Accounting software guide

(for startups and small businesses)

DIFFERENT TYPES OF ACCOUNTING SOFTWARE

There are two types of small business accounting software: online and offline.

Online accounting software:

  • often referred to as cloud-based or SaaS (software-as-a-service)
  • available as a monthly or annual subscription
  • you need an Internet connection to access it
  • can be accesses from any computer/phone and location
  • cost-effective (no need to buy a server, dedicated PC or expensive accounting software)
  • you can grant access to others (directors, employees, accountant, business advisors, etc.)
  • the vendor takes responsibility for software upgrades and maintenance
  • the vendor takes responsibility for data security and backups

Examples: XeroQuickBooks OnlineSage Business CloudFreeAgentClear BooksQuickFileWaveZipBooksSlickPie (see tables below).

Offline accounting software:

  • can be accesses without an Internet connection
  • you need a dedicated computer (or computers) where it will be installed
  • for a larger software you may need to purchase a server to host it
  • must purchase a licence for each user
  • must pay for software upgrades and maintenance
  • data security and backups are your responsibility
  • most vendors charge for data recovery, password unlocking, etc.
  • offer more customisation options but you may have to pay for installation and setup

Examples: Mamut OneMamut AccountEdgeBanana AccountingGnuCash (see tables below).

HOW TO CHOOSE ACCOUNTING
SOFTWARE FOR YOUR BUSINESS?

To find the best accounting software for your business, follow these four steps:

STEP 1:Make a list of features you need (invoicing, payments, payroll, reports, CRM, inventory management, time tracking, number of users, mobile app, reports, etc.).
STEP 2:See the comparison tables below to identify the accounting software that could potentially meet your needs.
STEP 3:Sign up for 30-day trials to test them or use the free versions. Contact their customer service to get detailed information about the software features.
STEP 4:Select the best accounting software for your needs.

THE MAIN CONSIDERATIONS WHEN
CHOOSING ACCOUNTING SOFTWARE

Online or offline – Most startups and small businesses prefer online software because they are affordable, easier to set up and integrate with other business applications, accountants can access them from their office, they include free data backups, etc.

Capabilities – For example, if you need an invoicing feature, do you want to be able to send invoices directly from the software, enable online payments (usually costs extra), send reminders, etc. In case of payroll, do you need automatic PAYE calculations and filing, ability to print payslips, etc. Make sure to test the software capabilities during the trial period.

Integrations – How well the software integrates with the business applications you´re already using (inventory management system, CRM, time tracking app, PayPal, Square, etc.). Or, do you have to purchase any 3rd party integrations in addition to the accounting software?

Number of users – How many people in your company will use the software? Do they need full or partial access? Do you have an accountant who will need to access the records occasionally?

Compliance – Know your legal obligations and make sure the software you choose meets the required standards. This is especially important if you´ll be using the software to store customer or employee personal data.

VAT returns – If your turnover exceeds £85,000 per year, you must register for VAT and file your VAT returns using HMRC approved software. Also, there are different VAT rates and exemptions so make sure the software supports the ones you need.

Cash or accrual accounting – During the setup, you´ll be asked to choose between the cash and accrual accounting. In the cash accounting, revenue is recorded when you receive payments from customers and expenses are recorded when you pay supplier invoices. In the accrual accounting, revenue is recorded when you send sales invoices and expenses are recorded when you receive supplier invoices. The complete set of rules can be found at Gov.uk

Customisation – Check if you can customise invoices and emails (e.g., upload your logo), change fields´ names, add/delete fields, etc.

Everyday bookkeeping – It shouldn´t be difficult to record revenue and expenses, update supplier and customer details, link to your business bank account, work with different currencies, file VAT returns, import or export data, etc. Check how easy it is to export the entire accounts, in case you want to move to a different accounting software in the future.

Reporting – As a minimum you´ll need profit and loss and balance sheet reports. Reports that show creditors and debtors over 30, 60 and 90-day periods are very useful for your cash flow management. Make sure the reports are in the right format for your needs. Check the audit trail features (a chronological picture of how an event was recorded in the accounting system, including the information about who created the record, when, etc.).

Customer support – During the trials, test their customer support (chat, phone, email) to see how friendly they are and how quickly they respond. Have a look at the training materials, check if there´s an additional fee for any kind of customer support (e.g., software setup, maintenance, password recovery, etc.)

We have reviewed a number of online and offline accounting software applications to help you choose the best solution for your business, and the results are presented in the tables below. You should also consult your accountant, if you have one.

DISCLAIMER: We are not affiliated, authorised, endorsed by, or in any way officially connected with the companies mentioned in the tables below. These are basic comparisons of the main features included in their accounting software to help you identify the software that could potentially meet the needs of your business. Make sure to take advantage of their free trials and always test the software before committing to monthly payments.

ACCOUNTING SOFTWARE FOR SMALL TO MEDIUM-SIZED BUSINESSES

In the table below, we compare the most popular online accounting applications used by established small businesses (e.g., have employees and a high volume of transactions). If you´re just starting out, they could be too complex for your business, and you may consider one of the free accounting solutions.

 QuickBooks OnlineXeroSage Business CloudFreeAgentClear Books
Price plans (excl. VAT)£12/m, £20/m, £30/m (£6/m, £10/m, £15/m for the first 6 months)£10/m, £24/m, £30/m£12/m, £24/m, £30/m (free for the first 3 months)£29/m (£14.5/m for the first 6 months) for limited companies, £24/m (£12/m for the first 6 months) for partnerships£10/m, £22/m (£5/m, £11/m for the first 3 months)
Users1 – 5 additional users + accountantUnlimited1 + accountant, or unlimited (from £24/m)UnlimitedUnlimited
Supports Making Tax Digital for VAT submissionsAll plansAll plansAll plansAll plansYes (from £22/m)
Supports Construction Industry Scheme (CIS)All plans support CIS calculations and filing to HMRC directly from the softwareAll plans support CIS calculations (additional fee £5/m to file monthly returns to HMRC directly from Xero)Yes (from £24/m), supports CIS calculations and filing directly from the software.All plans support manual CIS calculations (not possible to file returns directly from the software)Yes (from £22/m), supports CIS calculations and filing to HMRC directly from the software
Create invoicesAll plansAll plansAll plansAll plansAll plans
Create quotes and estimatesAll plansAll plansYes (from £24/m)All plansAll plans
Transactions automatically imported from bank accountAll plansAll plansAll plansAll plansAll plans
Supports multi-currenciesYes (from £20/m)Yes (from £30/m)Yes (from £30/m)All plansYes (from £22/m)
Project managementYes (from £30/m)Additional fee £5 per user/mNoAll plansAll plans
Employee expense claimsMust be managed manually or with a 3rd party appAdditional fee £2.50 per user/mYes, with payroll appAll plansAll plans
Inventory managementYes (from £30/m), basic featuresAll plans, basic featuresYes (from £30/m), basic featuresNoNo
Mileage trackingAll plansIncluded in Xero Expenses appNoAll plansAll plans
Employee timesheetsYes (included in Advanced payroll add-on, additional fee £8/m + £1 per employee/m)Included in Xero payroll appYes, with payroll appAll plansAll plans
PayrollAdditional fee £4/m + £1 per employee/mAdditional fee £5/m + £1 per employee/mAdditional fee £7/m (supports 5 employees) + £5 per next 5 employees/mAll plansAdditional fee £5.4/m (includes 2 employees) + £2.7 per employee/m
Reports (include profit & loss and balance sheets)All plansAll plansAll plansAll plansAll plans
Customer supportChat, telephoneEmailEmail, telephoneEmail, telephoneEmail, telephone
Trial period30 days30 days30 days30 days30 days
Mobile appYesYesYesYesYes
LocationUnited StatesNew ZealandUnited KingdomUnited KingdomUnited Kingdom
Complete list of featuresSee all featuresSee all featuresSee all featuresSee all featuresSee all features
IntegrationsSee all integrationsSee all integrationsSee all integrationsSee all integrationsSee all integrations
Data security and backupsSee data security policySee data security policySee data security policySee data security policySee data security policy

ACCOUNTING SOFTWARE FOR SOLE TRADERS

In the table below, we compare two accounting software specifically designed for sole traders. However, sole traders can use any of the online or offline software applications mentioned in this guide, including the free ones.

 QuickBooks OnlineFreeAgent
Price plans (excl. VAT)Yes (£8/m, £4/m for the first 6 months)Yes (£19/m, £9.5/m for the first 6 months)
Users1 + accountantUnlimited
Self Assessment figures automatically calculatedYesYes
Income tax estimatesYesYes
National Insurance contributions (NIC2 and NIC 4) automatically calculatedYesYes
Supports Making Tax Digital for VAT submissionsNoYes
Supports Construction Industry Scheme (CIS)NoNo
Create invoicesYesYes
Create quotes and estimatesNoYes
Transactions automatically imported from bank accountYesYes
Supports multi-currenciesNoYes
Project managementNoYes
Employee expense claimsNoYes
Inventory managementNoNo
Mileage trackingYesYes
Employee timesheetsNoYes
PayrollNoNo
Reports (include profit & loss and balance sheets)YesYes
Customer supportChat, telephoneEmail, telephone
Trial period30 days30 days
Mobile appYesYes
LocationUnited StatesUnited Kingdom
Complete list of featuresSee all featuresSee all features
IntegrationsSee all integrationsSee all integrations
Data security and backupsSee data security policySee data security policy

FREE ACCOUNTING SOFTWARE FOR VERY SMALL BUSINESSES

In the table below, we compare the most popular free online accounting software that can be used by limited companies, partnerships and sole traders. There´s also a free offline accounting application, GnuCash, presented in the last table of this guide.

 QuickFileWaveZipBooksSlickPie
PriceFreeFreeFreeFree
UsersUnlimitedUnlimitedUnlimitedUnlimited
Supports Making Tax Digital for VAT submissionsYesNoNoNo
Supports Construction Industry Scheme (CIS)NoNoNoNo
Create invoicesYesYesYesYes
Create quotes and estimatesYesYesYesYes
Transactions automatically imported from bank account£15 + VAT/yearNoNoYes
Supports multi-currenciesYesYesYesYes
PayrollPossible with a 3rd party integrationonly in US and Canada (not free)Gusto app ($39/m base + $6/m per employee)No
Reports (include profit & loss and balance sheets)YesYesYesYes
Customer supportContact formContact formEmailEmail
Mobile appYesYesYesNo
LocationUnited KingdomCanadaUnited StatesCanada
Paid plansYes (£45 + VAT/year)No (but can add payroll and online payments for a fee)Yes ($15/m, $35/m, custom plan)Yes ($35/m)
Complete list of featuresSee all featuresSee all featuresSee all featuresSee all features
IntegrationsYes, with paid plan (£45 + VAT/year + Zapier fee)See all integrationsVery limitedVery limited
Data security and backupsSee data security policySee data security policySee data security policySee data security policy

OFFLINE ACCOUNTING SOFTWARE FOR SMALL BUSINESSES

Although an online accounting application would generally be a better solution for a small business, some business owners still prefer to use offline applications. In the table below, we compare a few offline accounting applications, which could be affordable for a small business.

 Mamut OneMamut AccountEdgeBanana AccountingGnuCash
SystemMicrosoft WindowsApple MacMicrosoft Windows, Apple Mac, LinuxMicrosoft Windows, Apple Mac, Linux
Service agreement (excl. VAT)£228/year - £588/year£132/year - £252/yearNoNo
Licence (excl. VAT)£179 - £1,199£149 - £299£95Free
Service agreement / additional user (excl. VAT)£300/year - £468/year£60/year - £144/yearNoNo
Licence / additional user (excl. VAT)£329 - £799Free£95N/A
System upgradesFreeFree£65Free
Customer SupportFree (documentation, email, telephone)Free (documentation, email, telephone)Free and paid, PaidFree (documentation, Mailing list, IRC chat)
Supports Making Tax Digital for VAT submissionsYesYesNoNo
Trial period30 days30 days30 daysN/A
Mobile appNoNoYesYes
LocationUnited KingdomUnited KingdomSwitzerlandOpen Source
Complete list of featuresSee all featuresSee all featuresSee all featuresSee all features

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