It is a common misconception that all accounting software aimed at small business is the same. This couldn’t be further from the truth. There are different products in the market to meet different business needs that all come at varying prices all with their own pros and cons. It is the purpose if this article to explain the different types of accounting software and to allow you to make an informed decision about what type of accounting software best suits your business.We will start by focussing on the term SME as we believe this best explains the three types of small business that exist – small, medium and enterprise. Whilst it is right to bracket all of these types of business together they all have very different characteristics and needs. As a result depending on which one of these brackets your business sits in will have different repercussions on your requirements from your accounting software.1) Small Business – are characterised as an SME business that has just starting out, freelancers or companies that have relatively small revenue lines into the business. Owners of these businesses are very focused on all capital expenditure and ensure that all spends are tangibly linked to driving growth within the business. Objectives at this stage are to achieve sustainable income lines into the business in order to stimulate growth within the business.2) Medium business – Slightly larger SME business that now have sustainable revenues and have achieved solid growth. It is likely that medium businesses have recruited some employees to facilitate the new level of work that has to be completed. Medium businesses are looking for increased structure from their financial management as well as a way of monitoring costs and expenses as employees in the business grow.3) Enterprise Business – This is the largest type of SME business. Businesses of this scale have tended to grow in size, stature and operational complexity. Department structures will have now taken place, business administration increased with human resource management becoming more prominent in the business. By having additional scale and complexity in the business there are increased requirements for support with driving process efficiency in both financial and operational management. The larger more complex accounting products cater for these demands at an additional premium.It is clear when looking at the above 3 types of business how it would be virtually impossible for a software company to make a generic small business accounting software system to cater for all budgets and needs. A small business would require a significantly less complex product than an enterprise small business. This may appear quite an obvious statement to make; however, there are many SME owners that still believe that if they purchase a generic product specialising in small business they will have a great product designed for their business. For this reason I wanted to be clear toward the two main types of accounting software that exists.1) Bookkeeping Software – Bookkeeping software packages perfect for a business that simply wants to manage their incomings and outgoings in an effective compliant manner. They enable an owner to input key information sources such as sales income, purchase expenses, cash and bank transactions. The accounting software takes these pieces of information and automates the double entry bookkeeping principles by producing simple accounts payable, accounts receivable and general ledger accounts. These basic accounting software features are more than enough for an SME owner to understand their financial position and complete end year reports.2) Sophisticated accounting software solutions – The enterprise small businesses are likely to want their accounting software to do more than simply work out their balance sheets. Because of the additional business complexity accounting software features such as fixed assets registers, inventory/stock control, job costing and payroll become appealing. All of these features allow an enterprise small business to manage their business more effectively by managing their assets, providing support on how to manage stock control and managing human resources effectively. These additional features enable an enterprise business to not only to manage their financial accounts but also to drive efficiency within the business.The medium small business sits in between these two types of accounting software. Choosing the right accounting software for a medium business completely depends on the businesses particular requirements of the business at the time of purchase. There are many accounting software products in the market that are aimed at the medium business market and all have pros and cons in terms of features. Some have a greater emphasis on HR related features some have greater financial forecasting and modeling capabilities. The only way to ensure that the right product is purchased is to go through a thorough exercise of mapping products to business requirements.Whatever the size of your business it is critical that you base any decision to buy accounting software on the particular requirements of your business. Don’t be swayed by brand or recommendations do a thorough requirements tracking exercise and use these requirements to guide whatever you decide to buy.
A good credit score is critical to business success and this seems simple enough. However it plays out in many different ways. When a new business starts out, it makes sense to keep costs low and save time by simply operating the business as a Sole Proprietorship. As the business becomes successful, the business owner wrestles with many aspects and one of these includes if and when to move from a Sole Proprietor to a separate legal entity such as a corporation or LLC. This is an important decision as legally separating the business assets from the owners personal assets may provide some protection if the business loses a lawsuit. It also helps when the business grows and needs access to finance or capital to grow or wants to apply for credit from suppliers. Moving into a new legal entity can be a good business decision.One of the reasons to consider when making this move is that it allows the owner to separate their personal and business assets. Personal assets are fairly obvious as they include the family home, car, family bank accounts and personal effects. The business assets are also fairly obvious and include items such as the fixtures, furniture and equipment, the inventory, goodwill items such as the name of the business, and any intellectual property you as the owner create.Hopefully from day one of opening the business, there is also a separate checking account and bank deposit book for the business that is kept separate from the business. This separation may mean if the owner is sued, if the legal action has any negative outcome may only touch the business assets and not the personal assets. Plus there is always insurance to help mitigate the owner’s risk.As the business grows, however, the business may have the need to borrow. To manage that risk, it is time to separate the personal assets from the business assets. One of the main reasons to do this is so that it protects the personal credit and credit score of the owner.With the business assets sitting in a different legal entity, there is a need for the business owner to manage the credit and credit score not only for themselves personally, but also for the business. This is not to say that a business owner can be loose with their business credit and walk away from money they owe to others. However, the system we work in puts a high value on our credit score for so many aspects of our personal and business life.This applies especially when borrowing money, buying a car, applying for a job etc, it is critical to manage each credit report and score in its own right. If something untoward therefore happens that means the business has to close down, the personal credit score and report of the owner is not damaged and life can go on.This applies equally to a buyer that wishes to buy a business. With the many personal bankruptcies from the housing crash and the difficulty trying to get a job, many are turning to buy a business. However, the banks are not willing lenders even for SBA loans if the borrower has a personal bankruptcy even if it goes back many years.The financial system provides a lot of incentive to manage money correctly. Interest paid is able to be deducted to lower tax payments, credit is available from suppliers for a period of time of say 30 days so sales can be made in advance of payment, and many other benefits. Managing and protecting a credit score is a critical requirement to enjoy all the upside.
Make sure the business has the potential to start generating cash flow immediately. No matter what people say every worthwhile business option should have the capacity to do this.What is your financial vision?
Will this business serve your primary aim?
How much money do you need to live the way you wish?There are few things worse than investing time and energy in an opportunity that is going to die. To get a feeling for the inherent strength of your business opportunity, do an offline search to see if the business is stable enough.How does the seller benefit from selling this business to you? You may be paying to get into something, but a one-time payment for a business opportunity is rarely a recipe for long term stability. The seller should be driving long-term income from it to ensure any long term support for you: classics are hosting fees, affiliate fees and royalties from compulsory products, upgrade fees and so on.How does it make money? How do you make money out of it? How much? What are the projected returns? How certain are they? How much can you make?
What are the ‘exit’ costs if you simply want to stop playing?If it is reasonable to assume that this business can serve your primary aim, it is worth pursing. If it is unreasonable to assume that it can, then no matter how exciting, interesting or appealing the business, forget it. Walk away from it. It will consume too much of your precious time and prevent you from finding a true opportunity worth pursing.Mark Victor Hansen says that:
“Prosperous people have always known two truths: the importance of having multiple streams of income and the power of residual income”.Paul Zane Pilzer, a leading US economist, entrepreneur and author of the book ‘The Next Trillion’, has come forward in the last 2 years to predict that the wellness industry will be the next trillion dollar industry by 2010.He goes on to predict that this burgeoning industry will actually outstrip the internet in global expenditure.The wellness industry boom is largely driven by the population explosions that produced the ‘Baby Boomers’. For the first time ever, there are more older people than young people. The ‘Baby Boom’ generation has more disposable income than any other generation. They like to spend money on themselves and their health and well being is of primary importance.The wellness industry encompasses anything that can potentially make people feel good, look good; live better, live longer so the product and service opportunities are enormous.In addition, the internet industry is still growing and any business must capitalise on the opportunities for marketing, sales and even operational efficiencies through the internet.Does your business benefit from the explosive growth in one of these industries?
What about market share?
How many people in the market can you capture with your business product?
Is it needed by the majority of people?
Is it consumable? – Will they come back to you for more?There is no point going to the effort of building a client base if they only need what you have to offer once in their lives.An associate of mine recently started a business distributing steam cleaners. Now these are ‘top of the range’ European cleaners with quality branding and a very recognisable name. He had a great passion for them which is why he spent tens of thousands of dollars setting up contracts to be the sole distributorship for this product.What he failed to consider was the very small, non-consumable market that these appliances had.These were very expensive machines that the average household would be unlikely to invest in and if they did choose to then it would be a once off purchase as they were unlikely to need replacement within 20 years!What your business must establish is a client base that comes back to you every week or month to re-order another quantity of product or service until the day they leave this earth!Paul Zane Pilzer discusses in his recent book ‘The Next Millionaires’ the types of business marketing strategies that successful people will capitalise on in the future.Disruptive technology – is something new that comes on the market that completely changes consumer focus and also offers something of such a greater benefit to the consumer that the current market standard becomes insignificant.Remember good old vinyl records? We didn’t see them for dust after the CD was introduced and what about traditional versus digital camera technology? The typewriter versus personal computers?Does your business offer the best possible product or service on the market or entering the market?Paul Zane Pilzer also reports that new wealth is being created by people who distribute things rather than manufacture things. Physical distribution is being replaced by intellectual distribution which is more about educating people about the product or service and how they can benefit from it.What makes your business opportunity different to others?Have you found a niche within the industry you have chosen to work within?By understanding the industry you have chosen to purchase a business in you can often uncover a different angle on a service or a more unique product. Somewhere there is always an angle. Often more established companies can get used to ‘business as usual; and that’s your opportunity!