Jan 5, 2023 — Accounting — Eric Giguere
Accounting for manufacturing companies is different from accounting for other industries. Small manufacturers must ensure that their accounting software can handle these differences. This article will explain what makes manufacturing accounting different and give you some top software recommendations so that you can find the right software platform for your company.
All our top picks for best accounting software for small businesses are cloud-based or easily hosted on the cloud. These software companies are also all well-known, which means they are well-supported by accountants and bookkeepers.
QuickBooks Online might not be a good fit to inventory-based businesses such as your small manufacturing company.
On its own, this is true. QuickBooks Online only has a limited inventory feature. However, Intuit is constantly updating it.
However, there are a number of very powerful third-party integrations specifically designed for small-manufacturing businesses that integrate beautifully with QuickBooks Online. Fishbowl Manufacturing provides a full ERP system for your manufacturing business that integrates with QuickBooks Online using a plugin built right into the software. Fishbowl is compatible with many accounting platforms. You can switch accountants easily if needed. Fishbowl can be accessed via URL, even though it is server-based.
MISys Manufacturing can be used for all your "back-of house" manufacturing accounting needs. MISys is modular. This means you can start small, and then expand as your company grows. This will allow you to keep your costs low while building your business. Unlike Fishbowl, MISys integrates only with QuickBooks and Sage products, so keep this in mind if you plan to work closely with an accountant or bookkeeper.
QuickBooks Online is supported worldwide by thousands of accountants, bookkeepers, and other professionals. This makes it easy to find an accounting provider that specializes in small-scale manufacturing. This, along with the ease of integration to software specifically designed for manufacturing companies, makes QuickBooks Online our top pick.
QuickBooks Enterprise for Manufacturing Wholesale can be hosted on the internet, even though it's a desktop-based application. RightNetworks is a trusted company that can host this software. They will provide access from any location, routine backups, and regular updates.
This version of QuickBooks offers many features for manufacturers, including assembly management and available to promise functionality to manage demand. It's easy to find support with QuickBooks Online. However you will need an accountant, bookkeeper, or someone who has worked with inventory and manufacturing functions.
Although QuickBooks Enterprise for Manufacturing Wholesale can be sold as an all in one solution, its manufacturing capabilities aren't quite as sophisticated as those found in Fishbowl and MISys. It is important to take the time to think about your current needs as well as what future features your business may require. If you will ever need advanced manufacturing features, your better bet will be to go with QuickBooks Online and a third-party application from the start.
NetSuite Manufacturing is a completely cloud-based, all-in-one solution built specifically for manufacturers. Used by large, global manufacturing companies, NetSuite has everything any manufacturing business of any size needs to run operate effectively and profitably.
With this level of robustness comes some challenges, though. NetSuite could be a little too robust for small and emerging manufacturing businesses, creating complexities where simplicity would benefit the business owner more. NetSuite is not as well-supported as QuickBooks products. This means that it may be difficult to find an accountant or bookkeeper who will support it.
NetSuite may be worth your consideration if it is your intention to grow your manufacturing operation into a large company. NetSuite is worth keeping in mind, no matter what accounting software you use for your small-manufacturing company.
Manufacturing business accounting involves a lot of inventory valuation and cost-of-goods sold. These accounting concepts are also used by retail accounting. However there are a few key differences that manufacturers need to be aware:
Manufacturers generally have three distinct inventory accounts. These accounts' balances are subject to change throughout an accounting period. To keep your accounting simple, you should have a good tracking system.
Your raw materials are the components or ingredients that you use to make your product. If you make wooden toys, the raw materials are wood, paint, nail or screw. If you make bath products, your raw materials might include shea butter, essential oils and beeswax. This basically means that any ingredient used to make your final product is considered a "raw material".
Work-in-process (WIP) is the inventory that is no longer in its raw form, but is not yet a completed product at the end of the accounting cycle. WIP inventory is not necessary if your product has a short production cycle. This means that you can complete the product in just a few days. The WIP inventory calculation does not include the cost of raw materials, but also labor costs.
The products that you have finished and are now ready to sell to customers or distributors are called finished goods. Like WIP inventory, the finished goods inventory calculation includes raw materials, labor and overhead costs.
Labor and overhead costs in retail and service businesses are considered operating expenses. Manufacturing, however, separates these costs into direct costs and burdens.
These are costs directly related to the production and maintenance of your product. Direct costs include wages paid to workers involved in creating your product as well as any costs associated with the operation of the machinery.
The production of your product cannot directly be tied to burden costs. These costs are also called indirect costs. These costs can be referred to as burdens or indirect costs.
If your manufacturing business is still very small and you are doing most of the production yourself, you probably don't need to be overly concerned with these accounting differences just yet. To make the final decision about how to best manage your accounting in this phase of your business, consult your accountant.
This is why you need to make sure that the accounting software you choose for your small-manufacturing enterprise can deal with these accounting variations as you grow.
Small-manufacturing businesses often believe they can only get the functionality in their accounting software using a desktop application.
In fact, unless it's absolutely impossible to get the functionality you need without using a desktop-based accounting product, you should always "shoot for the clouds," either directly or by choosing software that can be hosted and accessed remotely. A cloud-based solution for accounting will make it easy to:
Collaboration with your accountant is possible through cloud-based accounting software. You and your accountant can access your financial information and talk about it at the same moment, no matter where you live. This will make it easier for your accountant to give you the information that you need to make informed business decisions. It will also allow you to take a break from your business without worrying about being in the dark about what is happening with your accounting.
Automatically update your software. Small-business owners don't have the time or resources to downgrade their systems and install updates. Cloud-based software updates are automatic and do not require your intervention. Software companies rarely have to update the system during peak hours so that users don't experience any delays.
Your data is automatically secure. This is why many small businesses avoid cloud-based software because of security concerns. However, the top cloud-based accounting providers invest far more in system security than even the largest manufacturing companies could afford. Cloud-based accounting software providers have multiple redundancies to help minimize the risk that data is lost. Although this does not mean that there won't be data breaches or information loss, it is significantly reduced when cloud-based accounting software is used.
The first version of this article appeared on Fundera. Fundera is a subsidiary NerdWallet.