Accounting Software's Missing Killer Feature
Literally millions of small businesses around the world rely on Xero, Sage, or Quickbooks. They offer excellent accounting software for many small businesses, except for one key feature.
Any business that is getting serious, will need to have some kind of accounting software in place. Spreadsheets work up to a point, however, accounting software dramatically improves the efficiency and efficacy of a finance department. Any business owner wanting to understand the finances in more depth will want to produce management accounts. Accounting software is key to this. Using specialised software enforces some kind of data integrity through double-entry bookkeeping. You can keep posting sales, but if you don't get paid, your debtor balance will keep growing. You need to reconcile your bank, so that you know transactions are getting posted to the right place. Accounting software makes producing reports really easy. Xero has some great functions to design your own reports. However, one of the big problems with current accounting software for small businesses is late invoices.
Let's say you're producing management accounts for last month, and you get a late invoice. You might have accrued this value already. You will face this problem at year-end too. Your accountants make an adjustment to your closing balances for your statutory accounts.
You have two choices in your accounting software: you can date the invoice or journal the actual date on the document, or you can date it the first of the current month or year. Stricly speaking, you need to post the invoice according to the document date. That way it will be recorded on your VAT return and creditors ledger correctly, so it gets paid on time and VAT is deducted on the correct return. But it does distort your management accounts. However, if you are a bigger small-business your accounts might have been published internally. It'd be annoying to have to republish based on that new information. If you made the accrual, your management accounts don't need to be republished, but you've still got the problem with the document dates.
This is the missing key feature: period management.
Most ERP sofware (like Odoo, Netsuite, Dynamics) have some kind of period management. This means that all documents (invoices and journals) have two dates: a document date and posting date (Netsuite also uses a tax date). A document date will usually always be the date on the document. However, the posting date is the period that the cost falls into. For example, my document might be dated 10th April, but as I have closed off April, the posting date would be 1st May whilst retaining the document date of 10th April.
Some of these ERP software also have a 1-day adjustment period at the end of the year, so that you can close the year separately to each month. Meaning that you can wait for your accountant's statutory adjustments and post them into that period.
Period management could mean that more medium businesses use software like Xero. In fact, I think that if Xero added period management to their products, I think that they would be able to compete quite well against Dynamics Business Central for a lot of medium smaller-businesses. Business Central has period management, but the reporting suite is terrible.
I do hope that period management gets added to smaller accounting packages.