In  Hitchhiker’s Guide to the Galaxy, a computer named ‘Deep Thought’ is called upon to respond to The Ultimate Question of Life, the Universe, and Everything.  Answer – the number 42.

From the vantage point of an accountant, I’m often asked to respond to the ultimate question of online accounting software.  Opting for the right online accounting package has long been an important question, but never more so than in light of the challenging year ahead for many businesses.

Sure, it can be a lot of hassle converting from one system to another.  But, the fact is, if your current system doesn’t deliver, then you’ll continue to suffer until you make this necessary change.  But, what changes should be made when it comes to accounting software?  Answering that is like estimating the length of string.  A lot depends on what the software will be used for.

The market for accounting software can be split into three main groups.  There are the large business-solutions costing millions and requiring significant resources to implement and use.  For small to medium businesses there are a number of options.  Finally, there’s self-made or generic software – often spreadsheets that have been created, copied and modified.  This last category is risky to use, prone to errors and data loss, and I wouldn’t recommend it unless you have very simple and low-volume business.

Rather than going through the many software products on the market, one outstanding product called Xero – has the key factors to make it a great online accounting package and investment.

• Ease of use. Unless you feel comfortable deploying a line of software, you’ll dread every time you use it and never take advantage of the full functionality within the application.
• Intuitive features. Rather like a great street design in a town you’re new to, the best accounting system will easily guide you through the processes. Even more so when there’s good human backup, like online help — to assist when you’re unsure of finding your destination.  The back-up, moreover, needs to be prompt and reliable.
• Cash and accrual. This is accounting geek-speak, but it’s an important concept because, for most accounting reports, accrual — recording the sales and expenses when they are invoiced rather than when they are paid — is the basis.  For most business owners as the cliché says, cash is king; it’s what drives an operation.  So a system that delivers both cash and accrual reporting without manual intervention, benefits everyone involved!
• Links to bank transactions. Most transactions these days go straight into bank accounts. Automatic downloads from your bank into your accounting software are going to save you and your bookkeeper significant time and frustration.
• Links to tax returns. Ditto the above. After all, why re-enter or copy information when the accounting software can do it for you in respect of the tax returns? (Of course, this does not remove the requirement to review the information for accuracy and correct treatment.)
• Security concerns. Data security and identity theft are increasingly in the news for a reason. A system with strong security features is essential. The on-line banking security should be the benchmark.
• Cost vs value. Many people, alas, select software purely on cost.  This is important, but of greater importance is the value provided.
• Ability to clear errors or backup. Too often the biggest disaster for business is loss or corruption of the business’s financial records. The time and effort required to re-create the financial records is enormous.
• Ability to share information. I often get frustrated, as do clients, with having to take a copy of the system to complete year-end accounts and tax returns, while the business needs to keep using the software because the transactions keep going.  Obviously, a superior system needs to address this problem.
• Access: Mobile technology has lifted our expectations on access to … well, everything. Software that can be accessed remotely is useful for business with more than one location. The ability of multiple users to see the same information at the same time is very useful, especially in situations where you’re explaining the situation to an accountant, and when they would like to access the software and see the information the same as you.

Unlike Hitchhiker’s Guide to the Galaxy, accounting is not comical.  It can certainly become a horror story without the right tools.

Stephen Nicholas is CEO of Openside – www.openside.co.nz. For more information on Xero see – www xero.com