Accounting software

Maintaining accounts can be challenging for any business. Many businesses entrust everything to an accountant. Others aim to save time and money by using specialist accounting software.

If you choose the right package, good accounting software can help your business manage accounts more efficiently. It can make the process quicker and more straightforward. The growing emphasis on e-filing – or submitting records electronically – means that the use of accounts software is even more attractive because many packages can make this process very simple.

However, not all businesses will benefit from accounting software. This guide will help you to decide whether your business needs an accounts package and, if so, help you select the right type of product. The guide will also help you plan your implementation effectively.

---

---

An overview of the different ways to keep business accounts

In order to run any business you need to keep accounts or pay someone to do this for you. Keeping accounts is a legal obligation, but keeping good records is vital to run your business effectively. There are many ways of keeping accounts.

Traditionally, accounts were kept on paper with handwritten entries. Many small businesses still use the traditional methods of bookkeeping, often using specially printed books to organise records. However, handwritten accounts can take a significant amount of your business’ time and it is easy to make mistakes.

Computing spreadsheets can be set up to keep accounts. They can do the sums for you and update all data in a series of spreadsheets simultaneously. However, designing and maintaining a spreadsheet accounts system can be a significant task. Mistakes made in a spreadsheet may go unnoticed and not get corrected until the end of the year.

Computer based accounts packages can:

• save time by only requiring you to enter information once
• keep track of your business’ debtors and creditors
• reduce delays between making a sale and generating an invoice
• automatically calculate VAT
• facilitate more accurate forecasting
• allow you to add payroll modules to calculate pay and produce pay slips

However, a computer accounts package can have some drawbacks:

• The package cost, although small in relation to your other costs, is higher than a paper-based system.
• You may need to purchase yearly maintenance and support for your package.
• An accounts package is designed to suit most types of business. However, if your business is very unusual you may find that you need to change the way you operate to suit the package, or pay to have the package adapted to suit your needs.
• You will probably need some initial help setting up an accounts package. This will usually be a chargeable service, perhaps obtained from your accountant or the system provider.

---

Choosing the right accounting package

Accounting packages can be used for all the important financial transactions in your business and you will rely on it to give you critical information about the health of your business. In order to make the right choice, you need to consider a number of different issues.

To get the right package for your business, you need to define your business requirements and match them to the available packages. A good way to do this is to decide on the overall requirements first, then consider the more detailed requirements within that framework. For more information, see the pages in this guide on assessing your business’ overall needs for an accounts package and on assessing your detailed requirements for an accounts package.

Your package must meet all the statutory (legal) requirements that apply to your business and must continue to do so in the future, by, for example, submitting annual accounts that meet defined accountancy standards. You must also consider the requirement to file some returns online – e-filing. Some requirements apply equally to all businesses, but others are specific to particular businesses and the way they operate. For example, a business that deals mostly in cash will keep accounts in a different way from a business that does not. If you have been running your business with manual accounts then you will probably be familiar with these requirements, but if not, your accountant will be able to help. See our guide on how to choose and work with an accountant.

You need to consider what help you will need to set up, install and maintain your accounts package. For example, if you need to send in your VAT return, but a problem occurs with your accounts package, you need to be able to solve the problem very quickly to avoid penalties for a late return. You need a person or support organisation that you can rely on to sort out this type of problem. Understanding and defining your support requirements is a major part of choosing the right package.

You may prefer to use accounting software that’s accessible over the internet. This approach – known as cloud computing – may be a more cost effective way to manage your accounts. However, there are risks that need to be carefully considered including data protection, business continuity and issues around service provision. For more information, see our guide on cloud computing.

---

Assessing your business’ overall needs for an accounts package

In order to assess what your overall requirements for an accounts package could be, you need to gather together some information on your business. It may be helpful to consider the following:

• Is your business a limited company or do you operate as a sole trader? If the latter then you may be able to use a personal accounts package rather than one designed for a business, as you are unlikely to need payroll processing in this case.
• Do you have employees? If so, you may want an accounting package with a payroll function rather than separate payroll software. You may be required to file certain PAYE returns online. Check that any payroll software is compatible with online filing requirements and meets the HM Revenue & Customs (HMRC) payroll standard.
• How many transactions – ie changes that you need to record in your accounts – will you have in a month? If the number is less than about ten, then you may find that a manual accounts system will be the best choice. If you have a high level of transactions per month, then you need to select a package that is designed for this level of activity.
• How many people will be using the accounts package at the same time? If you only have one person who does all the accounts work then you can use a simple low-cost package. If you need to have several people entering transactions at the same time then you will need something more sophisticated.
• What computer systems do you use? Personal computers with a Windows Operating System such as Windows XP, Windows Vista or Windows 7 are the most popular for business use, and there is a wide range of accounts software for this platform. If you use Macintosh or Linux then you may have a more restricted choice available, in which case you may need to consider using a Windows based PC just for the accounts package. For some applications additional software can be purchased to link a Macintosh computer to a Windows based PC.

---

Assessing your detailed requirements for an accounts package

Your detailed requirements for an accounts package depend on the type of business you have and how you run it. Ideally, you should look for an accounts package that can meet all your overall and detailed requirements. However, you may find there is no available or affordable package. A discussion with your accountant might reveal how other businesses in your industry computerise their accounts.

To make sure you don’t buy an overly complicated system, involve the people who will use it in defining their requirements. They will know what is necessary and what isn’t and are likely to be happy to use something they helped to choose.

Requirements you may want to consider include:

• Basic bookkeeping – for example sales and purchase ledgers, nominal ledger and invoicing.
• VAT calculations – your accounts system should be able to keep track of VAT and calculate your VAT payment at the end of each VAT period.
• Payroll processing – if you have employees, consider a payroll function that calculates PAYE (Pay As You Earn) and National Insurance contributions weekly or monthly.
• The production of management information and reports – you may need to prepare internal management reports periodically, and a system that gives regular management accounts will help improve business efficiency.
• Invoicing – any accounts package needs to be able to produce invoices, but you will probably want to be able to customise them and you may want to send them by email.
• Credit control – an accounts package can help by highlighting where customers have exceeded their limits and provide statements to chase them.
• Compatibility with other accounts systems – including the one used by your accountant.
• Industry accreditation – from an independent industry body such as the Business Application Software Developers Association (BASDA). You can find out about BASDA on the BASDA website- Opens in a new window.
• Ability to exchange information with other computer systems – such as stock control, an e-commerce website or customer relationship management (CRM) system. See the page in this guide on specialised requirements for your accounts package.

---

Prioritising your requirements for an accounts package

Once you have a list of your overall and detailed requirements you should put them in order of priority.

Your overall requirements should have the highest priority since these generally reflect aspects of your business that are very important and will not change – eg whether you operate as a limited company or are a sole trader.

To prioritise your detailed requirements consider:

• how much time and cost a particular feature will save you
• what would be the consequences of omitting the feature – could it be ‘bolted on’ in the future?
• how your requirements are likely to change in the future

You could give each detailed requirement a rating, for example:

• must have – without this feature the package is not usable
• advantageous – the feature would save a lot of time
• nice to have – useful, but not essential

You can now compare your list of requirements to the information that you have about each package.

To carry out the comparison, reject all accounts packages that cannot meet your overall requirements or any of your ‘must have’ detailed requirements. From the remainder select the one that delivers the greatest number of your advantageous and ‘nice to have’ features at a price your business can afford.

---

Issues to consider when making your accounts package selection

The market place for accounts packages is more complex than for typical office packages. You will probably require continuing support and maintenance to ensure that you have someone to call to solve problems if and when they occur.

You may want to work with your accountant to submit your business accounts. To make this process easier for both your business and the accountant, it is important that you can exchange accounts data electronically. 

For some purposes, it is very important that your accounts package is properly accredited as compliant to a standard or code. The HM Revenue & Customs (HMRC) Payroll Accreditation Scheme, for example, shows that the package correctly carries out the Pay As You Earn (PAYE) functions. You can read about the Payroll Standard Accreditation Scheme on the HMRC website- Opens in a new window.

Most accounts packages allow you to create customised invoices, statements, remittance advice and credit notes. If you need these in multi-part, a dot-matrix printer will allow you to print several copies at once. However, a laser printer will be quicker for long invoice runs.

The number of different accounts packages typically used by small businesses in the UK is fairly limited. You can easily obtain information about all these packages from the internet.

An accountant could also advise you on the most suitable package for your business. For more information, see our guide on how to choose and work with an accountant.

---

Specialised requirements for your accounts package

There are a number of more specialised requirements you may need to consider. You can obtain accounts packages with all of these features if you need them, but the cost is likely to be higher.

VAT schemes – there are a number of these, the most familiar of which is the Cash Accounting Scheme where you pay VAT when your invoices have been paid. There are others such as the Flat Rate and Retail Schemes. If you use any of these schemes you should look for a package that supports them.

Foreign currency – if you buy and sell in foreign currencies your accounts may be more complex. You can purchase accounts packages that fully support foreign currencies, but these tend to be designed and priced for larger businesses. You can still operate with a cheaper package, but you will have to do more of the work manually.

Stock control – if your business sells products rather than services and you have a high turnover of sales, you may benefit from integrating your stock control function with your accounts. See our guide on stock control and inventory.

Retail point-of-sale – if you have a high volume of small value sales, eg if you have a shop, you should look for an accounts systems that supports this type of operation.

Electronic payments – there are significant benefits in paying invoices online using electronic funds transfer. Some accounts packages support this capability in an integrated fashion. If this would deliver significant benefits for your business it is worth investigating how the packages work and the costs that apply to this type of service.

Integration with other IT systems – you may wish to integrate your accounting software with your other software such as customer relationship management or e-commerce website. For example you may want online financial transactions to be recorded directly to your accounting software.

---

Implementing your accounts package

Implementation is much more than just installing some software. Your implementation plan should consider the following.

Package installation – this will usually be in the form of a CD-Rom and may require you to register the package with the supplier so it is fully licensed and works correctly. Depending on the complexity of the package, the supplier may install it for you.

Initial company setup – you will need to enter details of your business including the year-end date, the form of VAT accounting you use and other details. Your accounts package may have several different Charts of Accounts – ie the headings you use in your accounts – so you can choose to suit your type of business. However, you may need to tailor this to your requirements. Your accountant should be able to advise you on this work, or undertake it for you.

For more information, see our guide on how to choose and work with an accountant.

Parallel running – you may find it useful to run your old accounts and the new package alongside each other for a while to ensure that you are getting correct results. However, it is difficult to maintain parallel running for very long because of the duplication of effort.

Training – the staff who will work with the accounts package on a day-to-day basis should ideally have some formal training. You should time this training so that it is done shortly before the installation of the software.

Support – it is a good idea to purchase a support agreement from your supplier for your new accounts package, at least for the first year of operation so you have a readily available contact to help sort out queries and problems. Many small businesses find that a support agreement is a good investment even after this initial period.

---

CASE STUDY

Here’s how accounting software brought efficiency savings to my business

Anne Herbert is managing director of PhotoArtistry, a digital printing service for artists and photographers based in Northampton. After a few years of keeping manual accounts, Anne realised there would be business benefits in introducing accounting software. Here Anne explains how she chose the right package for her business and what she is now able to do at the touch of a button.

What I did

Go electric

“PhotoArtistry had been running for three years before I decided to introduce an accounting software package. Until then I had run the business as a hobby alongside my full-time job, so the accounts were manageable by hand. It just required keeping a copy of each invoice sent out and each payment made.

“When I decided to run the business full-time, I knew that an accounting package would make things easier and quicker. I wanted it to calculate VAT, run reports to see how much I was spending with each supplier, and to be able to easily compare how much the business was spending compared with how much it was bringing in.”

Upgrade when necessary

“I started off with a basic package from a well-known supplier, but as the business grew I realised I needed something that would link with our online orders, so I upgraded to another version. Using software from the same supplier meant I could easily migrate all customer and supplier records from one package to the other. This was something I took into consideration when choosing the package. I also know there is another version I can upgrade to, if necessary, in the future.

“I was attracted to the particular supplier because it has a good reputation and is widely known. I also knew that other businesses I had worked for used its software and found it reliable.”

Utilise support services

“When buying the package, I decided it would be beneficial to pay for the telephone support service. As a small-business owner, if accounting or computing is not your speciality, you don’t want to spend half your day under the desk trying to work out which wire connects where.

“Although the support package makes up a fair proportion of our total spend, we benefit from it. When we were installing the package, we had a few problems – the helpline was able to guide us towards a solution over the telephone.”

What I’d do differently

Upgrade sooner

“If I had the money, I might have upgraded our accounting package sooner. As we got more online orders I was spending a lot of time printing out people’s details and inputting them into our accounting package. It is also difficult trying to make changes to the business while you are very busy, so it is worth planning what you will need and when in the early stages.”

---