Crunching the numbers: accounting software for small businesses

The accounting software market is competitive, says David Prosser – there’ll be an option for you.

932_MW_P36_Small-Bus

Businesses struggle without accounting software

The accounting software market is competitive, says David Prosser there'll be an option for you

For many small and medium-sized enterprises (SMEs), the new year has begun with an accounting headache. On top of tax returns, if your business is registered for VAT and your annual turnover is, or has been at any time, in excess of £85,000, you will probably have had a reminder from HM Revenue & Customs (HMRC) that you must comply with the Making Tax Digital (MTD) rules from 1 April. These rules require businesses to keep records digitally and to submittheir VAT returns using specialist software.

Either way, businesses operating without some form of accounting software are finding life increasingly difficult. If you haven't previously invested in such a package or reviewed your options recently now may be the time to do so. The good news is that competition in this marketplace is fierce, with newer entrants such as Xero and FreeAgent now giving the market leaders Sage and Intuit a real run for their money. Accounting software forSMEs is affordable, easy touse and flexible, with providers making it easy to access more features as your businessgrows and its needs become more sophisticated.

What to look out for

Most software offers the basics, such as invoicing, tracking income and costs, financial reports and customer management. Don't buy software that isn't compatible with HMRC's VAT system; even if you're not currently registered for VAT, you may be in the future and MTD is set to be expanded. Additional features that may be useful to some businesses include inventory management, vendor management and procurement. Take a bit of time to play with vendors' software before you commit, and consider whether you want access to the software from multiple devices and on the go.

Finally, think about how accounting software will link up with any other IT you use in your business. If you use tools such as customer relationship management software, for example, will the accounts package you're considering be compatible with them?

There is no single supplier that offers the best software for any SME, so explore several alternatives. Still, in research published by PC Magazine last year, AccountEdge Pro won top billing, followed by Intuit QuickBooks and FreshBooks.

Lenders left to it

Although the cross-party Treasury Select Committee said last year lending to SMEs should be regulated following scandals including RBS's Global Restructuring Group allegedly pushing small companies into bankruptcy, ministers said this could make it harder for smaller businesses to obtain credit. The impasse leaves SMEs vulnerable to poor treatment at the hands of their banks, though separately the government has agreed to extend the reach of the Financial Ombudsman Service. While this scheme currently only covers a handful of very small businesses, from April SMEs with an annual turnover of up to £6.5m and fewer than 50 employeeswill be able to take complaints about banks and other financial services companies to the independent ombudsman.

SMEs needing credit should consider a range of options. The Business Finance Guide, compiled by the British Business Bank, is a good first port of call for SMEs considering their options. It provides tailored finance recommendations to businesses, sourced from providers of both debt and equity capital ranging from crowdfunding platforms to private-equity firms.

Recommended

Dividend payout advantages drain away for small-business owners
Small business

Dividend payout advantages drain away for small-business owners

Life is getting harder for sole traders who opt for dividend payouts rather than taking a salary from their business.
17 Sep 2021
Cybersecurity is crucial for small businesses
Small business

Cybersecurity is crucial for small businesses

Small companies tend to neglect the defence of their digital data, but the risks are very high, says David Prosser.
6 Sep 2021
Time for small businesses to pay back emergency state aid
Small business

Time for small businesses to pay back emergency state aid

Small companies struggling to repay emergency loans have several options, says David Prosser.
21 Aug 2021
Government launches final Covid support scheme for the self-employed
Small business

Government launches final Covid support scheme for the self-employed

A fifth and final round of the government’s aid scheme for the self-employed, with grants of up to £7,500, has been launched.
6 Aug 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021