Should my business use a digital accounting system?
6 minute read
Back in the day when computers were a rarity, the vast majority of companies had to deal with bookkeeping and accounting manually.
This meant that a business had to process physical documents and record all bank transactions in columnar papers. In addition, there were a lot of manual calculations.
However, thanks to technology and digitalization, the way we do accounting has changed. Software solutions have changed accounting tasks have shifted from a manual approach to more modern computerized methods. This helps business owners and accountants to focus on less manual tasks by automation, and focus on optimizing their business for success.
So, should your business rely on a modern digital accounting system? You probably already know the answer, but let’s go into greater detail.
What does accounting software do?
A digital accounting system is a software solution that reduces the amount of time an employee would have to spend on data entry. Essentially, digital accounting systems allow users to sync their business bank accounts, transactions, and credit cards with the software.
The system syncs everything and transactions flow into the accounting software where they are separated into different categories and different accounts.
This kind of accounting software is easy to use and ensures that a business always has all the financial reports available for any situation in just a few clicks. However, this does not remove the need for an accountant as the role of these software are to make financial management and understanding your financial position easier for the business owner.
Most of these systems nowadays are cloud-based, which means that a company can access its books and reports whenever and wherever they wish to because they are located online.
These are the fundamental functions that a digital accounting system can provide:
- Accounts payable
- Bank and credit card syncing
- Accounts receivable
- Online payment collection from customers
- Financial reports generation
- User access for tax professionals
How does it work?
Once a business syncs its bank accounts and credit cards with some of the best accounting software, financial transactions start to show in a queue and are classified into various categories (found on the company’s chart of accounts).
A user starts the accounting software, selects the right category, and information starts to populate the financial statements. A company can run a financial report in a matter of seconds to compare costs and revenue, review profitability, check bank and loan balances, as well as predict tax liabilities.
This is the way to help your business with decision making thanks to the financial information that can be provided through a digital accounting system.
An accounting software solution is a system that is used by businesses to prepare financial information. It can be both manual and computerized.
The principal reason why you should use an accounting system is the 100% accuracy and error-free guarantee of expense tracking, income tracking, and other financial activities.
With a system of this kind, small businesses can keep track of and manage their finances easily. This includes purchases, sales, assets, and liabilities. A digital accounting system also allows you to generate reports in a matter of a few clicks.
You can do all of that using a single software option that serves as a centralized platform where you can keep an eye on everything related to accounting. Some systems of this kind can even be accessed through your mobile phone, making business finances fairly easy to handle.
In other words, you will never lose track of financial transactions again.
What are the types of accounting systems?
- The first accounting system we’ll discuss is the managerial accounting system. This software type is one of the accounting systems that provide managers with important information for planning and operations. Cost accounting and lean accounting are examples of managerial accounting. Cost accounting is the process of recording the costs incurred by a business for various payments. On the other hand, lean accounting examines processes to determine how to reduce costs and eliminate waste while increasing value.
- Then, there is inventory accounting. This kind of system provides a way to track and plan other activities that are related to the stock levels. Barcode tracking and RFID are some of the usual systems of this kind.
- Industry-specific accounting systems are crafted for a specific industry.
- Last but not least, there are not-for-profit accounting systems. They have their specific requirements too, usually guaranteeing that finances are pointed in the right direction. This kind of system produces expenditure reports.
Traditional vs. computerized accounting systems
Cloud accounting has one benefit that many see as the game-changing factor when seeking digital accounting systems. This benefit is the speed at which processes are carried out and it’s the most noticeable distinction between traditional and computerized accounting.
Data is entered once and saved in an accounting program. The program generates a report for management at a rate never thought possible in the past. No more waiting days or weeks to find out if your company is profitable.
When compared to the traditional, manual system, in which columns had to be added up, numbers had to be moved from one page to the next, and trial balance had to be manually compiled, computerized systems have dramatically increased calculation accuracy.
If errors occur, many hours would have to be spent attempting to locate and correct them. This issue is solved by accounting software.
Moreover, the traditional manual accounting system with paper and pencil is less expensive than the computerized version, which requires a computer, software, printer, and other system expenses.
The manual system may be adequate for small businesses up to a point, but with the low cost of computers and software, many companies are opting for the computerized system.
Last but not least, when relying on an old system, the risk of losing data is quite high. If vital documents are damaged or destroyed, the work may have to be recreated. Copies of the original work can be made, but they are likely to be costly and time-consuming.
Accounting software allows you to save work on a portable or external hard drive, flash drive, or even online.
All in all, it is definitely worth investing in a digital accounting system for your business.
Best example: Xero
Xero is definitely one of the best accounting software tools out there for businesses that want very simple but effective digital accounting software.
Xero is very intuitive and has a clean interface. It can be completely integrated with third-party payroll services. A business can use Xero to collect payments online from its customers through its integration with Stripe and GoCardless.
The company was founded in 2006 in New Zealand and it has recorded growth to over two million users worldwide since then.
- Xero is a cloud-based option and everything your business records with it stays safely stored in the cloud.
- A mobile app is also available if you want to have full access to your financial records 24/7.
- Xero can also be integrated with online payment systems such as Stripe and it also has a full payroll integration with Gusto.
- Its users praise its simple inventory management feature the most and that’s one of the most important reasons why this software option sells so well.
- You will also find it very useful that Xero can generate a report on the go and that it’s approved by most tax authorities and laws.
- Combine this with direct bank connections and easy personalization and you’ll realize why numerous businesses use Xero.
The company offers three monthly subscription options for the Xero software. If you need it, you can even add a full-service payroll add-on.
- Early ($11/month)
- Growing ($32/month)
- Established ($62/month)
Keep in mind that the full-service option can be obtained through Gusto and it costs an extra $39 a month and an additional amount of $6 per employee.
Even an average small business owner can afford this, but keep in mind that the best accounting software offers a free trial period available (30 days) and a promotion of 50% off for two months.
For more information on Xero, check out our resource here.
Integrate your operations with Sleek
To truly master your business finances and never miss out on any report or make a costly slip, you should consider integrating your accounting with Sleek.
Sleek is a platinum status Xero partner and our integration services with Xero are top-notch. We are all about straightforward and convenient accounting.
You will spend little to no time on accounting records, financial papers, invoices, bills, accounts payable, bills, and so on. Instead, you can focus on tasks that matter the most to your small business.
Are you ready to upgrade your accounting software and make the lives of your employees and accountants easier?
When you invest in a good digital accounting system, you won’t have to think about human errors, countless hours spent on boring tasks, or piles and piles of paper that you have to store somewhere.
This is not only a wise decision for small business owners, but it’s also very helpful for those businesses that have reached advanced growth phases.
If you want to improve your company, move everything to the cloud and back up your files, get rid of the general ledger, and digitize your accounting and bookkeeping. Starting today.
Need additional help on getting your cloud-based solutions set up? Don’t hesitate to reach out to us at Sleek today.
Our friendly team is here to help you manage your business accounting and more.