A necessary evil or process enhancement?
Contrary to popular opinion, I think you can start your business without the right accounting software. But unfortunately, using your calculator, or even excel, will make it that much harder to convert over when you do start to scale. So although it’s not mandatory. Accounting software is definitely advisable.
If you’re purely an e-commerce retailer, there are a number of easy choices that link to online stores. Shopify (for example) offers several accounting software apps right in their app store.
Do the research and find one you can navigate. Quickbooks online is the most universally known but Wave is free and Xero and Zoho are rapidly climbing the charts. Remember to look for a bookkeeping system, something that will track sales, costs, and inventory. Avoid apps that only create invoices or just provide reports. You want a tool that can do it all for you.
For brick & mortar retailers, the connectivity piece is even more important. Inside your store, you will likely need a point of sale system (POS) to track inventory. Your POS is where each item is received, priced, described, sold, written off, etc. This information then flows into your accounting software, allowing you to understand how much money you made on the items you sold (versus what they cost) and how much the inventory you have left “on-hand” is worth.
There are an abundance of software packages like Retail Pro and Netsuite that combine both POS and accounting functionality. However, they mostly cost a fortune and are designed by people who have never worked in small businesses. I once decided to switch my POS system from Quickbooks to Lightspeed (another big player in this software market) and it was an utter disaster. The software over-promised and under-delivered. I lost a bunch of money putting it in and then yanked it out anyway since the functionality was awful! Don’t make the same mistake I did. Stick with something cheaper and more responsive until you’re business becomes so massive that you absolutely have to shell out the big bucks.
I went back to Quickbooks POS after that. Not perfect but much more affordable and user friendly. To be honest, I’d probably be using Square if I was launching my store today. And most POS systems have third party apps available to link into Quickbooks or Xero (which again are the most commonly used accounting software programs).
If the abundance of choices is weighing on you, start with something simple and free (or at least has a free trial). Preferably something that links directly into your e-commerce site or point of sale. Connectivity is key. The best option will depend on your business and preferences. But remember, you can change later on, especially if you’re able to import and export your accounting data from the software you choose.
This is Part One of a longer blog post: Top Ten Bookkeeping Basics for Retailers
Part Two of this series goes into more detail on setting up your sales tax rates correctly.
Feel free to email me any follow up questions you have or leave a comment below.
Justine Reed has an undergraduate accounting degree and a Masters in Business Administration. She owned and operated two brick & mortar retail stores in Colorado for 16 years before attempting (and failing) to retire in 2020. She continues to work part-time as a bookkeeper and consultant for other small businesses.
