Accounting software guide: Sequence a move and keep history

This accounting software guide treats choosing accounting software as a comparison problem, but it is mostly a sequencing problem. Businesses that regret the decision usually did not pick the wrong package; they moved at the wrong moment, in the wrong order, with nobody having decided what the old records were for.

This guide is about that sequence: when to move, who decides, what has to be settled before anything is signed, and how the cut-over actually runs. Feature testing has its place and it comes later than people think.

What to take away

When to move, and when not to

The trigger to look for is not growth but a specific pain with a name.

Reconciliations no longer fit the time available, and a report you need and cannot produce.

A second person now has to be in the books at the same time, or an obligation you cannot meet from where you are.

Move at the start of a financial year if you can, because the comparatives and the opening balances are cleanest there. The start of a quarter is workable. Mid-month is the worst option in every case, and mid-year with stock is the worst of the worst.

Do not move while any of these is true: the current books are not reconciled, the busiest trading weeks of your year are within a month, or the bookkeeper who runs the current system is about to leave. The third one looks like a reason to move quickly. It is a reason to write the routine down before anyone goes.

Decide these three before you look at anything

What the account structure will be. Not the software's default, yours. Which accounts you want to see on a report and what each means. This is a chart of accounts exercise, it takes an afternoon, and doing it first turns the migration from a redesign into a transfer.

What comes across. The usual answer is opening balances plus the current year's transactions. Bringing ten years of history is rarely worth what it costs, and the old system can be kept readable instead. Which records have to remain available, and for how long, is a tax-record question, not a software preference. IRS Publication 583, Starting a Business and Keeping Records, says many tax records should be kept for three years, while some situations require longer; employment tax records should be kept at least four years. The IRS adds longer periods for specific cases: keep records for seven years if you file a claim for a loss from worthless securities or a bad debt deduction, six years if you leave out income that you should have reported and it exceeds a quarter of the gross income on the return, and indefinitely if you do not file a return. Whichever period applies, the old system or a full export of it has to stay readable until then.

Who does what. Who codes, who approves, who releases payments, who has administrator rights. Deciding this in advance means the user roles get set up once, instead of everyone getting full access on day one and nobody revisiting it.

The selection itself

Once the three are settled, testing a package is quick, because you know what you are testing for.

Two packages most small businesses weigh are QuickBooks from Intuit — an accounting software package first introduced in 1992, aimed primarily at small and medium-sized businesses, whose product line by 2002 included Basic, Pro, Premier and Accountant editions — and Xero cloud accounting, sold by subscription based on the type and number of entities managed by the subscriber. Before you sign, ask for a full export of transactions, ledgers and documents, and check that it opens in a format you can read without the vendor's software.

Take one awkward transaction per kind you have. Use a customer invoice with a part payment and credit note, a supplier invoice split across accounts and coded to a closed period, and a bank line that is a transfer, not a sale.

Then add the transactions peculiar to your trade and work each one through a trial: a customer deposit taken before the work starts, a job part-invoiced on a percentage of completion, a payroll run that changes mid-period, a supplier invoice in a foreign currency, and a stock item returned after the period has closed.

What you are watching for is not whether it can be done, but how many steps it takes and whether the result is checkable afterwards. A package that handles your awkward cases in four steps and leaves an audit trail will be pleasant for years. One that handles them in nine will not, whatever else it does.

Involve your accountant before you sign, not after, because they will work in the system and know which transactions are hard. They can usually tell you within ten minutes which requirements are unusual.

Ask them simultaneously which obligations the package must support, starting with IRS Publication 334, Tax Guide for Small Business, for federal business-tax guidance. Identify the returns and schedules your business actually files before signing; a filing the system cannot produce is a cost you meet every period.

The cut-over

The mechanics run in seven steps. Step 1 opens the cut-over and step 7 closes it:

1. Close and reconcile the old system to the changeover date, and confirm you still hold the underlying documents behind it, which the federal guide to starting a business and keeping records describes. Every joint: bank, receivables, payables, stock, loans, tax accounts. This is the step people compress and it is the one that determines whether anything works.

Steps 2 to 6 run between closing the old system and that final comparison, in this order:

Step four is where most migrations go wrong, because entering open items one at a time is dull and the shortcut is obvious. The shortcut costs a year of aged reports that cannot be read.

After the move

The first month end in a new system takes about twice as long. Expect it, and do it properly rather than deferring the reconciliations, because a new system with unreconciled joints is worse than an old one with reconciled ones.

Keep the old system readable for as long as the records need to be available, and write down how to get into it. The person who knows the password is a single point of failure that nobody thinks about until it matters.

The routine that has to run every month afterwards is the same in any system, and it is set out in the bookkeeping foundations guide, which covers the monthly bookkeeping routine. If the new package makes that routine harder rather than easier, something in the setup is wrong and it is worth fixing in the first quarter rather than living with.

Common questions