Choosing the right cloud accounting software for your business

In the digital age we now live in, accounting has moved into the software realm, with an ever-growing selection of cloud-based accounting software and apps to choose from.

Faced with this abundance of choice, choosing the best accounting software for small businesses can be a complex and confusing task. If you’re going to make an informed decision, it’s important to get some expert guidance and narrow down your options.

With this in mind, here’s our guide to choosing the right accounting software.

The emergence of cloud accounting software

Accounting has come a long way since Luca Pacioli, a 15th century Italian mathematician and Franciscan monk, invented double-entry bookkeeping to help record income and expenditure.

In the 1970s, tools like VisiCalc – the world’s first proper spreadsheet – replicated the lines and columns of a paper ledger in a computerised format. And in the 1990s, we saw the rise of desktop accounting applications, such as Sage and QuickBooks, providing the general ledger, income statement and balance sheet you’d expect to see in a traditional accounting set-up.

But, in the past decade, cloud accounting has become king. Platforms like Xero, FreeAgent, QuickBooks Online, Kashflow, Capium and Sage Business Cloud have taken the key accounting tools and made them available online through your web browser.

But which of the popular cloud accounting software platforms is right for your business?

Consider your business needs and your accounting skills

Whether you’re a startup that’s new to accounting, or an established company that’s looking to switch to a new cloud system, it’s important to define what you need from the software.

Different cloud accounting systems offer different levels of complexity, flexibility and ease of use. So before you make any choices about a platform, sit down with your management and finance teams and dig down a little into your business requirements.

Questions to answer will include:

  • How big is the business? – A sole trader’s accounting needs will be minimal. You just need a straightforward system to record your transactions, produce accounts and tax returns, and stay compliant. If you’re a larger limited company or corporate business, you’ll need more detail, more reporting flexibility and better integration of data.
  • How proficient are you in accounting? – If you don’t understand any basic accounting terminology, you’ll need a very simple and easy to use platform. If you’re more comfortable with the accounting basics, you’ll want the ability to customise your Chart of Accounts, track cost codes and produce highly detailed financial reporting.
  • What level of reporting do you need? – A freelancer or microbusiness will need only the most basic reporting. But most limited companies will require, cashflow statements, balance sheet and profit and loss reports to track the company’s financial performance.
  • Do you need industry-specific tools? – Many sectors will need access to specific tools to manage the accounts. For example, if you’re a construction firm, you’ll need templates for compiling your Construction Industry Scheme (CIS) returns.

Consult your accountant

Having thought about your basic accounting needs, there’s real value in talking to an expert – and who better to talk to than your existing accounting firm.

Increasingly, accountants are embracing technology, the cloud and the benefits of digital software. And many firms will include software advice and integration support within their wider service offerings. Some firms will have a single accounting platform that they support and recommend to clients; other firms will work across a multitude of platforms and will guide you towards the software that’s the best fit for your business needs.

What is your internet connection like and are you mobile?

A key benefit of cloud accounting is that it’s available from any internet-enabled device. So, rather than being tied to a desktop computer in your office, you can take your laptop, tablet or smartphone to any location with Wi-Fi and still continue working with your numbers.

If, for example, you’re a busy plumbing business, you can greatly increase connectivity and efficiency by giving each employee an accounting app on their phone. They can then easily raise a customer invoice, or record their petrol expenses while sat in the van – keeping your bookkeeping up to date and helping you get a real-time view of your overall finances.

Keep your budget and costs in mind

There is free accounting software available, but these tools offer limited functionality. In our opinion, you get what you pay for when it comes to software. Choosing a free option may be tempting, but you’ll get far more value from a paid-for system, so budget for this cost.

Most cloud accounting providers offer a subscription-based charge for their software. You pay a regular monthly fee to access their cloud functionality, in much the same way that you’d pay to use online apps like Spotify for your music, or Netflix to watch the latest TV and movies.

The majority of systems will include all the basic accounting elements in that one subscription fee. But some providers will charge for extra ‘modules’ as and when you want to add things like payroll, expenses or more complex project management tools.

Prices start from around £8-£10 per month for basic packages, rising to £20-£30 per month for premium packages as you increase your size and need more functionality.

Think about integration and compliance

Integration is an important element to consider when choosing a system. Look for a platform that has an open application programming interface (API) that allows connection and integration of your accounting data with other third-party apps, or the servers of external institutions.

For UK business, something like the recent Making Tax Digital legislation shows the importance of good integration capabilities – with VAT-registered businesses now having a mandatory requirement to send digital tax returns to HM Revenue & Customs (HMRC).

Pay attention to apps and add-ons

Many of the bigger cloud accounting providers have realised the added benefit of offering a full range of add-on tools and third-party business apps.

On top of your basic accounting functionality, you can use the open API within your software to integrate with cashflow forecast apps, industry-specific job management and inventory tools, or new digital payment gateways.

Having a good and varied choice of apps can be important if you’re a digital business that’s looking to increase efficiency, productivity and access to detailed business intelligence.

Which platform is best for you?

In the 21st century, your accounting software is the real heart of your business set-up. So making sure you’ve chosen a platform that ticks all the right boxes is critical.

Here’s our roundup of some of the key providers:

  • FreeAgent – simple, straightforward and the ideal choice if you’re a freelancer, contractor or microbusiness with no need for the additional bells and whistles.
  • Xero – a great, easy-to-use dashboard that’s perfect if you’re new to accounting, but with real flexibility and detailed reporting as the business grows. Also has a very large choice of Xero apps that can be integrated with your main system.
  • QuickBooks Online – a streamlined and simple interface that’s aimed squarely at small businesses, but still with the drilled down reporting and accounting functionality that was ported from their desktop version. Also has a good app store.
  • Kashflow – a good choice for small businesses that want a simple platform that gets the job done. All the basics are there but there are fewer options when it comes to apps.
  • Capium – an all-in-one modular system that’s aimed at accountants, and has the scope for them to help you run the basics of bookkeeping, tax returns, accounting and payroll etc. A limited choice when it comes to integrating with external apps.
  • Sage Business Cloud – for bigger businesses, Sage is a dependable provider, offering all the scalable accounting and business functionality you’ll need. There’s decent access to third-party apps, but extra modules will add to your costs and budget.

If you’d like more helpful tips on financial management, there are plenty of useful business accounting, finance, and cashflow posts available via the Fluidly blog.