Let's start with an all-out full disclosure: I am CEO of an accounting software company called Billy. But two things to consider before writing off this article: 1) like anything else, if the need didn't exist, we wouldn't be here; and 2) because of that, we know why the need is there. Be it a necessary evil, or a blessed relief; more and more freelancers, entrepreneurs, and SMBs are using various types of accounting software. In fact, in a recent survey by Viewpost, only 18% of business owners are not using accounting software. But why?
This stock image cost us $20,000
The simple answer is that accounting software ultimately saves you money, and even better, saves you time (anyone in business for him/herself will tell you that really is even better). Let's examine a few ways how this is true for any business.
1. You guessed it. Taxes.
Fact: stock photos of taxes always pretend computers don’t exist.
This is probably the first thing that came to your mind, and it's true. If there was no other reason to use accounting software other than dealing with the headache that is the IRS, it would still be worth it. Say it costs $100/month for a premium software (note, this is very high. Never pay this much). If it saves you at least $1200 a year in taxes saved, even that expensive software would justify its own cost.
Well, the average SMB spends about 41 hours a year on tax prep. Say you pay yourself an hourly rate of about $30. That's already $1230 in time-cost right there! Let alone the actual money you'd save by getting every tax deduction possible. And even if you have a tax professional do your taxes at the end of the year, how much do they charge per hour? Accounting software would drastically reduce your bill by cutting down on how much work your tax professional would have to do.
Taxes are boring and expensive. Reduce both of that by being proactive with accounting software.
2. Don't lose track of a single cent.
No matter how meticulously businesses keep track of all their invoices on an Excel spreadsheet, something always seems to slip through the cracks. A common complaint we hear from SMBs is that it's a pain to manually keep track of which clients have been invoiced, which have paid, which are late, which need to be reinvoiced with additional late fees, which requested to be invoiced again because their dog ate it; the list is endless. And if that Excel isn't up-to-date, mistakes can pile up and you may not be collecting all the money actually owed to you.
The entire point of accounting software is to eliminate this aspect of the process. It minimizes human error and automates invoicing and appending late fees. It creates reminders so SMBs, and especially lone freelancers, won't lose track of any due income. As we wrote about previously, if you're a freelancer, you will deal with late payments. It's inevitable. The right software will help you deal with this reality and not let these late payments be forgotten.
3. Tracking expenses = bigger savings.
This is the type of dog used for tracking, right? Relevant!
Tracking your business expenses sounds easy. But most business owners quickly realize how difficult a task it actually is in practice. Receipts get lost, purchases don't get itemized, credit card statements can be vague, you accidentally buy things with something called "cash," and the all too familiar thought of "oh I'll definitely remember this" has a surprisingly high failure rate.
But tracking where your business' money goes is crucial, not just for taxes, but for simple financial awareness. Without an accurate expense tracking procedure in place, it's impossible to tell if your business is as financially healthy as you think it is. We asked Carey Young, a professional accountant, why this is so important for SMBs and how this can lead to more savings:
"By tracking your expenses well, you can easily tell how much you are spending with a particular vendor or on a particular type of supply/cost for your business. This will enable you to possibly negotiate better prices/terms with your vendors if you can explain to them your value as a customer. Also, you can more easily determine if you are spending too much in an area and need to look into getting bids from new vendors."
Your accounting software will streamline this process and make it less of a hassle. Be it tracking monthly costs, or expenses on the road, you'll have the documentation to save time come tax season as well as full awareness of how best to spend (and save) your money in the months to come.
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There are plenty of other benefits to using accounting software: ease of access to your financial information, cloud-based access to your data, reduced overhead cost for total accounting expense, easy invoicing, security, automation, and more. For the time and money you will have to spend anyway on accounting, investing in a cost-effective solution is as close to a no-brainer as you can get in improving your business. But hey, if you're determined to be in the 18% of business owners happy to deal with Excel, more power to you! We'd love to hear how you do it!