Years ago, most small business owners handled their accounting the old-fashioned way: manually. They would use intricate, homegrown spreadsheets to keep track of everything from accounts receivables, invoices and even payroll. Accounting software simply wasn't available. Fortunately, those those days are long gone and business owners can enjoy the convenience of using financial accounting software. If you've never used an accounting system for your business, this article will be a good introduction to finance software. Here are 6 core components of every small business accounting solution.
Component #1 - Accounts Receivable
Chances are, some of your customers don't pay for your goods or services immediately. Instead, you might have an arrangement whereby they send payment 30 days later (commonly called "net 30"). If you're not using an accounting bookkeeping program to track your accounts receivable, you can easily lose track of who owes you how much and when the payments are due.
Component #2 - Accounts Payable
Your business likely buys materials and services from other vendors. Plus, there are bills that need to be paid each month. Most accounting programs include an accounts payable component which helps you track and plan upcoming payments.
Component #3 - Invoicing
If you don't get paid, your business fails. Most of your customers probably wait to receive an invoice before sending payment to you. While it's possible to create these manually, doing so can quickly become a tracking nightmare. Finance software usually includes this component, making it easy to create, review and track your invoicing process.
Component #4 - Inventory Management
There's nothing worse than having to tell a customer that you don't currently have the product they want to buy in stock. Aside from an unanticipated wave of sales wiping out your inventory, the problem is usually related to poor inventory management. Most basic accounting software (for example, the well-regarded Peachtree accounting package) allows you to easily track the items you carry and the quantities that you currently have in stock.
Component #5 - Purchase Orders
When it's necessary to replenish your company's inventory, you'll typically need to create and print a purchase order. This details the product you want to buy, the quantity and the the price at which you'll buy them. Your financial software should be able to produce purchase orders easily. What's more, this component should integrated automatically with your accounts payable, making tracking seamless.
Component #6 - General Ledger
This is where all of the other components in your accounting system converge. It considers your accounts receivable and payable, outstanding invoices and inventory to keep track of your company's assets and liabilities (as well as other information). Handling the general ledger alone is a full-time job for some companies. Accounting software can automate the task.
Planning For The Future
There's little reason to handle your company's accounting without the help of financial software. Most programs are relatively inexpensive and can save you countless hours and frustration. Even less robust solutions (for example, Microsoft accounting software) can automate the most important tasks, leaving you free to run your business. When you're ready to invest in a program, use the list above to ensure it has the components that your business needs.