Financial Systems for Small Business: Do You Really Need Accounting Software?

Do statements really matter?

Why spend time on maintaining and reading statements while my bank app shows me a list of all the transactions that occurred in the month?

If I need to maintain statements, I shall subscribe to accounting software like Xero and have someone manage it, while I receive all updates in an app.

This is what most small and medium-sized business owners do. Learning about business finances is the last thing on their mind.

But what’s wrong in it? 

Let me ask you a question - 

Do you know if your cash flow has dropped or increased in the last three months?

Let me simplify, do you know if you have been spending more or earning more over the last 3 months?

Financial systems are supposed to help you get an overview of your business finances real time and make those important decisions as a business owner.

When I talk about financial systems, I also talk about sustainability. The system should help your business grow and make you feel more confident and comfortable. If it is something taking a lot of your time or money than what you can afford – it is not what your business needs. 

So, what should you do as a small/medium-size business?

Option 1 – Excel sheets

Yes, the good old excel sheets are all you need in most cases.

The idea of an excel sheet is that you can collate all the information on one page, making it easy to read.

What should go in there? 

Just two things – your monthly budget and your monthly cash flow (inflows and outflows). This will give you an idea of cash in your account, profit/loss, monthly trends, and overall performance of your business. 

This would need some efforts from your end, but once a seamless system is set up, it is all about spending a couple of minutes a week and a couple of hours a month. 

Option 2 – accounting software

I am very wary when I talk about accounting software to business owners. 

I am not against it, in fact, I set up systems on Xero for clients who need it. 

But not all businesses NEED an accounting software. 

Ads make you feel that if you are running a business you need to have an accounting software. 

NO, you don’t. But, why not?

• It costs. They offer free trials and huge discounts. But that does not last long. The monthly charges are heavy for a small business.

• Software is bulky; it has a lot of features that requires set up, which in fact may not be necessary for your business

• Bulky software needs regular maintenance and review. This means additional complexity your business may not be ready for yet. 

• Setting up and maintenance costs are something you need to consider too.

• And finally, all of this demands a lot of your time and attention too.

Thinking as a finance coach, I would urge you to assess your necessity –

What are you expecting from financial systems?

Is it invoice automation?

Is it statements and reporting?

Is it paying off expenses?

There are cheaper alternatives for each of the above, which are not only simpler to set up but give you more independence and oversight on your business finance.

If it is to manage multiple revenue streams, manage contracts and projects, manage ten plus employee and a vast number of clients per month – you should consider an accounting software

But there are some, Do’s, and Don’ts:

Do – Once you have done a necessity check, approach a professional (bookkeeper or a finance coach) who could guide you on making the right decision.

Do – Always have a professional set up the software for you. So that you utilise every penny of your subscription well. And you avoid errors which would reflect your reports and statements.

Do – Decide how you want to run it – have a team, do it yourself or hire an external team. Whatever it may be, involve a professional.

Do – review your financial system every 6 months with the help of your professional

Don't – Never set up the software on your own. The initial steps need to be accurate to ensure there are no errors reflected in all your records. 

Don’t – Buy software on the first day of your business

Don’t – Hire a bookkeeper from the first day of your business, even before you have any inflow

Do – Take some time to understand and learn about business finances before making a decision about financial systems for your business.

Because the goal is not to have a sophisticated system, It is to have a system that gives you clarity, confidence and useful information to make decisions.

If you are ready to take that step – it is as simple as booking a free call with me.  

Written by
Mrudula Muralidharan
Founder and Finance Coach
Million Goals