Accounting software FAQs

About 80% of UK SMEs with employees that use digital technologies use accounting software (source: GOV.UK), making it one of the most widely used digital business tools. However, the smaller the business, the less likely it is to use accounting software. Only a third of the UK’s solo self-employed uses accounting software. 

10 accounting software FAQs

1 What is accounting software? 

2 Why do some businesses not use accounting software? 

3 What are the limitations of manual bookkeeping? 

4 What are the key benefits of using accounting software? 

5 What are tell-tale signs that I need to upgrade my accounting software? 

6 How do I choose the right accounting software? 

7 What popular small-business accounting software is available? 

8 How much does accounting software usually cost? 

9 How do I best introduce my new accounting software? 

10 How do I maximise the value of my accounting software?  

UK businesses are required by law to keep financial records, detailing their income and costs, with dates and sums given. An estimated quarter of small UK businesses still uses manual methods, ranging from basic computer spreadsheets to actual ledger books containing handwritten numbers. 

Those businesses are missing out on a range of benefits, while many existing users could be getting much more value from their accounting software. Accounting software could play a key role in helping you to grow your business. To increase understanding of the business benefits or enable you to get greater value from yours, below you will find the answers to 10 frequently asked questions (FAQs) about accounting software. 

1 What is accounting software?

Accounting software is a digital tool that enables businesses to efficiently and accurately record and manage their financial transactions (ie income and expenses), tax reporting and compliance. Accounting software can also allow a business to keep track of money it is owed by customers, as well as sums it owes to its suppliers. Accounting software is critical to successful cash flow management.  

2 Why do some businesses not use accounting software?

Some don’t use accounting software because they lack knowledge of the benefits or they believe it to be difficult to use and expensive, while other business owners are reluctant to change their existing financial record-keeping habits. Some businesses outsource their bookkeeping. 

3 What are the limitations of manual bookkeeping?

Potentially expensive mistakes can be much more likely when you use manual records and computer spreadsheets. You do not get the same time-saving automation and shortcuts that accounting software provides, while paper records cannot be accessed by many people remotely. Moreover, paper records can get lost or damaged.

Using manual bookkeeping methods requires more time and effort, while completing your tax returns will be more time consuming. And it is more difficult to gain summaries of key figures from paper records and spreadsheets, so creating cash flow forecasts and other financial reports is much more challenging. 

4 What are the key benefits of using accounting software?

• Using accounting software makes tax compliance quicker, easier and cheaper. 

• Accounting software can automate repetitive tasks, saving your business lots of time by minimising manual data entry. 

• Any time your business saves will automatically provide cost savings, while possibly removing the need to pay to outsource your bookkeeping.  

• Accounting software means potentially expensive data-entry mistakes are less likely, with built-in checks and validations ensuring data integrity.  

• The data within your accounting software will reveal your business’s actual financial health, so your management decisions can be guided by reliable real-time figures.  

• Cash flow forecasts and other important financial reports can be produced quickly and with minimum effort.  

• Accounting software also automatically calculates your VAT (if you are registered), Corporation Tax and Income Tax liabilities, so you can better budget for payment.  

• Cloud-based accounting software offers encrypted remote access, facilitating collaboration between you, your team and your accountant.  

• Your accounting software can also be connected to banking, payroll, e-commerce, CRM software, etc, giving you greater overall visibility and control. 

  
  

5 What are tell-tale signs that I need to upgrade my accounting software?

It could be slow and frequently crash or there could be issues with software updates and compatibility with your other digital tools. It might be time to upgrade your accounting software if it requires a lot of manual data entry. You should be able to cost effectively add users and features as required, with financial reports easy to produce.  

Your accounting software should give you access to forecasting and budgeting tools, so you can better manage your cash flow. It should be secure and cloud-based (ie accessible online), so data is available to team members wherever they are.  

Your business may simply have outgrown your existing accounting software. For example, you might need it to now record payments in international currencies, or you may want it to link to your inventory or CRM (customer relationship management) software. 

6 How do I choose the right accounting software?

• Start by identifying how your current financial record-keeping methods fails to deliver and how new accounting software could solve pain points and bring other benefits.  

• Get input from other team members and your accountant if you use one. 

• Set a monthly budget for your new accounting software and research popular options that meet your needs and budget.  

• Consider cloud-based accounting software that can easily be integrated with your other software.  

• Contact vendors for more information and take advantage of free trials, so you can try before you buy. Ask what free training and support is available. 

• Find out what the most cost-effective solution is – but focus on value (ie what you get for your money), don’t just go for the cheapest price.  

• Do not rush your decision. 

  
  

7 What popular small-business accounting software is available?

• Xero – Cloud-based, user-friendly and great for small businesses that need real-time financial tracking. Integrates seamlessly with UK bank accounts and is Making Tax Digital (MTD) compliant. More information. 

• QuickBooks – Powerful automation for invoicing, expense tracking and payroll. MTD-compliant, flexible pricing options, enables businesses to submit quarterly VAT returns to HMRC. More information. 

• Sage – A trusted UK brand with a global customer base whose popular accounting software can help you manage your businesses finances, cash flow, invoicing and compliance. AI powered and scalable. More information. 

• FreeAgent – Created for freelancers, sole traders and micro-businesses. MTD for VAT compliant, automates many tasks and easy to use, all in one cloud-based platform. More information. 

• Zoho Books – Combines affordability, automation and scalability in a user-friendly, cloud-based platform. Includes invoicing, expense tracking, bank account reconciliation and financial reporting. More information.  

• Other options are available, so research the market thoroughly to find the right accounting software for your specific needs. 

  
  

8 How much does accounting software usually cost?

Small-business accounting software typically costs up to £35 per month, depending on features and provider. Some platforms offer free basic plans for sole traders and micro businesses, while fees are higher for advanced tools (eg payroll, inventory, tax filing, etc), integrations and multiple users. 

9 How do I best introduce my new accounting software?

• Decide when you will introduce your new accounting software and build in time for migrating the financial data from your old system.  

• Make sure you and your people get the training required to get the most out of your new accounting software. 

• Automate repetitive tasks (eg schedule recurring invoices and payments, etc) and integrate your new accounting software with your business bank and credit card accounts, as well as your other digital software as required.  

• Give access to those who need it (which could include your accountant).  

• Set alerts within your accounting software for spending budget thresholds or tax compliance deadlines.  

• Start with basic features, then expand into others as required. 

  
  

10 How do I maximise the value of my accounting software?

Use your software to monitor KPIs (key performance indicators) regularly, such as gross and net income/turnover/profit, costs, operating cash flow, etc. Accounting software can easily generate dashboards and reports for KPIs.

Make full use of your accounting software’s reporting features, to arm yourself with the numbers you need to make well-informed business decisions. Generate monthly financial statements and set aside time each week or month to study them carefully.

Also learn how to create cash flow forecasts and keep a close eye on these to help you avoid running out of cash. Always refer to your most up-to-date figures before making important business decisions and be guided by what your numbers tell you – never ignore them.