Accounting software remains one of the most widely used digital tools among UK SMEs. When it comes to those with employees that use digital technologies, an estimated 80% use accounting software (source: GOV.UK), but that figure plummets to just 33% for the solo self-employed. UK businesses are required by law to keep detailed accurate records of their income and costs. HMRC can conduct compliance checks and fine businesses for poor record-keeping. About a quarter of small UK businesses still use manual methods (ie books containing handwritten financial records) or basic computer spreadsheets. They are missing out on a range of benefits, while many existing users could be getting far greater value from their accounting software. This guide makes the business case for accounting software and explains how you can maximise its value to help grow your business. Paper record and spreadsheet limitations Some small-business owners do not use accounting software because they lack know-how or believe accounting software to be complex and expensive. Others are reluctant to change their existing financial record-keeping habits. However, potentially expensive mistakes can be more likely when you use manual records and spreadsheets. You do not get the same time-saving automation and shortcuts, while paper records cannot be accessed by many people remotely. Paper records can also get lost or permanently damaged. Using paper systems and spreadsheets requires more time and effort and neither make your life any easier when completing your tax returns. And it is more difficult to gain summaries of key figures from paper records and spreadsheets, so creating cash flow forecasts and financial reports takes much longer. Accounting software key business benefits Accounting software offers UK SMEs a host of benefits including: 1 Time saving Accounting software can automate repetitive tasks such as invoicing and bank reconciliation (accounting software can easily be linked to bank and credit card accounts), saving your business considerable time by minimising manual data entry. 2 Cost saving Any time your business saves thanks to accounting software will automatically provide cost savings, while removing the need to outsource your bookkeeping, which can also provide a cost saving. Using accounting software linked to your bank and credit card accounts can also prevent potentially expensive mistakes that increase your tax bill unnecessarily (eg when you forget to manually record all allowable tax expenses). 3 Reliable data Features within accounting software can prevent manual data entry errors, with built-in checks and validations ensuring data integrity. Accurate data reveals your business’s true financial health and performance, so your management decisions can be guided by accurate figures not guesswork. 4 Real-time insights Accounting software gives you real-time access to summaries of financial and tax information that enables you to make better-informed choices. You can easily create reliable financial reports and cash flow forecasts, so you can plan to avoid potential cash flow problems long before they arise or know whether you can afford to invest in new machinery or take on more people. 5 Better tax planning Accounting software also automatically calculates your VAT (if registered), Corporation Tax and Income Tax liabilities, so you can budget to pay your tax bills and avoid any unpleasant surprises, because you know how much tax you owe. 6 Improved collaboration Cloud-based accounting software offers encrypted remote access, facilitating better collaboration between you, your team and your accountant. Your accounting software can also be connected to banking, payroll, e-commerce, CRM and inventory software systems, giving you greater overall visibility and control. 7 Scalable for growth The right accounting software will help you grow your business, not hold it back. You should be able to add new features and users as required. Accounting software subscription models offer affordable, scalable pricing, which is better for cash flow, too. Do you need to upgrade your current accounting software? You may have outgrown your current accounting software if it is slow and crashes often, or there are issues with updates and compatibility with your other digital tools/software, which can happen with legacy desktop accounting software. It might be time to upgrade your accounting software if it requires a lot of manual data entry rather than giving you time-saving automation and shortcuts. Your accounting software should be scalable as your business grows. You should be able to cost effectively add users and features as required. Your accounting software should also enable you to easily produce financial reports on demand and offer you forecasting and budgeting tools. Your accounting software should also be secure and cloud-based, so that you are not tied to one device, location or team member. Sharing data among team members or with your accountant should be straightforward. Your business may have changed significantly in recent years, for example, you may now be selling to customers in various places overseas, in which case you need multi-currency features. Alternatively, you could be paying for features that you do not need, in which case you should find more cost-effective accounting software that is better suited to your specific needs. Choosing the right accounting software Begin by focusing on your existing financial record-keeping methods, which may or may not involve accounting software. Think about where and how it falls short. Get input from others involved in the financial side of running your business. And if you use one, your accountant is likely to have recommendations. Work out your ideal monthly budget for accounting software. Whatever you spend, it can be claimed as an allowable tax expense. Choose a cloud-based accounting software solution, because it enables remote access, as well as automatic updates. You also need accounting software that can easily be integrated with your other software/systems. Fully explore accounting software options within your budget. Carefully consider how suited they are to your needs. Contact vendors for more information and take advantage of free trials. Find out what training and support is available. Choose the most cost-effective solution, but focus on value (ie what you get for your money), not just price. Popular small-business accounting software options Xero: Cloud-based, user-friendly and great for small businesses needing real-time financial tracking. Integrates seamlessly with UK bank accounts and 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 tax 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 fully to find the right accounting software for your specific needs. Need to know! Small business accounting software typically costs up to £30 per month, depending on features and provider. Some platforms offer free basic plans, while fees are higher for advanced tools (eg payroll, inventory, tax filing), integrations and multiple users. Getting the most out of your accounting software Once you have made your choice, decide when you will introduce your new accounting software and build in enough time for migrating financial data from your old system. Caution is advised; safeguard your existing data first. Make sure you and your people get the required training to get the most out of your new accounting software. Automate repetitive tasks (eg schedule recurring invoices and payments, etc). Integrate your new accounting software with your business bank and credit card accounts, as well as your other digital tools (eg CRM software, etc). Make sure those who need access have it, which could include your accountant. Set alerts within your accounting software for budget thresholds and tax compliance deadlines. Use your new software to regularly monitor KPIs (key performance indicators), such as gross and net income/turnover/profit, costs, operating cash flow, etc. Accounting software can generate convenient 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 to study them. Also create cash flow forecasts and keep a close eye on them to help avoid running out of cash. Always refer to your most up-to-date figures before making important business decisions. Be guided by what your numbers tell you. Business accounting software key takeaways Businesses that do not use accounting software are missing out. Many existing accounting software users could be getting far greater value from their accounting software. Picking the right accounting software and using it to its full potential can enable businesses to operate and grow more successfully. Accounting software can ensure tax compliance and provide time and cost savings, especially when linked to your other software. Small-business accounting software typically costs from £0 to £30 per month, depending on features and provider. Advanced tools and multiple users will increase the price. Analysing accounting software data regularly enables more successful financial management and better-informed decisions based on reliable, real-time data.