The SMB’s guide to upgrading your accounting software
Why update your accounting software?
Most small businesses spend more time on accounting than they should. According to the Federation of Small Businesses, UK SMBs spend 12 days a year on tax compliance alone. Another study found that small businesses in the UK are wasting 120 days a year on mundane back office tasks because they don’t have the right systems in place to improve efficiency. Those tasks include invoicing, tax and payroll.
Modern accounting software for small businesses can give you a significant chunk of that time back. It can automate mundane tasks and free up your employees for more productive work (up to three hours a day, according to one piece of research). It can ensure accuracy and compliance to keep the taxman at bay. All the while making your life easier and letting you focus on what matters: running your business.
In this paper we’ll go into more detail about why you should upgrade your small business accounting software, and how to go about it.
Accounting software? What accounting software?
OK. We realise that many small businesses aren’t at the upgrading stage, because they’ve never used accounting software at all. If you still rely on spreadsheets and paper receipts, the really good news is that a world of automated delights is just a small monthly outlay away.
Manual accounting processes are slow, frustrating and prone to error. They’re also about to become obsolete, because the taxman won’t allow them any more.
HMRC wants digital finance: Making Tax Digital
The reason for this is Making Tax Digital (MTD), part of the Government’s aim to make HMRC “one of the most digitally advanced tax administrations in the world.”
MTD aims to make it easier for individuals and businesses to get their tax right, while eliminating the mistakes that cost the exchequer over £9 billion a year. So what does MTD mean for you?
- For most businesses, it means you should have been keeping digital VAT records (if you’re VAT registered with a taxable turnover above £85,000) from April 2019. You will need to use software to submit VAT returns from now on, whether you want to or not.
- You’ll need to do the same for all other taxes at some point too. It won’t be until after 2020, but it would be wise to start preparing now for a change that will eventually encompass the entire tax system.
That might sound like a massive inconvenience, but SMBs that are still reliant on manual accounting processes are likely to find that, after a few bumps in the road, the digitisation of tax makes life a lot easier.
Outdated accounting software
The same is true to some extent if you use outdated accounting software. You may have moved on from spreadsheets and paper receipts, but legacy software comes with its own issues. For example…
- If it feels like you’re spending more time on admin than actually running your business, outdated accounting software could be the cause.
- Old software that is rarely, if ever, updated could be a security risk and, if it corrupts or crashes, a risk to your data.
- If your old software is using outdated tax codes, you could be paying more in tax than you have to.
- New software is designed to integrate with a galaxy of time-saving third-party services. If you’re using old software, you’re likely to be spending time on scores of unnecessary manual activities beyond basic accounting.
So why don’t you upgrade?
We know, upgrading your finance automation tools is easier said than done. With 80% of small business leaders struggling to find time for anything but day-to-day survival, it’s no surprise that fixing something that doesn’t seem broken is low on the list of priorities.
In those circumstances, choosing, installing and learning new accountancy software can seem like a headache nobody wants to have. But not only is modern accountancy software designed to be user friendly and easy to grasp, it can also cure more headaches than it creates. We’ll explore what it solves, and how, in the next chapter.
Accountancy packages today
A modern accountancy package can make business better in several ways:
It will make accounting more than just a chore
Good accountancy packages automate lots of things that nobody likes doing. But they are far more than replacements for office drudgery. They should give you real insight to help improve your business:
- Reporting. Most packages let you create accounting reports with just a couple of clicks, and the most comprehensive offer more than 50, from standard accounting reports – balance sheet, profit and loss – to more specialist information.
- Tracking. Track costs, profit, payments and even inventory to create a highly accurate picture of the current state of your business. Good software also helps identify areas for improvement and optimisation – from stock levels to price adjustments.
Project and time management. Is a project coming in on time and on budget? Full-featured packages go beyond accounting and into the realms of project management and time tracking.
It will make customers happier
When customers get a readable document, with goods or services received and payment terms clearly laid out, they’re more likely to pay on time. Modern accounting software makes professional invoicing easy.
Good software will also offer multiple payment gateways, so your customers can pay in the ways they prefer. That includes card payments, bank transfers and Direct Debit, but could also include payments from the likes of Paypal, Go Cardless and Stripe through third-party integrations.
All of these mean less time chasing payments and other thankless admin, and should benefit your cashflow too.
It will make employees happier
So yes, good small business accounting software is far more than a replacement for office drudgery. But it is a replacement for office drudgery, and your finance-facing employees will thank you for it (while potential employees will be attracted to your business because of it). Good small business accounting software will…
- Automate invoicing and payment reminders.
- Automatically reconcile bank transactions – no manual entry required.
- Generate accounting reports in a couple of clicks.
- Automatically reconcile expenses – which is even more user friendly when synced with an expense management solution like Soldo.
- Automate tax calculations.
(But do talk to your accountant)
If you’re about to change your accounting software, your accountant really needs to know. (S)he also knows what your business needs, and can be an ongoing source of expertise, especially if (s)he uses the same software. Ask for their advice before committing.
Should you go for a free package?
A lot of accounting packages offer free trials of up to 30 days. A few stay free forever, at least in limited form. These can be excellent options, if you have simple requirements.
Wave Accounting is a good example. It lets you create invoices, schedule reminders, record payments, upload expense receipts and more.
But it doesn’t give you detailed reporting, inventory tracking, time and project management and tax estimates. It has very few integrations. Many free packages are aimed at cash-strapped freelancers, microbusinesses and Etsy or Ebay traders. Larger SMBs will need the more advanced tools which only paid-for options provide.
A head for the cloud
Free or paid, most modern accounting software is housed in the cloud. This means you don’t own the software outright, but rent it online on a monthly basis. There are several advantages to this:
- You are not stuck with the version of the software that was current when you bought it. You’re always using the latest version, with all its bells and whistles (and properly updated tax rates etc.).
- You don’t have to house the software, so you don’t need to invest in the hardware needed to handle it and store huge amounts of data. All you need is a reliable connection to the internet.
- Because your software and data lives in the cloud, you can access it from anywhere, at anytime. It’s what your employees want, and most good Software as a Service (SaaS) accounting packages come with a mobile app – so you could easily do your bank reconciliations on the train to work…
- Most experts now agree that SaaS solutions are more secure than on-premise counterparts, because the reputation of providers rests on lock-tight security. And while reconciliation, for instance, means opening a feed between your bank account and your accounting software, this access is limited and fully encrypted.
Accounting software is therefore following a well-worn path. Gartner predicts that SaaS – already the largest segment of the cloud computing market – will grow revenues by 17.8% in 2019, reaching $85.1 billion globally. So don’t be scared of the cloud (if you have Office 365, Slack, Gmail or Trello, you’re already using plenty of cloud services already…)
What accounting software for SMBs is out there?
When it comes to accounting software for small business, you are spoilt for choice. There are dozens of options at varying pricepoints – and some of them are ideal for specialist requirements.
Here are five of the big players and what they offer.
QuickBooks started out as a desktop package, and has now migrated to the cloud. It is hugely popular.
What it offers?
All the basics – invoicing, expenses, bank reconciliation, tax – and pretty much everything else you’ll ever need. QuickBooks can run over 80 reports, so you always have a full picture of the state of your business finances, and integrates with hundreds of third party apps, from receipt management tool Receipt Bank to budgeting solution LivePlan.
What it doesn’t?
Some features are only available at higher price points.
What it offers?
As well as a full raft of bookkeeping and accounting tools, Xero features a couple of more unusual features, like a fixed asset manager and inventory management. It also boasts hundreds of integrations.
What it doesn’t?
As with QuickBooks, some features are only available at higher price points.
Zoho Books is part of the extensive Zoho family of small business automation software packages, integrating well with its siblings.
What it offers?
Zoho Books offers all standard features, with standout invoicing and contact management tools. It also includes project management and time tracking. It’s quite cheap, too.
What it doesn’t?
Zoho Books isn’t as well connected with third party services as some others.
Sage is better known for its enterprise accounting solutions, but Sage One is a capable small business accounting software package.
What it offers?
All standard features plus inventory tracking, detailed reporting and good links to, among others, Google Drive.
What it doesn’t?
Like many others, it lacks a native payroll feature.
Wave is a free accounting package for freelancers and very small businesses, though it also offers some pay-as-you-go features.
What it offers?
Wave is more of a sophisticated bookkeeping tool for very small businesses than a full accounting solution. It covers the basics well, like invoices, recurring invoices, estimates and a bank feed.
What it doesn’t?
Wave lacks time and project-tracking tools, and offers very few third-party integrations.
|QuickBooks||Xero||Zoho Books||Sage One||Wave|
|Best for…||SMBs||SMBs||SMBs||Growing SMBs||Freelancers|
|Mobile access||Yes||Yes||Yes||Yes||Yes (Only invoicing)|
|MTD support||Yes||Yes||Yes||Yes||No (Wave customers can use “approved bridging software”|
|Price/month (after special offers)||Simple Start: £12Essentials: £18Plus: £27||Starter: £10Standard: £24Premium: £30||Basic: £6 Standard: £12 Professional: £18||Accounting Start: £12Accounting: £24||Free (though some extra features are pay as you go)|
Evaluating accounting software functionality
You’re upgrading, but what do you really need? It depends to a large extent on what you do, so here are some of the factors and criteria that should influence your decision.
Nearly all modern cloud-based accounting packages (and all the ones mentioned above) come with a mobile app, but these differ in functionality. Some are just basic invoicing tools, letting you chase invoices on the go, while others offer deeper functionality.
If you have international customers you will need multi-currency support. That’s available in all the packages listed above, but only Zoho Books offers it in the cheapest base-level package. Wave offers a limited currency tool.
Time saving finance automations
Automating mundane and time consuming tasks is a large part of the appeal of small business accounting software. Most packages automate:
- Invoicing (and payment reminders)
- Payroll (often as a third party integration)
- Expenses (an expense management solution like Soldo can sync with your software)
- Accounting reports
Most packages will calculate and submit VAT returns.
Detailed and accurate accounting reports give you a clear overview of money coming into and going out of your business. The best software packages let you run dozens of different reports in seconds, giving you insight not only into Profit and Loss but also – for example – your best customers and worst debtors.
Does the software feature multiple invoice templates, and are they customisable (so you can add your company logo, payment terms and so on)?
A good selection of integrations (via secure APIs) will let your accounting software become the centre of a financial services universe, by connecting third party services for everything from project management to payment processing. As an example, a powerful expense management tool like Soldo integrates seamlessly with Xero, saving you hours of brain-numbing data entry. Make sure your chosen software integrates with the services you need. Ideally, you should never waste time re-typing numbers ever again!
Users and transactions
Does the price point offer everything your business needs? For example, QuickBooks’ cheapest price point allows only one user profile, while its most expensive offers five. You may also want a package offering various ‘permissions’, so that different employees have different levels of access to company data.
Similarly, Xero’s cheapest price point limits you to five invoices a month, compared to unlimited invoicing with its pricier plans.
Packages differ on how they handle contact management. The leaders in this area let you not only create contacts and enter basic details, but let you add tax and payment details, reporting tags, remarks and custom fields. You can even group contacts for collective invoicing.
Starting out with new accounting software
After all that, you might be looking forward to cutting admin hours, delighting hard-pressed staff, and increasing business insight. But first you need to get to grips with the thing…
Here’s how to get started.
Prepare for the change
- Gather what you need. That includes nominal codes, accounting periods, VAT periods and basic company information. You’ll need your sign-in details for the Government Gateway for MTD.
- Think about who needs access to the software. Not an issue for one-person-bands, but otherwise worth consideration. Some employees might only need minimal access, but they still need to know change is coming.
- If you haven’t already, tell your accountant.
Use the free trial as training
- Set up a free trial. This is almost always straightforward, requiring little more than answering a few questions about your business (size and sector), adding the basic details gathered above, and following the setup wizard’s prompts. The software will then set itself up in the way it thinks will be most useful for you (though you can change this manually if it feels wrong).
- Play about! While retaining your old software or manual accounting system, experiment with a new world of accounting efficiency. Start sending invoices to core customers and set automatic payment reminders. Connect your bank feed and see what happens. Ask a couple of employees to file expense reports through the system.
Use your free period as training. Ensure key staff go through the in-built training modules. Fall back on the provider to fill in any gaps (cloud software helpdesks are much more useful and responsive than software providers were ten years ago…). Stick to mastering the simple, most-used features first.
Make the switch
- Finish the setup. Choose the invoice and reporting templates you want to use, and customise them to meet your needs (with your company logo, for example). There’s much more you can do, like setting net payment terms, but the software setup process will guide you smoothly through each step.
- Connect your accountant or bookkeeper so they can work directly on your books. Most accountants will be invaluable for getting started with software.
- If you haven’t done so already, create feeds from all your business bank accounts.
- Authorise the software to interact with HMRC for MTD purposes.
- Connect the software to useful third-party services, like Paypal, Salesforce and Soldo.
If you get stuck
Providers tend to offer a mix of phone, email or live chat support, plus in-depth FAQ sections, information hubs and a community forum. You’re highly unlikely to come across an issue that somebody else hasn’t come across before. If all else fails, ask an accountant with knowledge of the software package to help set it up for you.
You’re all set! There might be the odd hiccup along the way, but one thing we can say with certainty is that, if you currently use outdated software or manual accounting processes, you won’t regret the decision to upgrade. Good luck!
Soldo integrates with small business accounting software
Soldo is a sophisticated business expenses solution that empowers staff with controlled access to company money, while making expense tracking and management easier than ever. Soldo integrates seamlessly with accounting software for small business, and especially Xero. Learn more about Soldo and their prepaid cards for business here.