Business Needs

Getting a handle on your accounting can be daunting for small and mid-size businesses, especially if you don’t have a financial background. But it’s also essential for your business’ health.

A lack of understanding of where your money is going can drive your business into the ground quickly. According to small business insurer Hiscox’s 2014 “DNA of an Entrepreneur Report,” more than a quarter of small business owners are worried they won’t have the financial resources to keep going. If you’re not sure what makes an expense deductible or exactly how much your clients owe, your business runs the same risk.

But even if you don’t know double-entry accounting from a double Quarter Pounder, don’t worry. (P.S. It means every transaction involves at least two of your business accounts, like cash and accounts receivable. You’re welcome.) You don’t need to be a CPA to run a tight financial ship. Keeping thorough records, automating key processes, and relying on experts for tax and regulatory guidance will take your business far. Here’s a crash course in small business accounting and the tools you need to get started.

Basic Accounting Software

What it is: A basic accounting tool lets you maintain your business’ balance sheet electronically and get a clear picture of what’s coming in and out. Depending on the product, accounting software features may include payroll, inventory management or time tracking. Tools for startups tend to focus on ease of use, and may not include more robust double-entry accounting functionality (there’s that phrase again!). While most offer automated reports, like profit and loss statements, the sophistication and customizability of reporting also varies.

Why you need it: This is as basic as it gets. If you own a business, you’re (hopefully) going to make money, and you need a way to track it all. Accounting software lets you keep everything in one place, gives you a snapshot of your financial health through reports, and reminds you when it’s time to pay taxes.

What to look for: What does your business do? Some tools are designed for the needs of a specific industry – time tracking makes sense for an attorney who bills by the hour, while inventory features would be helpful to a jewelry designer. Speaking of inventory, some products will allow you to create records describing individual products, while others just let you track overall inventory levels. In general, G2 Crowd users say good inventory management can be tough to find. It had the lowest satisfaction rating of any accounting software feature among G2 Crowd’s users, with a 72% rating for inventory tracking/ordering and inventory reporting and 71% rating for inventory pricing and costing. Finally, think mobile: Many products are now cloud-based, so you can enter payments or create estimates on the fly. 

G2 Crowd users say: “The ability to follow up on unpaid invoices, report profit and loss, and track the clients we do the most work with through reports is a huge benefit and a great way to keep a finger on the pulse of our company.” 

Payroll Software

What it is: Payroll software lets you calculate and pay salaries electronically, manage benefits and payroll taxes, process payroll, and print or deposit paychecks directly. Some products also give employees visibility into their pay stubs and benefit information through a web portal.

Why you need it: If you have more than a handful of employees, automating payroll on a schedule takes a big to-do off your list. You can also set up W-2s electronically and keep up with tax and regulatory changes, saving your business time and an unwelcome visit from the IRS.

What to look for: Are your employees mostly salaried, hourly or commission-based? Do you want to handle payments through direct deposit, print checks in-house, or have your payroll provider print and mail checks? Different tools have different strengths, so consider your company’s specific wish list. In addition, many payroll solutions either integrate with or come as part of an HR suite. If you’re already using an HR suite, look into whether you can either add payroll as a module or find a compatible stand-alone payroll tool – not having to set up employee profiles from scratch will eliminate lots of headaches.

G2 Crowd Users say: We are solving issues such as: overtime abuse; going from a paper environment to a paperless environment; improving the tracking of attorney bar information; and finally, understanding staffing issues in our offices.” 

Expense Management Software

What it is: Expense management tools give you a central repository for all things expense-related, and some will also let you book and manage travel. Employees can submit their expenses for payment electronically, and administrators can track expenses, automate approval routings and run reports. 

Why you need it: Switching from a manual system speeds up the reimbursement process, which means happier employees. You can also toss those old lunch and hotel receipts once you scan them into the system, so you won’t waste time hunting for stray paper records at tax time. In addition, reporting capabilities give you insight into which departments and employees are spending the most, alerting you to needed changes.

What to look for: Mobile capabilities are highly desirable in expense management software, since many employees like to file travel reimbursements while they’re still on the road. It’s also important to consider whether you want a stand-alone product or one that integrates with another tool. If you’re already using professional service automation, accounting or ERP system, check to see whether it offers expense management as part of the solution.

G2 Crowd users say: “It doesn’t take half a day to get all the receipts together … now there is more time to work on what we do best.”

Congratulations, you’ve graduated from finance and accounting 101! Managing your business’ cash flow takes some practice, but today’s software is designed to make the process much easier. Check out G2 Crowd’s reviews to find the right financial tools for your business.