Which Accounting Software Should I Use for My Small Business?

Xero, QuickBooks, Sage or FreeAgent – which accounting software should you use?

It’s a question we’re asked regularly.

My answer is probably less exciting than people expect:

For most small businesses, it really doesn’t matter that much.

All of the major cloud accounting packages are capable of doing the job. What’s far more important is whether you’re comfortable using the software – and, most importantly, whether the bookkeeping going into it is accurate.

Because the best accounting software in the world won’t compensate for bad bookkeeping.

Xero, QuickBooks, Sage or FreeAgent?

There are plenty of accounting packages available to UK small businesses, but four of the names you’ll regularly come across are:

• Xero

• QuickBooks

• Sage

• FreeAgent

They have different interfaces, features and pricing structures, and inevitably people have their favourites.

But for the typical small business, all of them are perfectly capable accounting systems.

At Paul Marks & Co, the majority of our clients happen to use Xero, but we also have clients using QuickBooks, Sage and FreeAgent.

We don’t believe there’s one package that every business should use.

If you’re already comfortable with a particular system and it’s doing everything your business needs, there isn’t necessarily a compelling reason to change simply because somebody tells you another package is “better”.

Good Bookkeeping Matters More Than the Software

This is the important point.

Accounting software is only as good as the information you put into it.

You can have the latest cloud software, automatic bank feeds, receipt capture and a beautiful dashboard.

But if transactions are being posted incorrectly, bank accounts aren’t reconciled properly or important adjustments aren’t being made, the numbers coming out of the system can still be wrong.

And that’s a problem because business owners increasingly rely on their accounting software to tell them what’s happening in their business.

They may be looking at:

• Monthly profit

• Cash flow

• Debtors

• Creditors

• VAT liabilities

• Gross margins

• Business performance

If the bookkeeping underneath those numbers isn’t right, the management information won’t be right either.

So I’d choose accurate bookkeeping on an ordinary accounting package over poor bookkeeping on supposedly superior software every time.

Choose Software You’re Comfortable Using

If you’re going to do some or all of the bookkeeping yourself, usability matters.

The software needs to fit the way you work.

Can you easily raise invoices?

Can you understand the bank reconciliation?

Can you upload receipts without it becoming a chore?

Can you find the information you need?

Can your accountant access the system?

Does it integrate with your bank and other systems?

There’s little point choosing a particular package because somebody says it’s the “best” if you find it frustrating and avoid using it.

For many smaller businesses, familiarity and ease of use are more important than having dozens of features they’ll never use.

Don’t Choose Software Based on the Brand

Accounting software companies understandably spend significant amounts marketing their products.

Each will tell you about features that make their software different from its competitors.

Some of those differences can certainly be useful.

But I wouldn’t get too distracted by the brand.

For a typical small company, contractor or sole trader, the fundamental requirements are relatively straightforward.

You need a system that records your transactions properly, helps you maintain accurate accounting records and provides the information needed to manage the business and meet your tax and reporting obligations.

All of the main packages can do that.

When Might You Need Something More?

There does eventually come a point where a business can outgrow standard small-business accounting software.

There isn’t a magic turnover figure because the complexity of the business matters just as much as its size.

However, once a business reaches several million pounds of turnover, management may need to start asking whether its existing system is still appropriate.

A larger business might need more sophisticated:

• Management reporting

• Departmental reporting

• Stock management

• Purchase ordering

• Project accounting

• Multi-company reporting

• Foreign currency functionality

• Budgeting and forecasting

• Internal financial controls

At that stage, the question becomes less about which small-business accounting package you prefer and more about what financial system the organisation needs as it grows.

What About Restaurants and Hospitality Businesses?

Some businesses also have specialist requirements that aren’t necessarily handled by the core accounting package.

Hospitality is a good example.

A restaurant might happily use Xero or QuickBooks for its accounting records but require additional software for areas such as:

• Stock control

• Point-of-sale systems

• Purchasing

• Staff scheduling

• Recipe costing

• Margin analysis

The specialist software can then integrate with the main accounting system.

The same principle applies in other industries.

A construction company, for example, may require much more detailed job costing and work-in-progress information than a small professional services company.

The accounting software doesn’t have to do absolutely everything itself.

It needs to form part of a system that gives management the information it needs.

Should You Change Accounting Software?

Changing accounting software can be disruptive.

Historical information needs to be transferred, opening balances need to be correct, bank feeds and integrations need setting up and staff may need retraining.

So before changing systems, I’d ask a very simple question:

What problem are we trying to solve?

If your existing software works, your bookkeeping is accurate and you’re getting the information you need, changing simply because another product is fashionable may achieve very little.

If, however, your business has outgrown the system or it no longer provides the information you need, that’s a different matter.

Choose software based on what your business requires – not simply on which brand is being advertised most heavily.

The Bottom Line

So, which accounting software should you choose?

Xero? QuickBooks? Sage? FreeAgent?

For most small businesses, I’d say choose the one you’re comfortable with and that meets the requirements of your business.

We happen to have more clients using Xero, but we work with businesses using all of the major packages and don’t endorse one particular provider.

The software isn’t the most important part.

Getting the bookkeeping right is.

Good accounting software with accurate bookkeeping can give you reliable information to help run your business.

But sophisticated software filled with inaccurate information simply gives you the wrong numbers more efficiently.

And that’s not much use to anybody.