When used properly and fully integrated into your business processes, your accounting software can provide some serious benefits. Using QuickBooks, for example, you can track expenses, identify areas of the business that aren’t profitable, and get a handle on the overall health and profitability of your enterprise. You can manage everything from payroll to vendors to invoicing. There is one thing, however, that your accounting software must do, and must do correctly:
Collect, record, and analyze tax information.
You can keep a ledger easily enough, and there are plenty of ways to bill clients without QuickBooks. (Arguably, these are tremendously inefficient, but they’re certainly possible).
What you can’t do without a good accounting software package is to be sure that you have everything you need at tax time. QuickBooks gives you all of the data you need to prepare your taxes, and it does so with very little extra work from you throughout the year.
Specifically, your accounting software should be able to correctly categorize expenses, identify and categorize potential deductions, calculate payroll taxes, and more.
In an ideal world, your accounting software will do exactly what QuickBooks does in terms of taxes: track all of your business data and put it into a format readily used by your accountant or your small business tax software.
Taxes are serious matters for small businesses. If you get audited and your records aren’t accurate or they aren’t organized properly, you can find yourself spending both time and money trying to prove you filed your taxes correctly. Even then, without good accounting software, you’re likely to be found wanting, and can wind up with a huge tax liability plus penalties. While QuickBooks doesn’t guarantee that won’t happen, when you and your accountant use it properly it seriously minimizes your risk.