Accounting Software: The Benefits and Perks of a Tailor-Made System
As an accountant, I often hear this from my clients: “Why do I need to pay for accounting software when I can just use a spreadsheet?”
Well, let me tell you: you’re missing out on a world of ways that accounting software makes your life easier. Whether it’s keeping track of your incomings and outgoings or working out how much tax you need to save, software that takes care of everything will soon be your new best mate.
We’ve got the lowdown on what accounting software does, the benefits and some cheeky ideas to save your hard-earned cash when you get a subscription.
Let’s dive in.
What is accounting software?
Accounting software is a website or app that handles your business’ everyday financial transactions.
Accounting software only needs an internet connection, as the data is stored on the cloud. It can handle many time-consuming tasks like automating invoices, running administrative and bookkeeping tasks, and giving you a snapshot of the business’s cash flow.
Software is great if you have a few different incomes to track alongside your personal tax affairs. For example, you might have your day job, a business on the side and rental property - while the day job’s tax is already sorted, you’ll need to pay tax on the business and rental.
How does it work?
There are two types of accounting software: cloud-based and desktop. Cloud-based software is quickly becoming the most popular option as the data can be accessed anywhere, on any device.
Accounting software looks over your financial statements and transactions to work out your cash flow, where you categorise different incomings and outgoings and save contact information to create invoices as needed.
When it’s time to submit your tax return, your accountant can either directly access the data with your permission or you can send the information to your accountant directly.
Benefits of accounting software
Automates and streamlines processes
If you’re not the strongest at maths (no shame!) and tax returns make your head spin, accounting software can take much of the stress away come tax season.
Its automation of basic accounting processes like repeating invoices, data imports and matching payment references for reconciliation saves a lot of time. You can focus less on the finance stuff and more on what you do best - your business idea.
Generates reports
The world of corporate finance is a lot for a beginner. Knowing your accounts receivable from your cash flow statements can quickly get confusing, but they give you a lot of info about the financial health of your biz.
Enter accounting software, which can handle the reports for you. The software has everything to hand whenever you need a short-term cash flow projection or a profit margin breakdown.
Organises your records
HMRC requires that businesses keep records for at least six years after submitting the tax return. Accounting software keeps everything stored away for you, so you can wave goodbye to those faded paper receipts!
Reduces errors
If you’ve got a lot of incomings and outgoings for your business, it can be pretty easy to make a mistake or miss something when it’s time to reconcile the balance sheet.
Using accounting software to take charge of your transactions is a great way to reduce these errors that can cause a lot of stress when it’s time to prepare everything for end-of-year accounts.
Easier to share financial info with your accountant
Remember all those reports you can generate with the click of a button? That also makes your accountant’s life easier when it’s time for filing. You can even grant access for them to view your data directly, which saves you time on gathering up the information they need.
Helps with MTD
Making Tax Digital will soon be on the way, meaning quarterly submissions to HMRC by freelancers and small businesses will be needed. Accounting software simplifies the whole process, from keeping track of transactions to submitting the tax return.
Snapshot of business at any given time
As long as you keep your financial data up to date, accounting software can give you an accurate snapshot of your business’s financial health at any moment. This gives you precious detail on whether you have room to expand, how much you can pay yourself or if you can afford to take on a new employee for example.
Affordable
Your accounting software can be written off as a tax-deductible expense. Some business bank accounts, like Monzo, offer discounts on these services so you can try out the systems before committing to a monthly subscription.
My personal recommendations
So, you’re sold on the idea of accounting software - but which one should you choose? With a wealth of options available, it can be hard to know which one to invest your time and data in.
Both of these software systems are aimed at freelancers, entrepreneurs and small and medium-sized businesses. They’re largely similar, but it depends on your personal preferences and what your needs are.
Here are the ones I rate.
QuickBooks
Developed by Intuit, QuickBooks is an established leader in the accounting software industry.
Its customisable dashboard gives you an overview of everything you need to know about your financials, while its invoicing service has the added benefit of editing client details directly. It also has great reporting capabilities, which is handy for larger organisations.
Its Essentials package for small businesses starts at £24 a month, while it handily has a self-employed package starting from £10 a month which Xero lacks.
Xero
Xero does everything Quickbooks does, but as a newer entrant on the market, it has a more user-friendly and slicker interface that start-ups and entrepreneurs prefer to work with.
Its reconciling process is very easy to use, taking the pain of bookkeeping away. It’s a popular choice with accountants, many of which are Xero-qualified.
The cheapest pricing option is its Starter package for £14 a month, while its Standard package is £28 monthly.
Wrapping up
There are many benefits to accounting software - from streamlining your processes, giving you back much-needed time and making your tax return a cinch, you certainly won’t regret making the switch.
Psst - my clients can get a discount with these subscriptions. Just ask!