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How to choose small business accounting software

With lots of different solutions vying for your money, knowing what to look for when choosing the best accounting software for a small business makes your decision easier.

There has been a revolution in small business accounting software over the past decade. A host of affordable online accounting software has made it easy for small businesses to manage their finances. The good news for cash-strapped start ups is that most small business accounting software is available as free trial or basic versions. This means you can try out different packages to help you choose the best small business accounting software for your company.


What are the benefits of small business accounting software?

Today’s small business accounting software is a long way from the clunky spreadsheets and complicated interfaces of old. Modern cloud-based accounting software includes a range of intelligent, timesaving features that leave you free to focus on growing your business rather than grappling with balance sheets and nominal ledgers.

The best accounting software for small business is focused on automating much of the time-consuming elements of business accounting and most offer access from anywhere. They can link to your bank account for up-to-date financial reconciliation and include smartphone apps so you can manage your accounts on-the-go.

Small business accounting software helps ensure you keep tabs on the financial health of your company. From generating reports – such as cash flow, monthly P&L and customer profitability – to projecting corporation tax and detailing your VAT position. Accounting software can also automate business filing such as payroll and online tax filing with HMRC including VAT, NICs, income tax and annual returns.

As most business accounting software services can be accessed via a web browser, your accountant can log onto the software from their computer to help prepare your end-of-year accounts. Credit control and invoicing is automated with invoices generated and emailed to customers and you’ll received email alerts when invoices are overdue. Some accounting software can also link to your inventory system for easier stock control as well as CRM systems for marketing and keeping details on customers.


What to look for when choosing small business accounting software

While it might be tempting to sign up to the first accounting software you try, it pays to test a few packages before deciding. You’ll be using your small business accounting software for several years, so it pays to ensure you’re making the correct investment. Check that the accounting software you choose meets your business needs now but in the near future too. Create a requirements checklist to ensure it can easily handle your day-to-day business accounts needs.

Set up a few trial accounts or sign up to a free version and add example data – such as sample customers, assets, income and expenses – to test how easy it is to use.

Your checklist for choosing the best accounting software for your small business should include:

Business type – Each small business accounting software option may be more suited to certain business types. If you’re planning on increasing staff numbers, look for integrated payroll with automatic PAYE filing and payslip creation. If your business handles lots of stock, look for accounts software that integrates into your inventory system. For more sales-led businesses, CRM tools for keeping records of customers and leads are useful.

Number of users – If you work as a sole trader and your business accounts are uncomplicated, pick the small business accounts software that you find easiest to use. If you plan on giving access to others, it’s worth involving them in the selection process. If you have an accountant, check what business accounting software they recommend to ensure they can access your accounts and quickly find their way around the system.

Day-to-day bookkeeping – Ensure you can easily access features such as the nominal ledger, which brings together expenses, income, liabilities and assets. This is usually shown as a dashboard, and should provide quick access to customer details, suppliers, invoices, balance sheet, sales and purchase ledger. Check how easily it can link to your business bank account for reconciliation, and whether it supports PAYE, VAT and end-of-year accounts filing with HMRC. If you conduct business overseas, ensure it handles currency conversion.

Customisation – Check how easily you can customise invoices and other business communication, such as emails. You should be able to change fields and set up default fields, such as standard fees or T&Cs, as well as upload your company logo.

VAT support – As a business must register for VAT once turnover exceeds £90,000 in a 12-month period, it’s important your small business accounting software can handle complex VAT rules. Check the software can automatically file VAT returns with HMRC, and handle both cash and invoice accounting for VAT. For small businesses, it’s important that the software supports Flat Rate VAT, as well as any more complex VAT rules and exemptions particular to your business.

Reporting requirements – The ability to easily and automatically generate reports on the financial health of your business is a critical feature to look for in order to find the best accounting software for your small business. Look at the number and type of reports it can generate, including formats such as PDF or Excel. As a minimum, make sure the business accounting software can produce a monthly P&L plus a year-to-date P&L with forecast for corporation tax. Ensure it can produce a monthly balance sheet, and also identify creditors and debtors over 30, 60 and 90-day periods to keep on top of liabilities and outstanding invoices to aid cashflow.


Accounting software support and compliance

Two crucial factors when choosing the best accounting software for your small business are the level of customer support and the compliance provided.

When you’re focused on the day-to-day running of a small business, the last thing you need is to be wrestling with accounting software problems. Grill the software vendor on the support they offer along with any service level agreements. Test online chat, email and telephone support channels to see how quickly and accurately they respond. Look for webinars or training offered, such as 1-2-1 online training sessions, and visit any support forums to check how active and responsive the company is to customer issues.

Compliance is vital too, especially if you store personal data such as customer or staff payroll details. Check with the software vendor what security is in place to limit access, such as two-step verification. Ask how often data is backed up, and how quickly it can be restored and what happens if you can’t get access to your accounts. It’s vital to check audit trail features – this is where changes such as deletions are logged with time, details and who made the change. Check who has access to personal data, and how long financial records are kept: it should be for a minimum of six years.

Check, too, for data importing and exporting tools. Ask how easily it is to export the entire accounts if, for example, you wanted to move to a different accounts package in the future.

Types of small business accounting software

Broadly, there are two types of small business accounting software: online and offline.

Online accounts software – Accessed via a web browser, this is often referred to as cloud-based or Software-as-a-Service (SaaS) accounts software. It’s usually available as a monthly or annual subscription and is cost-effective as you don’t need to buy a server, dedicated PC or expensive accounting software. The vendor will provide updates and backups during the subscription period and you can usually grant access to others – such as to your accountant – and they can log on from their offices to see your books.

Examples of leading online accounts software providers include Kashflow, Xero, FreeAgent, Sage One, FreshBooks, and Intuit QuickBooks Online.

Offline accounts software – While desktop-based accounts software has fallen in popularity thanks to cheaper online software, there are some advantages to handling your accounts offline. You can store your accounts data locally, which means if you lose internet access you can still access your accounts. As your business grows, you’ll need to invest in a server and licences to allow more users to access the software, which makes offline accounting software less suited to start ups and small businesses.

Examples of desktop accounts software include QuickBooks Desktop, Mamut One and Microsoft Excel.


Buying small business accounting software

Expect to pay around £20-£30 per month for online cloud-based accounting software. This should include payroll and full automation for online filing, as well as modules for setting up requirements such as workplace pensions. Free versions are usually limited to a set number of invoices but are a great way to test which package to buy before you commit. Some micro entities and start ups may find the free version is enough for their accounting needs in the short term.

If you’re looking to save money, check to see if discounts are offered for taking an annual subscription rather than paying monthly. Search for discount codes and vouchers online before buying – many online services offer a few months free or steep discounts, as much as 50%, off your first year. It’s a good idea to follow the social media accounts of small business accounting software vendors, as many will post discount codes on their Twitter and Facebook feeds.


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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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