Business:
Posted by Commie B on March 8, 2010 at 12:02 am
I have previously written articles on small business accounting software: http://www.asifism.com/accounting-finance/small-business-accounting-software-quickbooks-vs-sage-vs-peachtree-vs-microsoft-office-accounting-%e2%80%93-part-two/ and http://www.asifism.com/news-about-this-site-and-me/accounting-quickbooks-sage-peachtree-or-microsoft-office-accounting-part-one/.
These articles primarily discussed desktop based accounting software: they pitched quickbooks against sage and microsoft accounting. Clearly, many small business owners and accountants alike preferred microsoft accounting and quickbooks to sage (which sane person wouldn’t, right?). However, in light of the small business accounting market not being so profitable, microsoft has deserted the small business community, handing over the management and future development for microsoft accounting to partners (mamut software) in the UK. We had been using microsoft accounting to manage everything, including payroll, so it was a bit of a pain when microsoft chose to ditch the not so cash rich software over ‘some’ of us dedicated customers (or partners, as we’re both).
Now, as an application development company ourselves, we have been integrating with some of the new breeds of accounting software. Since we are now based in the UK, you may see that this article is restricted in its coverage of the US market, but then, I am afraid that was bound to happen at some point. Two of the most successful SaaS (Software as a Service) generation accounting applications in the UK market today are Kashlow and Xero.
The History
I have personally used both, although the pleasure of integrating other software applications with an accounting system has been restricted to Kashflow, and I must say, that it was quite an easy task to do so. Their API is pretty comprehensive and if they don’t have a particular function, they’ll create one really quickly if you need it, unless you’re asking for something too complex. Nonetheless, Kashflow’s customer service is pretty good, with management getting involved actively across discussion boards in the UK to help answer any questions or queries. The owner of Kashflow is one Duane Jackson, a poster child for the Prince’s Trust. Long story short, Duane went from being a not so ideal citizen to building a £10 million company in 5 years or so, with a little help from the Prince’s Trust and one of the UK’s prized lords.
Xero, on the other hand, is a software that originated in New Zealand and has now grown internationally across the UK. We now use Xero as our defacto accounting system, and that is for one of several reasons. The fact that Xero is not UK based doesn’t cause any damage to the actual application; they have an API, integrate with similar products and other applications just like Kashflow and the software complies equally well with UK law. But it is in Xero’s roots that it is the 2nd most successful accounting SaaS in the UK. Their management and sales teams are not as active on UK small business forums, whereas Kashflow, I imagine, picks up quite a bit of business from them. Nonetheless, Xero is a British Telecom recommended product (BT is pathetic, so their opinion only carries political weight, nothing that actually matters) and is also recommended in partnership with some of the bookkeeping franchises across the UK.
The Techie Stuff
I run a software development company in London and our primary area of expertise is SaaS. It is quite clear (well, at least it is to me), that Xero has been developed by far more capable developers than Kashflow has. Kashflow is build on Microsoft asp, which I am quite against. It’s older technology, although it’s just as functional. Their use of URL cloaking, etc. is limited (which is not a technical drawback) and their interface is very CSS and HTML as opposed to AJAX driven. Now I’m personally against using Jquery and AJAX for functions that are simpler to use with simple HTML. For example, ajax tabs with a submit button on them are plain wreckless because the interface does not work according to generally understood internet behaviour. However, I think Kashflow lacks the use of AJAX even where it would be appropriare. In my personal opinion, I find it a much more soothing experience to use Xero than Kashflow. Xero generally runs faster too (it did for me) and I think it is, from an overall standpoint, a much more thought our application than, perhaps, Kashflow. However, this is probably my tech bias talking and has absolutely nothing to do with the use of the software if you’re an accountant as you’re most likely used to the scum of the earth (also known as Sage) – but I don’t practice accounting anymore (and I’m about a million times happier)!
The Interface
I’ve already covered this above (although the only thing I should’ve said in the techie stuff was AJAX, .Net and ASP). I like the general layout, colours, look and feel of Xero much better than that of Kashflow. They’re both free to try out, so knock yourself out and disagree with me all you want (and see if I care!).
The functionality
This, in my experience, is the same in both Xero and Kashflow. They both have simiar irritating flaws just like Quickbooks, Microsoft Accounting, Peachtree, MYOB and Sage do. There’s no IDEAL way to match off a receivable against a payble without doing credit notes (there really should be, it’s a damn simple journal entry). However, both applications are promising in the arena. A common contacts database which can both become customers and suppliers is a good start, so a secnario where you could simply write off a receivable from the same person against their payable with a single click is fast approaching! One of my favourties with web applications is the flexibility you have of customising your invoices, receipts, etc. within the application and sending them off to customers with PayPal integrated. Both Kashflow and Xero do this beautifully (although more customisation can never hurt), but it saves us from drafting pretty looking invoices on letterheads before sending them out. We can be greener, although British customers tend to ignore email invoices!
Pricing and Cost
Well, I honestly think Kasflow wins here: fair and square. They offer a FULL service demo for 2 months, and then they charge £179 (I think so) a year. That’s not bad, considering you don’t have to worry about upgrades, etc., and everything is always backed up.
Xero, on the other hand, gives you a FREE demo for upto 5 invoices (without a time limit). That’s enough to help you get a feel of the software, after which you have to pick from what i think is a restrictive, almost non workable £12 per month option. In most instances, you’ll have to go with the £19 a month option, which makes it about 30% or so more expensive than Kashflow, but it means you can split the payment out on a monthly basis.
I think Kashflow definitely wins on a pricing model.
Integration with 3rd party applications
Really, both companies have pretty robust APIs and they integrate with virtually all the same applications. I think Kashflow is more aggressive with finding businesses in the UK to integrate with, but if you need to integrate with a custom application, I would think they are both equally good.
So, why did we choose Xero?
OK, this is it. Really, almost all accounting software is the same and other than some of the cosmetic stuff and user interface, they all accomplish the same task. Here is why we chose Xero. I’m involved in one too many businesses, much to the point where this blog has become second priority lately and it has taken me over 3 weeks to complete this article (and it is still mighty hurried). So, as with all businessmen that have growing businesses, you delegate. That’s what I wanted to do with our accounting function, and as an accountant myself (in my past life), I struggled with handing over full control to a third party accountant or bookkeeper. I wanted somebody else to do all the gruntwork, but I still wanted to login and see that things were being done the way I wanted to so the GL reflects what it should for tax and funding purposes. I’m not suggesting that Kashflow can’t do this, but with Kashflow, if I hired a third party bookkeeper, I would have to share my password with him / her. Now I’ve already got 30 passwords (as I’m sure you do) and I like to conslidate them from time to time, so I didn’t want to remember another one for our accounting system. With Kashflow, I would have to. With Xero, I didn’t.
To cut the confusion: Xero allows for multiple users with varied permissions while Kashflow has JUST ONE username/password per company account, so if you’re the owner and hire an external bookkeeper or accountant, you all need to share the same login credentials. To me, that’s what sealed the deal with Xero. I can revoke someone’s access at the touch of a button or limit them to just seeing or using a certain part of the accounting system.
There’s a whole lot more to discuss, but really, I must get down to business. Thanks for tuning in, folks.
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Posted by Asif on February 2, 2009 at 12:50 am
Despite all the hoo-ha about how business has become difficult in the recession and how money from banks and lending institutions is short, I am here to tell you that it is really not that bad, certainly not if you are a small business.
The reason is that most small businesses don’t necessarily depend on funding from banks. Growing small businesses certainly do, but most small businesses do not. It may be true that economy is slowing down and bad economic news is making headlines on a daily basis, but think about it, this is the opportunity for many, innovative small businessmen to move in and get the business they’ve been waiting for.
Big business is struggling. On a daily basis, you’re reading about multi national companies shedding employees. Basically, it is in times like these that big businesses actually make an effort to run efficiently, and they’re open to help and suggestions, because laying off people is not always the most legally feasible way to cut costs. Companies are looking to rewrite and renegotiate vendor contracts and if presented with a better, more cost-effective solution, almost all businesses will change. This is where SMEs come in.
Most small businesses don’t sell to consumers; they sell to large corporations. Large corporations, on the other hand, sell to consumers. This recession, like all recessions, has ultimately arised because of the consumers inability to meet the greed of large corporations, which created domino effect of cash shortage in a global economy that operated, for all practical purposes, on one cycle of credit.
For a small business, this is the time to put its savings into marketing itself as a more professional, stable, and cost effective vendor to a big business. Markets that were in the past only open to big vendors, i.e., areas of work where big business only dealt with big business, are now open to small business. The big players in the industry are short on cash. They cannot move fast enough to respond to the recessive nature of the economy, the result of which is their shedding of employees. I think the market is certainly better for many small business owners today than it was 15 months ago. To succeed in this climate, however, here are a few things you need to do:
1. Invest in marketing! It is extremely important for small businesses to appear professional. You must never compromise on quality and professionalism, especially not in a big city like New York or London. With my own business being in London, I can tell you that this is a city of first impressions. Quality of work is secondary, but if you can impress someone in London with a fancy business card and decent looking website, chances are you will be able to get their business.
2. Do what you promise! Make sure you don’t oversell yourself. This is an economic climate where, as a small business, you naturally have an advantage over big companies. It is imperative that you let your clientele know up front what it is that you provide. Remember, your primary selling factor here would be helping them cut cost, so they’re naturally adept to understanding that they may lose out on some features that another, more expensive vendor may have been providing. The trick to keeping the big client: Deliver what you promised!
3. Call your own office to check to see what your reponse is like. If you are a single person business, setup a vitural PA service. Remember, that depending in which country you are in, having an answering machine is not always a wise thing. In the UK, people do not leave messages, and they’re not too happy if the person answering their phone is not extremely friendly. Don’t compromise on this. If you lose an incoming call, you may very well lose thousands in business.
4. Update your website and check all the forms on it. Don’t make this mistake! So many businesses lose out on potential clients because the contact forms on their websites don’t work! If you sell products online, keep it simple! Don’t flood your users with information or questions. Keep the experience clean and provide enough information for them to got through with the sale.
5. Know your market! Yes, when I first moved to the UK from the US, I thought that having state of the art technology for my clients was the way to go. Turns out, that’s not the case. You must stick to what your customers are comfortable with. If you conduct too much work online or via web 2.0 technologies, it may be very efficient for you and your businesses, but your clients may not be comfortable with it. Digital signatures, submitting complex work requests, and smooth sailing one click credit card ordering is ONLY viable for advanced societies like the US. In other markets (like the UK), for instance, people are more comfortable exchanging word documents by email rather than by submitting all of the required information via an online form. So, don’t do what looks good and efficient, do what people will work with, because that’s how you will run your business.
6. Once you’ve captured your market, evolve your product or service to keep the client engaged. Businesses are always looking for more and better. That’s the reason why Microsoft sells millions of copies of every new version of windows and office that it releases. Stay on top of your game and know your market to keep the customer engaged.
Lastly, don’t let the bad news get you down. Remember, this may very well be an opportunity for many of us to grow our businesses!
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Posted by Commie B on December 14, 2008 at 8:41 pm
Several of us, including myself, at some point, had decided to make the leap from being employed to going self employed. I, myself, had bought into the whole concept of being your own boss, working your own hours, and marking and measuring one’s own success. Indeed, having your own business, generating your own income, choosing your clients and the people you work with are all big pros of being self employed. In fact, having everything in a business work the way you want it to work is fantastic! What else? You get to have a fancy business card that says Managing Director or Chief Executive Officer, and you stick your neck out and talk to everyone like you own the world. That’s all great, and the feeling of success if you thrive at being self employed is unmatched, but what are the odds that you will succeed?
Let’s be honest; odds are a big part of this whole deal. However, that is not all there is to it. What I want to do in these sets of “Running your own business” articles is to tell you part of what it will take to make the shift from becoming employed to becoming self-employed. What that means in English, for those of us who don’t like fancy corporate talk, is that I will try and outline what it will take you to go from being someone’s bitch to becoming your own boss.
Let’s get the assumptions out of the way first. You have an idea, and you’ve done your market research. If you haven’t, look for any book that tells you on what research you need to do to get your business off the floor. Market research is critical, as is good marketing. But what you need to keep in mind is that having a good product / service and a good marketing strategy is not all you need for your business to succeed. These are your basic requirements. No product / service = no business = no money = keep the job = stay in bitch mode.
So, what do you need to execute your own marketing strategy, sell your product or service, perform, and walk away with or retain a happy customer and a big cheque (or check if you’re in the US)?
The Three Ds of Entrepreneurship
Drive
Drive. Drive. Drive. By the way, that’s just ONE of the 3 Ds spelled out 3 times. Yes, you need drive. The drive to succeed, to sell, to perform, to win, to dominate and to not be somebody else’s bitch. What is important here is for you to have the mind set to break out of taking orders from someone else. That was the reason I chose to become self employed. I knew I had the skill set. I knew I had a unique deliverable, even if my service was competing with others out there, and I knew I had a decent marketing strategy. But above all of that, I had the drive to do business. The drive to be better than my former co-workers, and the drive to make it happen. Unless you cannoy work 16 hours a day 5 days a week and survive on 4 hours of sleep every night, going back to a job should not be an option. Business is going to succeed if you go all in.
For a more graphic explanation, think of driving only ONE car at a time. You can’t drive two, and if you try to drive two, you will wreck both. There are few who can handle both a job and a business, and unless you are that hardworking, I suggest you stick to one thing, and give your whole hearted attention to driving that one vehicle, which, in this case, would be your business.
Dedication
Remember how you sometimes had nothing to do at work and you went around chatting to all the different people at work, browsing the web, looking up old friends on Facebook and waiting for that clock to get to 5 pm so you can get up and go home? Well, those days are over. With a business, with an entrepreneur, with the drive you need to succeed, the clock does not tick from 9 to 5. It’s more a case of 9 AND 5. You have to get the job done if you want to get the money: it’s just that simple. This means working many extra hours even if you undersold yourself, delivering an excellent end product because you are the boss and no will be around to check your work), and not wasting any time doing silly things you did on the job. You must dedicate yourself, your attention and your energy to your business. If you aren’t dedicated, it becomes extremely difficult to manage your time (especially if you’re working from home), deliver a customer satisfying product, or resisting the temptation to log into MSN and Yahoo Messenger and chat up your old friends. You must re-arrange your priorities and dedicate a specific number of hours to your business DAILY, or you will never get around to actually doing the business.
Determination
This is probably the D that most startup and small business owners struggle with. You have to be totally and utterly determined to succeed, or you simply won’t. Get used to hearing know and listening to negativity. The odds are against you, but keep in mind that knowing that only puts you in a position to be better prepared for these odds. It’s not easy running your own business, and many people struggle with how difficult it is to get things done, primarily because as a small business owner you are dependent on other people. But the trick is to keep plugging away. If you are determined to succeed, you will eventually make it happen.
Ultimately, determination is about mindset. For someone who is determined, something that goes wrong is one failed attempt at doing something. For another person, the same thing going wrong could mean loss of hope, and that’s the one thing you cannot have as a small business owner: loss of hope. Stay focused, stay determined, stay on track and make sure that you are persistent and remind yourself of how determined, dedicated, and driven you are to succeed and get the job done.
Stay tuned for more small business and entrepreneurship articles.
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Posted by Commie B on March 25, 2008 at 1:31 am
The first part of this article discussed the things that needed to be a part of a small business accounting package, and what help the existing software in the market typically needs, and whether or not a small business can actually do without the help of an accountant or book-keeper. Let’s put all of that aside, and now simply talk about the accounting software available in the market as is. The packages I have used, and most of my clients use, and ones that are available almost globally will be the subject of discussion here.
Of the four packages mentioned here, QuickBooks and SAGE are scalable from small business to medium business. So before I dwell into which is superior and which is not, if you think you have a business that will grow or develop at a rapid pace, and will outgrow the circa definition of a Small Business, maybe you’ll have to stick to one of these. That’s not to say that Peachtree or Microsoft Office accounting cannot support medium size business. It can, with intelligent, creative (but legal) accounting.
QuickBooks – The Good
In my opinion, QuickBooks is probably the most comprehensive of out of the four packages (QuickBooks, Peachtree, Sage & Microsoft Office Accounting). It provides relatively efficient functionality, with a standard interface, customizable reporting, and it won’t cost you an arm and a leg. Feature-wise, it probably contains more than any of the other three pieces of software; it will do the basic accounting, invoicing, payroll subscriptions, credit card transactions, GL, PL & SL, prepaid (well, sort of), customer statements, financial reporting, etc. etc. etc. Quickbooks ALSO has some concept of drill down functionality, which can be relatively insightful at the click of a button.
Another area that QuickBooks has a big plus in its wide market area and availability of support. It is relatively easy to find QuickBooks consultants (certified or not). The support network is out there, and their own web site can guide you on where and how to find support. Plus, if you’re in the US, QuickBooks is the software of choice for many US Universities, making most accounting graduates QuickBooks literate, if not experts.
In addition to the friendly interface, QuickBooks is relatively self explanatory. The titles in the menus, the screens, the interface, the ease of use, all makes it a very efficient piece of software, especially if you’re a computer literate accountant. Even if you’re not, the learning curve is not too high.
QuickBooks – The Bad
From my position, I really don’t have much bad to say about QuickBooks. I’ve been using it for several years, and functionality wise, there’s really not much wrong with it (in comparison with other accounting / bookkeeping software in the market). The only possible drawback is that it’s ultra feature richness may make it confusing for the not so computer literate accountant/bookkeeper.
Technically, QuickBooks has one pitfall. From year to year, newer versions come out, and compatibility has been an issue in the past. If you upgrade, you have to convert data, and although it’s not that tedious with the new version, it would be much simpler if Intuit simply made Quickbooks backward compatible, which it probably doesn’t for reasons of profitability.
Sage – The Good
Really, I don’t have much to say here. In the near future, you will see me as both a QuickBooks Pro Advisor and a member of the Sage Accountancy Club, and that’s because it is good for business, and the UK is infested with Sage Line 50. It’s an okay piece of software. The interface is relatively standard, and it can pass off as a bookkeeping / accounting software, although all the others will give it a run for the money, and probably beat it.
Sage – The Bad
There’s a lot to say here, but I won’t bad mouth them too much. No drill down functionality, unfriendly interface, unfriendly usability, restrictive, poor layout, etc. etc. Clearly, you can tell that this is my least favourite software, so I’m going to stop talking about it now.
Peachtree – The Good
Peachtree is a fantastic piece of software. Although I trained on QuickBooks Pro in university, the first piece of accounting software I used on the job was Peachtree Accounting 2006. I was pretty reluctant about it first, but as it turns out, Peachtree is a wonderful piece of software.
It’s a less dull, less serious looking version of Quickbooks, and offers virtually all the functionality of QuickBooks. There’s less gray (unlike Quickbooks & Sage); the interface and layout are very clean, the different templates are customizable (as they are in QuickBooks), and it offers all the supplementary functionality (credit cards, good journal layouts, invoicing, POs, SOs, etc. etc.). All in all, this is a great piece of software, and is a wonderful place to start for any small business. It’s not to heavy on the pocket, and you don’t have to be a rocket scientist to figure out how it works. Oh, and Peachtree offers some drill down functionality like QuickBooks (unlike Sage).
Peachtree – The Bad
Peachtree is only US compliant. The software is not available for purchase or use outside the United States, and it doesn’t support multi-currency. What’s worse is that Sage has bought Peachtree from Best Software, and it has become Sage’s way into the US market. As long as they don’t make drastic changes to Peachtree, it is a fantastic piece of small business accounting software.
Microsoft Office Accounting – The Good
Okay, this is Microsoft’s first step into the Accounting domain. Originally termed Microsoft Small Business Accounting 2006, the software was renamed to Microsoft Office Accounting, and rightly so. It’s a sharp mixture of QuickBooks and Peachtree functionality the Microsoft Way. What’s good here is that this is one of the very few small business Accounting Packages on the market that will support multi currency without any issues, and it can probably pass off as a software that doesn’t necessarily require you to be very accounting literate. Why, you ask? It shares a striking resemblance to Microsoft Office, hence the name Microsoft Accounting. The idea here is that if anyone can use Microsoft Office Products, they should be able to use Microsoft Accounting.
Frankly, I have been impressed with Microsoft’s first try at Accounting Software. It may need some bug weeding, but all in all, this is a good starting point for Microsoft, and after months and years of using QuickBooks, Peachtree & Sage, it didn’t make much for me to get comfortable with Microsoft Office Accounting; just a couple of hours. This is a very affordable software for most small businesses, and provides the BASIC functionality of Quickbooks & Peachtree, without passing off as a complex, confusing or difficult to use accounting/bookkeeping package.
Microsoft office Accounting – The Bad
At this point, since this is something that is actively being developed my Microsoft, credit card processing, payroll etc., though existent, are slightly limited. Although most small businesses don’t use these features from within the software, they are useful considerations, as a small business truly sees the use and efficiency of the software if functions like payroll are managed from within the software. This software is certainly scalable, but at this point it’s a very good basic package for small business, and scalability is yet to be seen.
I’m sorry I’ve had to cut this article short. I had intended to write very detailed reviews, but I just haven’t been able to find the time to do it.
If you’re in the UK and looking for help with any of the above products, feel free to contact me or VAFTA Solutions Limited. Ultimately, what’s best for you depends on your business habits, practice, requirements, and your accountant/bookkeeper.
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Posted by Commie B on February 8, 2008 at 6:22 pm
Small Business has seen a dilemma when it comes to choosing and using an accounting package. The UK is primarily dominated by SAGE. The US sees plenty of QuickBooks and Peachtree, but there are others in the market too. The problem, however, is that although these three pieces of software along with the others provide a basis for double entry accounting, they don’t have what it takes to get true accounting automation, and I have to sadly say (now that I am in the UK) that SAGE is probably the worst out of the three.
All small business accounting packages suffer from similar diseases; not enough drill down user functionality, weak, if any, accountability for prepayments, deployment over multiple locations (without actually paying out of your nose) etc. etc. Despite all of that, I think it would be beneficial to review and discuss:
1. What is it that will make for a good Accounting Package, and
2. Which should you choose: SAGE, Peachtree or Quickbooks?
I’ve tried to look for reviews on the internet comparing the three accounting software packages, but I’ve had no luck. I have found some interesting articles that point to the shortcomings of SAGE or Quickbooks, but I’ve yet to see something that ideally tells you what’s good from a small business owner, accountant or book keeper’s point of view. There’s a good article http://nothing.tmtm.com/archives/2582 that discusses some of the fallacies of SAGE, and I totally agree with the writer, although I’m not sure small businessmen will ever be able to handle their accounting without the help of an accountant or bookkeeper. The double entry system is to blame for part of that; and people’s unwillingness to sit, think, and learn, given the lack of availability of time to the small business owner will make it impossible for business owners to use any accounting software independent of a professional virtually impossible.
As a professional accountant with a degree in Information Systems, I have a slightly different point of view about what accounting software should do and how it should work. I’ve also been a small business owner, and I’ll tell right off the bat that when I ran my own business, I could not take the time every day to sit down and update my books; hell, I couldn’t take out the time once a month, and I fell behind on my books drastically; but I can fix them come year end, because I know exactly what it takes. What about someone who doesn’t?
If software or accounting automation were to function ideally, whenever you made a sale or provided a service, the appropriate entry would be made automatically and it would update your books. Well, you can get part of that in a retail business, even with small business software like the QuickBooks POS terminal, but it still won’t do your depreciation, purchase of fixed assets, bill payments, etc. etc. automatically, even if you paid for and used every damn service you can subscribe for through Intuit over the internet. On the other hand, if you have a service business, well, you’re totally screwed! You’ve got to do everything yourself. The point is, for those of you who are thinking that “Ah! There will be accounting software that will do everything on its own one day,” the answer is no. That cannot be.
That’s basically because firstly the wonderful governments of the first world want extreme compliance with some rather unnecessary laws and regulations, and software will never be allowed to automate everything simply because a human being needs to be held responsible if something goes wrong. Second, we accountants love being in control. Corporate Accounting, for instance, can be the most dull job you have on earth, but the ability to tell someone “do your work and do it right, or no pay for you, buddy!” is excellent. Well, I like having my control over the money anyway. Third, and most important, the whole purpose of a double entry book keeping system is reconciliation. Everyone’s work is reconciled by another until an auditor signs off on it, and even then, sometimes the government comes in to reconcile that. As long as the basis and purpose of accounting is reconciliation and accountability thereof, accounting software will not become fully automated or “accountant-less.” Besides, the way I fathom fully automated accounting software, no small business could possibly afford it today.
Enough dreaming! Now, let’s get down to business. In the real world, what is it that a small business, say, any business ranging from GBP 200,000.00 in revenue to GBP 10,000,000.00 in revenue per year should look for? First and foremost, as discussed earlier, something that cuts down on accountant or book-keeper time. Now, what exactly does that mean? Things that a small business will primarily need a book-keeper or accountant for are:
1. Accounting for prepayments
2. Payroll accounting and returns
3. Depreciation for GAAP and Tax purposes
4. Minimizing tax legally
5. Useful, sensible reporting
1. Prepayments, if you think of them mathematically or simply, are nothing complicated. Even in simple double entry accounting, prepayments aren’t too complex. The concept is rather linear; if you pay for something before it was due, it becomes a current asset for the time being, automatically being written off against a liability that will arise in the future. So, what exactly is the simple accounting behind this? Say you pay your office rent 3 months in advance. The rent for the whole quarter becomes due on the first day of the beginning of the quarter. In such a scenario, in double entry accounting, you will:
a. You will cut a check for three months rent on the 1st day of the quarter, say, the 1st of January, for 3 months (from January 1st to March 31st, 20xx). Assume here that your monthly rent is 1,000, and the 3 months’ rent is, therefore, 3,000.
b. In your books for January, you will make an entry for rent payment of three months on January 1st, crediting your cash account with 3,000, debiting your Rent Expense account for 1,000 (for the month of January) and Prepaid Rent/Prepaid Expenses Account for 2,000 (for the prepaid rent for February and March).
c. When you prepare your financial statements at month end, you will show 1,000 in Rent expense on your Profit & Loss Account (if you’re in the UK, Asia or most of the Middle East) or Income Statement (if you’re in the US) and 2,000 in the current assets section on the balance sheet.
d. In the month of February, you would credit the prepaid expense account and debit the rent expense account with 1,000 each, respectively. Your balance sheet in February month will show only 1,000 in prepaid assets. Repeat for March.
e. You’re done!
As you can see, this isn’t really too complicated. The accounting is simple, but you have to be familiar with basic double entry debits and credits to do it right. I can’t tell you how many professional accountants screw up prepaid accounting, so let’s not blame small business owners for pulling their hair out with unusual and possibly unnecessary debits and credits for something as simple as a rent prepayment. You’d think that paying it for 3 months in advance you wouldn’t have to worry about for 3 more months. Unfortunately, that’s not the case in financial accounting.
2. The usual second hang-up in small business accounting is payroll. Now payroll is not rocket science; it is systematic and the method is well documented. But, undoubtedly, payroll is a very tedious and boring part of corporate accounting. Keeping track of different and changing income levels with different tax brackets and doing quarterly returns can, quite frankly, be a bitch. It’s not difficult; it’s just bogus. However, a small business can simply choose to outsource this function altogether. Depending on where you are and how many employees you have, you can outsource payroll accounting and disbursement for as little as $100 per month per employee or $ 300 per month in total. Please don’t start emailing me about where to find companies that can do this for you. Look around in your city. Ask a local accountant or check with someone like TriNet if you’re in the US. If you’re in the UK, well, you can contact me.
3. Here’s another subject I’ve seen small business owners get heart burn over. I have worked with clients and bosses who were shattered because straight line depreciation as per GAAP put a serious dent in their profits. It took a lot to explain to them that this was good for tax purposes (although that may not be true since you have to use government compliant depreciation methods depending on which country you’re in) and it didn’t really matter for scoring points in front of your bank, friends, or date. But managing statements that reflect and don’t reflect different types of depreciation, depending on who the financial statements are being made for can once again, be a boring and tedious task; one most small business owners would want to rid themselves off. Welcome to the real world; different institutions want your fixed assets accounted for differently. How would you calculate the life of each asset? How many years to break it down over? What percentage do you have to depreciate it according to the IRS? Treat it as real property or not? How about land and buildings? Who the hell is going to keep track of all the assets in your business? Computers, desks, chairs, fittings, etc. etc. Sounds like a full time job, doesn’t it? It is painful!
4. Corporate Income Tax, Sales Tax and/or VAT. Such wonderful terms. I assure you, even those of us who love taking your money for doing your taxes hate doing them just as much as you do. Again, although taxes can get really complex, they’re typically, for a small business owner, not too bad. That doesn’t mean they can be. When small business owners start making personal payments from the company account and start charging gifts, kids tuition, cars, rent, alimony etc. etc. for their extended family to the company account, the tax business can get rather nasty, especially if you don’t stay on top of it at month end, and tackle it while you can with your quarterly payroll return. However, I will say that even the tax return system is relatively developed. There is TOO MUCH documentation available on how to complete and file your return, and some software will typically be pretty helpful. But to maximize your tax benefit, you do need some tax craftsmanship, and that only comes with experience and knowledge of accounting and taxation. And who in the world will spend his time studying tax law and procedure unless he’s getting paid money to do it? No one. You’re better off getting professional help for this from the get go. Plus, by doing so, you don’t have to worry as much about the tax department coming down your ass for making simple mistakes. However, do keep in mind that if there is a mistake, and even if you have a chartered accountant sign off on it, it’s going to be the small business owner’s ass if there’s a problem. You need an accountant for this; I can’t stress how bad it is when you’ll get penalized $ 1,200 for trying to save $ 750 you could have paid an accountant initially, because second time around, you’ll be paying the 1200 and the 750. Do the Math!
5. It’s great to get professional looking P&Ls, Income Statements, Balance Sheets, Cash Flow Statements, etc. etc. etc. It’s very good for the small busiess owner’s ego to see a professional set of financial statements and reports with the business logo on it, but to most small business owners, the typical financial reports can be pretty damn useless. They’re a good measure to see how you’re competing with the big business on numbers, but useful reports that explain cash flow or budgets, that compare pro formas with actuals, present value and future value statements and calculations, and other such reports require some planning and thinking, and definitely need some kind of a financial background, if not an accounting one. It takes quite an accountant to explain a cash flow statement. A typical cash flow statement made under US GAAP is very user unfriendly, and I’m not sure a small business owner would want to spend his time on figuring out what exactly it means. That’s why you will need an accountant to explain or simplify any typical, standard reports that your accounting software may generate. Of course, if you’re happy without knowing what’s really going on, you probably don’t need to understand any of it. But for a growing and developing small business, accurate, useful financial reporting that provides valuable information, not data, is vital. It the job of a financial or management accountant to convert this data into information, and then present it to the man in charge of the business.
Now that we have established that a small business needs a professional accountant, or professional help, let’s discuss what it is that the accounting software in the market should about the above to minimize or reduce the use or functions of an accountant to reduce the overhead associated with having an accountant.
The Accounting Software Wishlist not available in existing software – by today’s standard
1. Let us first start of with drill down functionality. Let’s say, you have your balance sheet on the screen, and the figure for current liabilities looks a little out of whack (doesn’t it always?), and you want to see what makes up the massive number of US $ 2,,467,589.45. Well, if you were using SAGE, or any other third class third party accounting software, you would hear your PC make a buzzing error noise, that annoying sound that it makes on different occasions for different problems that sounds something like “tun`!” That’s because there is a lot of commercial software out there which will not allow for any drill down functionality, and that makes for very user unfriendly software, even for us accountants. I don’t know why it’s so difficult for us to be able to double click on our statements and reports, and have either the relevant ledger accounts pop up or a simple list of the items that are making up that number. Sometimes a typical, or what we may think of as typical, entry in a software does NOT come up with the desired result on the balance sheet or P & L. That simply means that the user doesn’t think the exact same way as the person who designed the software, and that’s a problem, because most johnnys who design the software have little or nothing to do with accounting. By the way, QuickBooks, Peachtree and Microsoft Office Accounting all provide for this. I’m not sure about MYOB, but I assure, SAGE should get fined for something as stupid as this. They’ve even bought Peachtree, but they refuse to learn from it.
2. Here’s what these software providers need to decipher: are you making the software for small business owners or are you making it for accountants? This question is key before we can tackle the ever famous ‘accounting for prepayments’ issue. Up to this day, all major small business accounting software does half and half. Take SAGE for instance, they have an option to account for prepayments, but it’s so horrid and hard to figure out that any normal person will be pulling his/her hair out to figure out how it works. Most irritating is the fact that you can’t see the effect of your prepayment entry until you decide to go in and CLOSE the month. So, if you were to look at your statements before actually closing the month to make sure there weren’t any mistakes, you’re screwed. Worst yet, if this is a tactic for security and internal controls in a business, it fails miserably. You won’t know what you’ve until you close the month, and then you’ll have to make a bunch of adjusting entries to fix up anything you may have screwed up. That will only cause more confusion for someone trying to pick up on erroneous accounting behavior.
It would, in fact, be simpler to add a prepayment section to the payment area, and simply ask the user how much of the amount being paid is prepayment, and then the appropriate entries could be made into the GL or PL accordingly automatically. Of course, that’s if you’re designing the software for the small business owner.
On the other hand, if you’re making it for accountants, and you’re dumb enough to not be able to figure out how to account for it automatically, why don’t you simply state that in the How-tos instead of giving a long lecture full of bullshit in Help Menu, and simply let us accountants make journal entries to account for prepayments. Well, it’s not like the software is stopping you. But that’s how I account for prepayments anyway. The prepayment options are buggy and sketchy at best, and quite frankly, even if you figure them out, they won’t work properly in Peachtree, QuickBooks, or SAGE. Microsoft has made a bit of an effort to incorporate prepayments into their new software, and it’s a decent attempt. However, it could require some further cleaning up.
3. Multiple Locations. I’ve deployed both Peachtree and QuickBooks over multiple locations. I haven’t even tried with SAGE, and given my low opinion of it thus far, I fear the day a client or an employer will ask me to do this. Of course, deploying over a network or over the internet is not as useful as one would assume. If you actually wanted to keep track of two locations from the two different locations, and have the software update everything automatically, wouldn’t that just be great.
The problems with deploying software like Peachtree and QuickBooks over a network or VPN are simple. The number of simultaneous user is limited (for many functions to one user only), and if you’re keeping track of say, multiple warehouses with equipment, your inventory management will get really screwed up. You’ll have to keep track of the same inventory different locations with different codes, and if you really want a clear report, you’ll have to export the report into excel, bunch and merge some cells, and then you’ll finally come up with the report you want. So, basically, support for multiple locations means:
a. The ability to deploy the same software with the SAME data set relevant to the specific location;
b. The ability to have multiple users logged on simultaneously; and
c. The ability to manage the books of multiple locations separately and the business as a whole.
Now we’re asking for something as complex as SAP over here, but the concept is similar. And mind you, it’s not very complex. WebERP provides an example of a software that already does this, and even though some old school executives might still believe there are possible security breaches to storing information online, that’s a rather weak argument in today’s day and age.
I took apart WebERP with another colleague of mine to customize a multiple location accounting system for a client. It was about 70% complete, but as you know with clients in Dubai, they didn’t want to pay up as per the agreement, so we had to abandon the project. A web based solution is the SIMPLEST way to manage a multiple location accounting software. A web based solution that uses AJAX will totally eliminate the need for accounting software like SAGE or Peachtree. Writing such a software is on my list of things to do. But I wouldn’t hold me to that.
4. Viewing Vendor/Customer Statements. This wish is simply more of a musing, although I think it will be a useful musing. How is that we can (or could until the 2006 versions) only print these statements. I mean, how hard is it for QuickBooks or Peachtree to actually come up with another screen to display a customer or vendor statement before printing it out. It’s either the product of very lazy project management or careless programming. Either way, VIEWING before PRINTING is not only more convenient; it is also more environment-friendly.
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Enough debunking of accounting software. Please feel free to add features to this wishlist as you deem fit. Mind you, I think most other things are already available in these accounting packages. It would be nice to be able to manage your bank account directly from the accounting software too, but let’s fact it, that’s not going to happen. Part TWO of this article will discuss which small business software is superior for small businesses, both from the accountants the business owner’s point of view.
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