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
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
HOW TO CHOOSE ACCOUNTING
SOFTWARE FOR YOUR BUSINESS?
To find the best accounting software for your business, follow these four steps:
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 Online||Xero||Sage Business Cloud||FreeAgent||Clear 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)|
|Users||1 – 5 additional users + accountant||Unlimited||1 + accountant, or unlimited (from £24/m)||Unlimited||Unlimited|
|Supports Making Tax Digital for VAT submissions||All plans||All plans||All plans||All plans||Yes (from £22/m)|
|Supports Construction Industry Scheme (CIS)||All plans support CIS calculations and filing to HMRC directly from the software||All 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 invoices||All plans||All plans||All plans||All plans||All plans|
|Create quotes and estimates||All plans||All plans||Yes (from £24/m)||All plans||All plans|
|Transactions automatically imported from bank account||All plans||All plans||All plans||All plans||All plans|
|Supports multi-currencies||Yes (from £20/m)||Yes (from £30/m)||Yes (from £30/m)||All plans||Yes (from £22/m)|
|Project management||Yes (from £30/m)||Additional fee £5 per user/m||No||All plans||All plans|
|Employee expense claims||Must be managed manually or with a 3rd party app||Additional fee £2.50 per user/m||Yes, with payroll app||All plans||All plans|
|Inventory management||Yes (from £30/m), basic features||All plans, basic features||Yes (from £30/m), basic features||No||No|
|Mileage tracking||All plans||Included in Xero Expenses app||No||All plans||All plans|
|Employee timesheets||Yes (included in Advanced payroll add-on, additional fee £8/m + £1 per employee/m)||Included in Xero payroll app||Yes, with payroll app||All plans||All plans|
|Payroll||Additional fee £4/m + £1 per employee/m||Additional fee £5/m + £1 per employee/m||Additional fee £7/m (supports 5 employees) + £5 per next 5 employees/m||All plans||Additional fee £5.4/m (includes 2 employees) + £2.7 per employee/m|
|Reports (include profit & loss and balance sheets)||All plans||All plans||All plans||All plans||All plans|
|Customer support||Chat, telephone||Email, telephone||Email, telephone||Email, telephone|
|Trial period||30 days||30 days||30 days||30 days||30 days|
|Location||United States||New Zealand||United Kingdom||United Kingdom||United Kingdom|
|Complete list of features||See all features||See all features||See all features||See all features||See all features|
|Integrations||See all integrations||See all integrations||See all integrations||See all integrations||See all integrations|
|Data security and backups||See data security policy||See data security policy||See data security policy||See data security policy||See 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.
|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)|
|Users||1 + accountant||Unlimited|
|Self Assessment figures automatically calculated||Yes||Yes|
|Income tax estimates||Yes||Yes|
|National Insurance contributions (NIC2 and NIC 4) automatically calculated||Yes||Yes|
|Supports Making Tax Digital for VAT submissions||No||Yes|
|Supports Construction Industry Scheme (CIS)||No||No|
|Create quotes and estimates||No||Yes|
|Transactions automatically imported from bank account||Yes||Yes|
|Employee expense claims||No||Yes|
|Reports (include profit & loss and balance sheets)||Yes||Yes|
|Customer support||Chat, telephone||Email, telephone|
|Trial period||30 days||30 days|
|Location||United States||United Kingdom|
|Complete list of features||See all features||See all features|
|Integrations||See all integrations||See all integrations|
|Data security and backups||See data security policy||See 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.
|Supports Making Tax Digital for VAT submissions||Yes||No||No||No|
|Supports Construction Industry Scheme (CIS)||No||No||No||No|
|Create quotes and estimates||Yes||Yes||Yes||Yes|
|Transactions automatically imported from bank account||£15 + VAT/year||No||No||Yes|
|Payroll||Possible with a 3rd party integration||only in US and Canada (not free)||Gusto app ($39/m base + $6/m per employee)||No|
|Reports (include profit & loss and balance sheets)||Yes||Yes||Yes||Yes|
|Customer support||Contact form||Contact form|
|Location||United Kingdom||Canada||United States||Canada|
|Paid plans||Yes (£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 features||See all features||See all features||See all features||See all features|
|Integrations||Yes, with paid plan (£45 + VAT/year + Zapier fee)||See all integrations||Very limited||Very limited|
|Data security and backups||See data security policy||See data security policy||See data security policy||See 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 One||Mamut AccountEdge||Banana Accounting||GnuCash|
|System||Microsoft Windows||Apple Mac||Microsoft Windows, Apple Mac, Linux||Microsoft Windows, Apple Mac, Linux|
|Service agreement (excl. VAT)||£228/year - £588/year||£132/year - £252/year||No||No|
|Licence (excl. VAT)||£179 - £1,199||£149 - £299||£95||Free|
|Service agreement / additional user (excl. VAT)||£300/year - £468/year||£60/year - £144/year||No||No|
|Licence / additional user (excl. VAT)||£329 - £799||Free||£95||N/A|
|Customer Support||Free (documentation, email, telephone)||Free (documentation, email, telephone)||Free and paid, Paid||Free (documentation, Mailing list, IRC chat)|
|Supports Making Tax Digital for VAT submissions||Yes||Yes||No||No|
|Trial period||30 days||30 days||30 days||N/A|
|Location||United Kingdom||United Kingdom||Switzerland||Open Source|
|Complete list of features||See all features||See all features||See all features||See all features|