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How to choose the best online accounting software for your business

Small business accounting software has changed massively in recent years. Thankfully, the advent of cloud computing has consigned the days of buying book-keeping software in a box and installing it on your own computer to history.

Nowadays, start-ups and small business can choose from a whole host of online accounts software packages. The technology helps to ease the pain of book-keeping and accounts for small business owners and provides a range of other benefits too.

But with so many different web-based accounting solutions out there, how do you choose the right system for you and your business?

That’s where this guide comes in. If you follow the advice, and ask these questions, you should be able to quickly narrow down the field, and ultimately choose the best online accounting software for your needs.

It’s worth taking the time to find the right online accounting software

If you are starting a business, you’ll need to keep an up-to-date record of your financial activities from day one. It’s therefore worth taking a little time now to think carefully about the accounts software you are going to use because it will save you a lot of time, trouble and wasted effort down the line.

Many of these web-based accounts solutions offer really useful features for start-ups, and unlike some of the traditional accounting packages, they don’t cost much either. In most cases, you just pay a small monthly fee – which is great for cash flow in the early days.

As a start-up you are often trying to do everything yourself, so having an online accounting system which lets you raise invoices, update your bookkeeping, look at the list of outstanding debtors and creditors, analyse profits and cash flow – all from anywhere you have Internet access – can really help you save time and manage your business more effectively.

Each online accounting system has its pros and cons

Many online accounting packages have emerged in the past five years. They all have their merits and limitations.

Some were designed with a focus on sales invoices and others provide a more complete bookkeeping system. Some are originally from USA or New Zealand so may not be right for every UK business.

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You don’t want to have to change systems after a few months, so take time to choose the right one for you and the future of your business. The cheapest option isn’t necessarily the best. And your friend’s recommendation, while well-meant, might not fit the needs of your business.

How to find the best online accounting software for your needs

As a start-up, the problem that you are faced with is that until you have actually used one of the online systems available, it’s difficult to know for sure whether it’s right for you.

To help you work out which of the web-based accounting options is best for your business, you should ask these questions before deciding which solution to go with;

Does it include a ‘VAT’ module that suits your business?

If you are, or think you will become, VAT-registered you will need to check some details;

  • Can it cope with cash and invoice accounting for VAT
  • Can it accommodate the Flat-Rate VAT scheme?
  • Does it automatically produce a VAT return?
  • Can the VAT return be submitted to HMRC from within the software?

Not all online accounting packages implement Reverse Charge calculations automatically, so if your business has slightly complicated VAT rules to follow, you should check whether this feature is included. You may end up making mistakes on your VAT return without this feature.

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Does it offer multi-currencies?

If your business requires you to have multi-currency accounts, this is a deal-breaker. Not every software can handle this.

What kind of ‘Reporting’ is available?

Do you require comprehensive reports at the month-end and/or project-based recording and/or retrospective reports for analysis?

For you to measure performance and manage your business more effectively, most accounting software will produce a range of reports. Popular ones include;

  • Monthly Profit & Loss reports with comparisons of last 12 months
  • Monthly Balance Sheet reports of all your Assets, Liabilities and capital balance over the 12 months period
  • Reports of your top customers or suppliers in the year
  • Aged Debtors and Creditors for 30, 60, and 90 day periods
  • A snapshot of Profit & Loss for the current financial year with estimate of current tax liability

Decide what features are most useful to you, and make sure the system you choose offers them.

Does it offer a ‘Bank’ module?

Can the software link to your bank account? Some require you to upload bank statements, where others allow you to set up an automatic feed from your bank account and credit cards so all banking transactions are detailed automatically.

An automatic feed is definitely better as it will save you precious time and mean your figures are always up to date.

Does it handle ‘Stock’?

Some systems can handle stock, some can’t. If you trade in products, this will be an essential feature for you.

Is there a ‘Payroll’ module?

Sometimes this facility is included in your software package, and sometimes it’s available as an add-on. You might also consider whether the payroll module offers RTI submissions to HMRC directly from the software.

What kind of ‘Invoice templates’ are there?

Most online accounting packages allow you to customise your Invoice templates, but you often get limited flexibility.

If your invoice is too descriptive with detailed terms & conditions you may find it hard to make the default template work for you. So if this is an important part of your business, you should check it out.

Does it allow for ‘Users’ with different permission levels?

If you are working with a team and want to give limited access to sales team vs finance team, make sure the software you are choosing will allow that.

Does it offer a good ‘Journals’ module?

Accountants have to make certain adjustment entries into accounts that cannot be entered through your usual “Banking” or “Invoicing” modules.

Many of these accounting entries, such as year-end adjustments of accruals, prepayments or monthly wages are done through journals – but some accounting systems have a poorly designed module to enter Journals, which can make it hard for your Accountant to match your system figures to the Final Accounts.

Can it link to your personal annual tax return?

Some online accounts options can take the information about the salary and dividend payments you have received from your business and link these to your personal self assessment tax return.

FreeAgent even has the facility for you to submit your annual tax return directly through its software. This can save you time and also cut the chances of manual errors on your self assessment tax return.

Does it have a good interface?

If you find it intuitive to browse, and can quickly find features supporting your sales invoices, suppliers, customers, profit and loss reports and so on, you’ll have a much easier time using the system.

This is something that you will only be able to gauge when you are using the system for yourself. So take a trial or a demo of your favourites to see which you prefer.

Is there a good level of support available?

Find out what level of support is available. You will, without doubt, have some questions that need answering and problems to overcome at some point, so ask what help is provided.

If, like many small business owners, you catch up with your invoicing and book-keeping in the evening and at weekends, check to see whether support is available at these times.

Is there a fully functioning mobile version?

Most online accounting options also offer a mobile version, allowing you to access your accounts through your smartphone. However, in some cases, mobile versions have very limited functionality so it’s worth deciding before purchasing whether this will really be important for you.

Top online accounting software systems

Bearing in mind these questions, a couple of top online accounting software systems, in my opinion, are;

  • FreeAgent – £19/mth (+VAT) for sole traders, £24/mth for partnerships and £29/mth for limited companies. FreeAgent are currently offering all ByteStart users a 30-Day free trial, a 50% discount for 6 months, plus a 10% lifetime discount off these prices. Find out more here.
  • Sage Business Cloud Accounting – Starter package is £10/mth, Standard Package is £22/mth without payroll. There is currently a free 30-day trial available, plus a 50% discount for your first 3 months, which means you can try the Starter Package for just £5/mth.

There are also other popular cloud accounting systems, including;

  • Xero – £27.50 per month with all options including payroll – free 30-day trial available.
  • Clear Books – £25.20 per month with payroll – free trial available.
  • QuickBooks – £34.80/mth incl. payroll reduced to £20.98/mth for first 12mths.

Getting your chosen system set-up

Once you have decided which online accounts system to go with, there are some key things to think about with the initial set-up process.

If you really are starting on day one of your business then you need to consider the nature of your business activities and how you would like the reports to look. For example;

Categorising sales

If you are selling products via both website and at direct sales through shops or exhibitions, then you can break it down accordingly to ‘Website Sales’ and ‘Exhibition Sales’.

Alternatively, if you are planning on exporting you might want to categorise sales into regions, e.g. ‘UK sales’, ‘USA sales’, ‘EU sales’ etc. You can categorise in any way suitable for your business.

Cost of Sales

There could be one cost or a number of direct costs that are linked with sales.


You may have particular overheads or projects that need separate account codes to help you analyse the figures, for example, Salaries, Rent, Travel, Telephone & Internet, Printing & Stationery etc.

The exact steps will depend on your business type, but you can likely expect to do the following:

  • Set all required nominal codes and project codes
  • Set accounting periods
  • Set VAT periods, and VAT schemes
  • Confirm the right depreciation rates for the asset register and
  • Customise the sales invoice template with your logo and design

If you are not good with accounting, hire someone to do it and allow a reasonable amount of time and budget to get set up properly. For a new start-up this will not cost much – but it will be a good investment to get things set up properly from the beginning.

Start using it – practice makes it perfect!

Once you have chosen your system, there is a learning curve involved. Do not assume everything will go as easily as the advert predicted!

There will be several ways of working within your chosen system, so find out by trial what works best for you, and when in doubt, seek advice.

Getting advice at the start can save you hours in both the short- and long-term. Going back to correct previous mistakes is costly and time consuming – and can, potentially, damage your business.

By using an online accounting software package you can save yourself considerable time, keep your records up to date wherever you are, and ensure you have all the correct information recorded – both for your own use and for filing VAT returns and company accounts.

With your accounting solution sorted – you can now focus on building your business.

This article has been written for ByteStart by Riz Wasti, principal of 2E Accountants a London based Management Accounting practice specialising in working with small businesses.