Choosing the best small business accounting software

What is accounting software?

New Zealand software giant Xero does a pretty good job of summarising what accounting software does:

Accounting software is software that does various accounting and bookkeeping tasks. It stores a business’ financial data, and is often used to perform business transactions.

Depending on the software provider you use choose, those tasks might include:

• filing tax returns
• checking cash flow and profit and loss
• sending invoices
• sorting expenses
• viewing client data in real time and communicate with clients quickly
• sharing data with your accountant and with employees where appropriate
• creating budgets and forecasts
• creating and issuing estimates.

Advantages of using accounting software

By giving you a better picture of your financial health, accounting software enables you to take control of your finances, save time and save money. 

A good accounting software package will help you manage stress and deadlines as well.

• Save time on invoicing.
• Stop logjams where paperwork needs doing and you don’t have the time for it.
• Stay on top of tax return deadlines (and avoid getting fined for late payments).

Bookkeeping can become a less fiddly and time-consuming task, but you will also reduce the likelihood of errors and ensure your tax returns are accurate and in professional formats. Software packages reduce the amount of time you spend on data entry and will make your paperwork that much easier.

If you have cash flow problems or you suffer late payments from clients, accounting software can also help you manage this more efficiently – for example, by sending out automated follow-ups and due-date reminders.  

What do I need to think about when choosing a software package?

Choosing the right accounting software depends on many different variables. For instance, online accounting software, such as cloud accounting, is available. However, it may not be suited to your business or you may not have the budget. Here are some questions you should answer before investigating which package is right for your business:

• How large is your business?
• Are you a start-up, a growing company, or have you already reached capacity?
• Are you a sole trader, a micro-business or an SME?
• What do you mainly need the software to do?
• How much budget do you have?
• What do you mainly need it for?
• Who is going to use it?
• Do you have employees?
• Do you also need a POS system and sales integration? 

How much can I afford?

This is one of the most important questions to consider when signing up to an accounting software package. When you’re starting out, you’ll naturally want to keep your costs fairly low and may not need the features included in the more advanced and expensive packages. Most software providers cater for this by providing dedicated packages for sole traders and micro-businesses (the cheapest starting from around £7 per month). You can then upgrade further down the line as your business grows. 

However, you may determine that there are free accounting software solutions that will cover your business needs. Wave, for example, offers free software with a wide range of features. 

For larger businesses, you’ll want more from your accounting software, for example:

• You’re VAT registered
• You have a growing workforce and dedicated finance team
• You have a number of revenue streams

That might mean you’re looking for advanced reporting and data analytics, collaboration functionality, and sales integration, in which case you’ll need to spend more. Having a dedicated account manager and support team can also be useful.  

Whatever your situation, it’s well worth speaking to the software provider as they will often be able to suggest and/or tailor the package to suit your budget and needs. 

Making Tax Digital

If you’re currently using paper-based systems or basic spreadsheets, now is the time to move over to accounting software. All businesses with a turnover higher than the VAT threshold (£85,000) need to be registered for Making Tax Digital, which means you need to keep records digitally, file VAT returns via MTD-compatible software. This came into force on April 1 2019 (although a small number of large, complex organisations will not be moved onto MTD until 1 October 2019.) Whilst MTD is currently voluntary for non-VAT registered businesses, it is planned to roll out to every business over the next 2-3 years.

Quickbooks

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An online accounting tool with price plans are tailored around the size of your business. Easy-to-read dashboards enable you to:

• Take control of cash flow and know where the money is going
• Send invoices quickly and get paid faster
• Automatically categorise income and expenses
• Manage VAT
• Run payroll and keep on top of deductions
• Subscription or pay-as-you-go? Subscription
• Cloud or desktop? Both options available

Additional benefits:

• 30-day free trial
• Free 24/7 support
• No obligation and cancel any time
• Easy to migrate over from Excel spreadsheets

Costs:

• Self-employed £8 a month – track self-employed income using flat rates for self-assessment. Not MTD compatible.
• Essentials £18 a month – calculate and file VAT returns and be MTD ready, multi-currency support, run payroll, manage bills and payments, track employee time.
• Plus £27 a month – the Essentials package plus create budgets and purchase orders, manage stock and track costs.

Optional extras:

• Across all three plans, Payroll free for three months and then £5 a month
• Projects and expenses, same prices as extra across three plans

Trustpilot: ★★★★

The bottom line:

Save around 8 hours a month managing your accounts with Quickbooks.

Find out more about QuickBooks

FreshBooks

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Billed as “accounting software built for business owners, and their clients”, FreshBooks is both MTD-compliant and HMRC approved. 

• Get paid quicker with automated invoice generation
• Track expenses by connecting your business bank accounts
• Log receipts easily using your smartphone
• Automated reconciliation – all your financial transactions are imported and categorised
• Get readymade reports (such as profit and loss) when you need them
• Subscription or pay-as-you-go? Subscription
• Cloud or desktop? Both options available

Additional benefits:

• One month free trial
• Phone support available – Monday – Friday 1pm to 1am 
• Deactivate or downgrade your account at anytime
• See how much time you’re spending on projects with time-tracking software.

Costs:

• Lite £11 a month – send unlimited invoices up to five clients, VAT return filing for HMRC Making Tax Digital.
• Plus £19 a month – the Lite package with unlimited invoices up to 50 clients, automated expense tracking, invite your accountant.
• Premium £30 a month – the Lite package plus unlimited invoicing, project profitability tracking, customised email template, financial and accounting reports.  

Optional extras:

• Integrates with FreshBooks Payment service. 

Trustpilot: ★★★★

The bottom line:

With users praising its ease of use and time-saving features, FreshBooks will enable you to spend your time making money instead of creating spreadsheets. 

Find out more about FreshBooks

Xero

Xero is an online accounting service that targets squarely small and medium-sized businesses. Xero’s extensive suite of features enables you to:

• Send online invoices with online payment options
• Keep an eye on inventory and stock
• Bank connections and reconciliations
• Mobile app to work on the move
• Accept online payments
• Payroll software (as add-on)
• Record, claim and manage expenses (as add-on)
• Track across multiple currencies (Premium)
• Subscription or pay-as-you-go? Subscription
• Cloud or desktop? Both

Additional benefits:

• 30-day free trial.
• Free online support 24/7
• Advanced security features
• Specific features tailored for different industries’ needs, such as in catering, hospitality, retail, IT, construction, creatives
• Add further apps depending on how you want to build your business

Costs:

Pricing plans are all MTD compatible and exclude VAT.

• Starter £10 a month – includes a limited number of bank transactions and invoices
• Standard £22 a month with removed limits on transactions
• Premium £27.50 a month, as above but with multiple currencies

Optional extras:

• Across all three plans, Payroll free for three months and then £5 a month
• Projects and expenses, same prices as extra across three plans

Trustpilot: ★★★★

The bottom line:

‘A great fit for most small businesses’, Xero is one of the most well-known and established software providers on the market.

Find out more about Xero

Sage

Specific features for small businesses, start-ups and sole traders.

• Invoicing
• Expense tracking
• Cash flow forecast
• Track business performance
• MTD-compliant
• Cloud or desktop? Either
• Subscription or pay-as-you-go? Subscription

Additional benefits: 

• Free trial
• Intuitive, easy-to-use features
• ‘Bank-level’ security features
• Guides and information resources
• Cancel or upgrade at any time

Costs:

• Starter £10 a month, includes limited number of bank transactions and invoices
• Standard £22 a month with removed limits on transactions
• Premium £27.50 a month, as above but with multiple currencies

Optional extras:

• Payroll solutions including workplace pensions
• Accept payments online, connect to storefront, advanced fraud-screening tools

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Trustpilot: ★★★

The bottom line:

‘Award-winning small business financial software that delivers results’, Sage business cloud is one of the best-known providers on the market.

Find out more about Sage

Zoho Books

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End-to-end daily accounting tools: Zoho is MTD-compliant.

• Bank reconciliations, custom invoices and expense tracking
• Projects and timesheets
• Recurring transactions
• Sales approval
• Stay VAT compliant, across territories. Generates VAT returns based on purchases and sales, allowing you to review them before HMRC submittal
• Create, edit, manage customer and supplier contacts from within Zoho Books
• Collaborate with clients through the client portal
• Securely store customer payment information to automatically charge them for recurring transactions
• Keep contacts in one place for easy communication
• Subscription or pay as you go? Subscription
• Cloud or desktop? Cloud accounting

Additional benefits:

• 14-day free trial
• 24 hours, 5 days a week online support
• Integrates with payment solutions including Paypal and Go Cardless and other Zoho applications
• Security

Costs:

• Basic £6 a month: 50 contacts, 2 users, 5 automated workflows
• Standard £12 a month: 500 contacts, 3 users, 10 automated workflows
• Professional £18 a month
• Annual versions of this pricing offer two months free.

Optional extras:

• Standard includes the basic package plus add-ons like bills, vendor credits, reporting tags and purchase approval
• Professional includes the standard package plus add-ons like purchase orders, sales orders, inventory and custom domain
• Add an additional user for £2 a month or £20 a year
• Buy 50 scans a month for £4 or £40 a year

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Capterra: ★★★★

The bottom line:

A series of add-ons that can be utilised as your business grows, Zoho Books is a flexible option for growing businesses.

Find out more about Zoho Books

FreeAgent

Aimed at small businesses and freelancers.

• Record expenses, send invoices, check cashflow.
• Automatic tax forecasts and reminders
• Accounting information all in one place
• One tidy dashboard to give an overview of the business
• Estimates and invoices
• Time tracking
• Self-assessment and VAT
• Connect with your bank account to import transactions automatically
• Projects

Additional benefits:

• Free 30-day trial
• Phone, live chat and email support
• User-friendly for sole traders or small businesses without an accountant, or enables easier communication with your accountant if you have one
• No set-up fees
• As many users, clients and projects as you need with no further costs

 Costs:

• Sole trader £7.92 a month (one payment of £95 for first year then £190 a year). All core features including VAT and RTI payroll filing, plus self-assessment filing.
• Partnership/LLP £10 a month (one payment of £120 for first year then £240 a year) All core features including VAT and RTI payroll filing, plus profit share calculation.
• Limited company £12.08 a month (one payment of £145 for first year then £290 a year). All core features including VAT and RTI payroll filing, plus self-assessment filing for limited company directors, and corporation tax.

Trustpilot: ★★★★★

The bottom line:

Awarded the 2018 Accounting Excellence Awards, Small Business Accounting Software of the Year, FreeAgent is a tailored solution for small business at a competitive price.

Find out more about FreeAgent 

Clear Books

MTD-ready accounting software for small businesses. If you are a micro-business or sole trader there is a free option.

• Basic Clear Books Micro is a free online accounting package offering at-a-glance sales invoice tracking, bill tracking and bank transaction list.

Additional benefits:

• 30-day free trial
• Upgrade any time and cancel on demand
• Free email and phone support (on paid packages)
• Share information with your accountant (on paid packages)
• Data security

Costs

• Clear Books Micro is free
• Clear Books Small is £10 a month
• Clear Books Large is £21.50 a month

Optional extras:

• Upgrade to Clear Books Small to create invoices and payment reminders, create management reports, manage project finances and create profit-and-loss reports.
• Upgrade to Clear Books Large to do all of the above, plus submit VAT returns and be MTD-compatible.
• Alternatively, from Clear Books Micro, add on accountant access for £5 a month.

Trustpilot: ★★★★

The bottom line:

As one of the few software providers to offer a free starter version, Clear Books is a good choice if you want a no-frills, basic online accounting package.

 Find out more about Clear Books

Simplifi

Designed for contractors and freelancers, Simplifi is aimed at the micro-end of the SME market.

• Takes receipts directly from your phone photo
• Create and email invoices
• Business and personal taxes all in one place
• Cloud or desktop? Cloud
• Subscription or pay as you go? Subscription
• Fully MTD-compliant

Additional benefits:

• Works on ‘almost’ any device, with no additional apps required
• No restrictions and no upselling
• Support team

Costs:

• Starter £10 a month, includes a limited number of bank transactions and invoices
• Standard £22 a month with removed limits on transactions
• Premium £27.50 a month, as above but with multiple currencies

The bottom line:

If you’re a contractor or freelancer, Simplifi is an effective and inexpensive option for online accounting, particularly if you are VAT registered.

Find out more about Simplifi

Questions to ask small business accounting software suppliers

The software suppliers featured here are well-established and have solid reputations. However, it’s worth checking with them on the following points before you sign up:

• How do you back up data?
• What about customer support? What are your hours and how quickly should I expect a response to an issue I raise?
• Can you tell me about a similar client success story that’s signed up to your software?
• Does your platform support foreign currency payments and conversions?