You’ve just gotten a chunk of Series A money. And you’ve gotta make it last. But you need equipment, a bigger office space, more employees, sales revenue, and most importantly, a way to track of it all. So what do you do? You get an accounting system.

An accounting system provides many benefits: the first is less clutter so you’re more organized as the figuring is done electronically; the second is an at-a-glance dashboard to reveal how your business is doing at a moment’s notice.

Okay so, which accounting system do I buy? There are so many out there!

This article outlines the basics of start-up accounting and then compares three popular accounting software systems, QuickBooks Desktop, QuickBooks Online, and Xero, to see how they stack up for your business.

A key first thing is to know which system your accountant is using. More than likely, it’s QuickBooks. QuickBooks is by far the most popular choice for small businesses. However, ask your accountant what they recommend.

Other considerations, from must-haves to nice-to-have features, must also be taken into account. Below is a brief, albeit not all-inclusive, list to get you started.

MUST-HAVES

• Accounts payable, accounts receivable, and a general ledger
• Invoicing
• Income and expense tracking
• Financial report generation
• Client and vendor management

NICE-TO-HAVES

• Automated functions like billing, recurring payments, and past-due notifications
• Quote and Estimate Creation – premade and customizable templates to create quotes and estimates for clients, and with an option to automatically convert them into invoices
• Tax Preparation – features such as automatic tax calculations, multiple tax rates and tax reporting, and the ability to instantly email all necessary data and files to accountants
• Also, multiuser access and payroll processing are nice to have.

So What Do I Recommend?

Here’s a quick comparison of three popular systems to help pick the one that works for you.

QuickBooks Desktop

• Pros - Best for small- to medium-sized companies with limited complexity and few remote users. Excellent features. Has optional integrated payroll and inventory modules. Allows direct deposit to employees and vendors. Most small business accountants use QuickBooks.
• Cons – More expensive initially; requires a perpetual license for all users plus the server. QB Desktop can require extra storage space on your computer, as well as regular updates to ensure compatibility with newer versions of Windows or macOS. Desktop does not offer a mobile app, making it difficult to access on-the-go. (Though this has never been a deal breaker.)

QuickBooks Online (most recommended)

• Pros – Great for small businesses with many remote users. Low monthly subscription price is good for cash-conscious startups. It has all of the basic functionality of Desktop, and has optional integrated payroll and inventory modules. QB Online has advanced search tools for quickly locating specific information and it is easier to query information than Desktop or Xero.
• Cons – Slightly less functionality compared to QB Desktop. Not great at inventory.

Xero

• Pros – good for small companies with remote access. Best pricing for 10+ users (monthly subscription). Better for bookkeepers versus accountants.
• Cons – Inability to perform some basic accountant functions such as posting journal entries to cash, and creating quotes. Additionally, transaction detail does not separate the vendor or customer name in its own field -- this has to be done manually, making the data useless for many reporting purposes. Limitations on the number of bank reconciliation items. It also lack integration capabilities with many popular third-party applications. Support is limited to email with long response times. Not as widely used by accountants, so peer-to-peer support may be difficult to obtain.

The bottom line is assessing what is best for your company can be challenging because each company has a unique set of requirements.

The best first step is to ask a subject matter expert, like me, to assess your specific accounting needs and recommend the system that will work best for you.

Start-ups need to get their accounting system set-up early on to increase their chances of scaling to a billion dollars in the most efficient manner possible.

For over twenty years, Kim Lain has helped nearly a hundred startups -- nine of which have gone on to become unicorns! Will you be number ten? Contact Kim at kimberly@finopsadvisor.com for more insight into finance and accounting processes and systems, fractional CFO advisory assistance, or just to say hello.