4 Downsides of Not Using Accounting Software

Small businesses have an array of accounting software applications to choose from when first starting up. Programs like QuickBooks track financial transactions, generate invoices, and print out reports. Yet some businesses try to save some money by doing the books manually. Although this may save a few pennies upfront, it can cost a business a significant amount of money over time.

Here are four downsides of not using accounting software:

1. You waste time. Recording transactions and writing out invoices and checks manually is time-consuming. An accounting app can post transactions automatically in the background as you create an invoice or write an electronic check. In a manual system, each piece has to be done separately. Allotting extra time to bookkeeping tasks takes time away from other, more profitable, activities that you could be doing, such as strategic planning or marketing.

2. Your chance of making errors increases. When you keep the books manually, there is always a chance that errors will creep in, whether in totaling ledger accounts incorrectly, transposing numbers, or recording transactions in the wrong account. In a computerized accounting system, checks and balances run in the background to ensure the integrity of the data. Transactions are automatically balanced, so you don’t have to remember (or learn) how to do double-entry bookkeeping.

Some programs warn you that you are about to post an unusual transaction to an account, so that you can double-check it. When writing out transactions manually, you may not discover errors until you try to balance the bank account or produce a balance sheet — and then you must backtrack through your work until you locate the problem.

3. You lack reports. One of the most critical jobs you have as a small-business owner is strategic planning. Being able to analyze your historical performance helps you project your future performance. It also lets you know whether your business is headed for the rocks, giving you time to reassess and make adjustments.

Accounting software allows you to view your company’s performance from different vantage points: offering perspective on your current balance sheet, income statements, and accounts receivable aging, for example. When your accounting function is handled manually, you must create reports from scratch every time you want to know how your company is doing. This doesn’t allow you to compare information period-over-period to spot trends or change report dates to analyze different points in time.

4. You won’t have any backup. If you manage your books in a manual ledger or journal, one cup of spilled coffee could damage your accounting records irreparably. If your office suffers a fire, you could even lose the source documents to be able to re-create your books. Digital files can be backed up daily and stored off-site, so that they are always available if you need them without having to start over.

Working with a manual accounting system can be costly over the long run. Investing in software helps you become a better entrepreneur.