New business owner using bookkeeping software

How to Choose and Set Up a Bookkeeping Software System for Your Small Business

If you are like most small business owners, you know you need a software package that will handle your bookkeeping and accounting needs, but you just aren't sure which one makes the most sense. Is it QuickBooks, FreshBooks, Xero, Sage 50cloud Accounting (formerly Peachtree), or one of the many others that are out there? And once you do buy a package, what's next? Can you really just plug and play, or are you going to need support?

Steps to choosing a bookkeeping software system

1. Talk to your accountant

A good place to find these answers and more is your accountant. He or she should know your business intimately and can recommend the best package and features you need. Many accountants have a preference for certain packages, and since they can be a valuable resource after your purchase, listen closely to what they recommend. Consumer Reports can be another valuable resource.

2. Analyze your needs

Whether or not you turn to an accountant for advice, take the time to do an analysis of your needs. Do you need to perform high-volume sales orders? Large credit card transactions? Inventory tracking? Write down your requirements in a checklist. Mark which requirements are critical and which ones are just desired.

3. Look for a system that will offer ongoing support

When it comes time to purchase, because the cost of these packages is rarely more than a couple hundred dollars, it's probably not worth wasting too much time looking for the best deal. Unless you have very specialized needs, it's smart, however, to pick one of the major brands, such as Peachtree or Intuit's QuickBooks, because these companies will likely be in business (and offering support) for as long as you are in business. They also have extensive online support and a community of advisors that can help you along the way.

4. Test the software

Look for a package that you can test. Find out if it is easy to use (although that is a bit of a misnomer, more on that later). If you are going to have an employee handle your accounting, make sure he or she tests the software as well. Find out if the software program works well with other applications such as Excel.

5. Will the system grow with your business?

While it's difficult to know exactly what your needs are going to be in three to five years, take a guess. You want to buy a software program that will be able to grow with your business—at least for the near future. Look for limitations on the total number of users and the type of reports available.

Be careful here. Entrepreneurial dreams often don't match reality. Don't go top-of-the-line and spend more than is necessary. Even if you believe in five years you will need a sophisticated accounting program, remember that even QuickBooks has an enterprise edition that can be customized to fit your needs.

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How to set up your bookkeeping software system

Once you have purchased your software package, get help setting it up and learning it. All the software packages talk a good game of how easy and intuitive they are, but there are numerous ways to go wrong. "The beginning of the learning curve is tough," says Tina Anderson, a small business consultant and a QuickBooks ProAdvisor.

Consultants, who charge anywhere from $45 to $150 an hour, can help you correctly set up your program, including the chart of accounts, and give you a tutorial on key accounting concepts. It's better to spend a few bucks and get good advice upfront rather than waiting until tax time to discover costly errors.

To find a consultant, first ask your accountant. He or she might be able to help you out. Also, visit the website of your vendor. For example, QuickBooks has a list of what it calls ProAdvisors.

Even if you hire a dedicated bookkeeper, make sure you learn the program yourself. "The business owner had better know how it works; otherwise they are just begging to have someone steal from them," says Anderson. "The more they know the better off they will be."