Whenever we reach a new patamar in information technology, its first commercial application is usually in the sphere of accounting. This was as true for the development of spreadsheets in the 1970s with Visicalc, as it was for ERP programs in the 1990s with the dawn of widely available internet, as it has been for a plethora of accounting software tools that have taken advantage of cloud computing over the past decade.
The principal reason why accountants have been so fast to innovate in technology is probably because there’s always a new pain point for their profession to address. In the beginning, that meant invoice processing and calculation. These days it can mean anything from sophisticated auditing software to collaboration tools.
The following are just some of the ways in which accounting software improves the lives of small business owners and their accounts on a daily basis.
1. Increases productivity
At its most basic, the goal of the first computer was to compute more productively. This is essentially a synonym for accounting more productively. Accountants were arguably the biggest early beneficiaries of advances in information technology. The academic James Kwak has said of Microsoft Excel, which at its heart is an accounting program: “Microsoft Excel is one of the greatest, most powerful, most important software applications of all time.”
Excel is just one facet of a much larger pool, however. There’s also Intuit’s QuickBooks, first released in 1998, and now used by over 5.6 million businesses in the United States. Most of those businesses are run by entrepreneurs with only a cursory knowledge of accounting. Modern accounting software of the likes of Excel and QuickBooks means that’s all they need. Multiply 5.6 million by man-hours saved, and you start to get a feel for the scale for the productivity generated by these tools.
2. Saves Costs
Closely aligned to accounting software’s ability to increase productivity, is its capacity to save costs. Most digital accounting tools aimed at the mass market are now marketed through subscription models, whereby small businesses can expect to pay a few hundred dollars per annum for a service that once cost them tens of thousands of dollars per year. The payroll function offered by Sage is a case in point.
Most businesses lease at least some of their equipment and machinery, which involves complex lease contacts, replete with terms and conditions. Trullion is a lease accounting automation software that uses AI to extract the relevant data from these contracts, exporting it to the company’s ledgers, workflows, and report functions. The time savings for financial teams and external auditors – who can click on the data in these reports and be brought directly back to the original contract – is huge.
3. Enables Collaboration
As mentioned at the outset of this article, accounting software was one of the first software applications to enjoy the benefits of cloud computing. Companies, finance teams, and auditors can now all be connected to the same documents in real-time. Thanks to the cloud, every transaction and the corresponding journal entry can be viewed by the relevant stakeholders, thus leading to a level of transparency and collaboration that simply didn’t exist before. Tools offered by FreshBooks and Financial Force are just two such examples.
4. Reduces Errors
There is not an accountant alive today that is not familiar with error messages like #REF!, #NUM!, and #VALUE! in their spreadsheet calculations. Without software, most of these errors would continue to exist – at least in the short-term, while the accountants grappled to understand why their balance sheet wasn’t balancing, or why changes made in the debt schedule weren’t being reflected in the financial statements.
Finding and reducing accounting errors is the bread and butter of accounting software. And while this is largely taken for granted, it generates huge value. If we equate small errors with essentially being poor quality data, we can put a figure on this. Research conducted by Gartner suggests that the average financial impact of poor quality data on an organisation is $9.7 million per year. The aforementioned examples of Trullion and QuickBooks are prime examples of where human error is minimised thanks to the functionality of the tool.
5. Generates Insight
Taking all these points together, we’re led to accounting software’s greatest contribution to any business: the insight it provides. It is uncontroversial to suggest that, thanks to accounting software, millions of business owners now have a better handle on their company’s finances than ever before. Financial statements are easier to interpret. Budgets are easier to construct and analyse after the fact. And accurate Pro-forma statements are easier to project. This is the difference that accounting software can make to your business.