How to choose accounting software for small businesses

The accounting software package that you choose when you start your business could affect how much financial control you have in the years to come.

It’s a vital decision that many people make too quickly without really looking at the needs of their business now and in the future.

A good accounts package will be used for all financial transactions and will give you critical information and analysis to let you make sensible decisions. Whereas an accounts package that’s less powerful will just be a way to crunch the numbers and meet your legal obligations, leaving you a little in the dark as to what’s really happening financially in your business.

Any package, whether it is accounting software installed on your computer or an online service, must meet all legal requirements now and in the future. That means it must comply with accountancy standards. It should also be something your accountant is comfortable using.

The first step in picking accounts software is to resist the temptation to “see what’s out there” before you have assessed what your business’s needs are. Answer some basic questions about the business now and how it is likely to develop in the next few years:

What legal structure is the business? A limited company could need a different kind of software than a sole trader does – for example if you are planning to take on employees, you will need to be able to run payroll.

How many people need to use the accounts system? If you do all the bookkeeping yourself at the moment, think down the line and consider if it is likely you will continue to manage all the financial transactions as your business grows. If you only need one person to use the accounts, then you can get a low cost system. Packages which allow several people to enter transactions at the same time are more expensive. If you do plump for a one person version now, it’s worth ensuring you can upgrade in the future.

What kind of computer do you have? Most accounts software runs OK on modern PCs. If you use an Apple Mac or a Linux system you may be more restricted. Most of the online software will work OK on all computers, as it is designed to run within a web browser.

How much activity will there be each month? If you have three clients you can get a less powerful accounts package and enter transactions manually. Whereas if you have 500 clients all paying different amounts, you’ll need a way of automating frequent transactions.

What do you need your accounts software to do? They all do the basic bookkeeping jobs where you enter your sales and purchases and it’s all worked out for you. But you may want your accounts package to work harder than that. Assess whether the software can handle:

• Invoicing: If you can produce appropriate invoices from your accounts package, it will save you a lot of time and remove the need for re-entering information. With some packages it can be hard to change the appearance of invoices. You should also check you can send invoices by email as more and more businesses wake up to green electronic invoicing
• Credit control: At the click of a button you should know who owes you money and how old the debt is
• VAT: The software should track VAT collected and make your quarterly VAT return easier
• Payroll: It needs to be able to work out how much PAYE tax and National Insurance contributions you should pay on your employees’ behalf
• Management reports: Can your software package give you a financial snapshot of your business including vital information on cash flow and profit and loss?
• Does your accountant use it? If your accountant doesn’t use this software, they may charge you for a software licence or fees to re-enter the information into their system

Now you know what you need your package to do, it’s time to choose one. There are dozens out there, split between software you install and online software.

The market leader is Sage, which is preferred by most accountants. Other packages include Myob, Quickbooks, Simple Books and TAS Books.

There is also some open source accounting software called Turbocashuk.

If you’d rather use an online accounts package, the advantages are that you don’t have to install any software and can use any computer to do your accounts. The downside is that you need an internet connection and your data is not kept onsite.

There are lots of online services, including Kashflow, Beanaccounting, Imbercal and Liberty Accounts.

Weigh each package up against your requirements, but also look at the company behind the software. Like any key supplier, you need to assess whether the company will continue to be the right in the years to come.

Is the software easily upgradeable as you grow? You’ll find it a lot easier to upgrade to a new accounts package from your existing supplier than moving to a brand new package and having to import data.

What’s the support like? Is there a helpline you can call during the day? And are there lots of other users of this software – can you find an online forum with willing helpers at 9 o’clock at night?

Remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.