Staying on top of their finances can be a major headache for many small businesses. They may not have the resources to appoint specialist staff even though existing employees lack skills such as accounting expertise.In this situation, accounting software could be a smart investment. This can give you access to automated accounting tools and help ensure that you're keeping all your relevant financial data in one place.
Such software is more affordable than ever before. Small businesses used to have to pay hundreds or even thousands of pounds up front for an accounting package. But today online services cost less than £20 a month and provide enough sophistication for the vast majority of small business users. Hence take-up of these services is increasing rapidly. Xero, one of the most high-profile online accounting providers, now has more than 200,000 subscribers in the UK. More than 100,000 have joined QuickBooks, which is run by Intuit, one of the original developers of accounting software for small businesses. Other well-known providers include Sage, FreshBooks and FreeAgent.
Most of the services offer similar functionality, ranging from the ability to do simple book-keeping, through to invoice processing, inventory management and payroll management. They'll usually sync automatically with other systems such as those used by your customers' finance departments and your bank and you should be able to access them by mobile from any location, rather than just via the office PC. One big advantage is that many providers offer different levels of service at different prices. Smaller businesses will pay a lower monthly fee in return for reduced functionality; as their business grows and becomes more complex, they have the option of moving up to a more wide-ranging service.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So which service to go for? In a review published recently by PC Magazine, QuickBooks UK and AccountEdge Pro won the top ratings for small business accounting. The magazine also highlighted FreshBooks as particularly good for sole traders. In practice, however, you need to choose a service based on your own business's needs. Consider cost, but also look at the functions you need.Try out several different services to see which you find easiest to use, and check what customer support is available.
You'll often be able to secure a free trial, which allows you to switch service if you don't like the package. However, consider the issue of access to your data carefully. Ideally, you want a package that allows you both to import and export your data freely and easily, so that you can move on to the system quickly, and can go elsewhere in future if you so desire.
How safe is your data?
Data security should be a key priority for any small business using an online accounting package. That's one argument for sticking with a well-known provider with the scale and experience to safeguard customers effectively. There is no guarantee such providers won't be breached check the extent to which they indemnify you in case of losses and you should compare their security policies carefully, but they should at least have the resources to invest in improving data security.
One issue to consider is the relationship between your accounting service and your bank. Some providers have deals with the leading high-street banks in the UK, enabling them to take a direct and secure feed of your transaction data directly from the bank. That's a very useful way of getting key financial data straight into your accounts system without manual intervention. Accessing such feeds usually requires you to pay a small monthly fee (eg, around £3-£5 per month) to your bank.
However, not all providers use direct feeds and most who do only offer them for a limited number of banks. Many offer a different way of accessing your transactions, which put simply involves logging into your account and reading ("scraping" in web jargon) the data from the web page. Most online accounting providers rely on Yodlee, a US-based firm, to do the scraping for them.
However, scraping means you are giving Yodlee your log-in details so that it can access your data. While Yodlee says that it keeps all details secure, doing this may still violate your bank's terms and conditions. This issue has yet to be tested and the law isn't absolutely clear. But in theory if you lost money through online fraud eg, because Yodlee was hacked and your details stolen your bank could try to refuse to refund you because you had disclosed your details.
Gold versus cash: which is the better store of value?
Should the income protection age cap be lifted?
