Do I need accounting software for my small business?June 30, 2021
Historically, businesses have used paper filing systems to keep on top of their accounts. This not only took up a lot of storage space, but it was time-consuming, insecure and at risk from damage like floods and fires.
Computers have made it much easier to file things such as debits, revenues and expenses, as information can be easily logged, stored and edited on spreadsheets and other documents.
In the late 1970s, accounting was completely transformed with the introduction of software packages. Since then, these programs have been developed with the aim of making them more efficient, user-friendly and affordable.
Not all accounting software is easy to use, though. On the whole, the sector is riddled with jargon and you need to have a good understanding of how accounting works to use these programs. This is why it's so important to choose the right accounting software solution for your business, whether you're a self-employed freelancer, a sole trader or a startup.
Do I need accounting software for my small business?
When running a business, doing your accounts probably isn’t at the top of your to-do list, but taking some time to weigh up the software options out there and to choose the right for you can take the stress out of bookkeeping.
With a good program, it's quicker and easier to input and access your financial data and you're able to generate reports instantly, meaning you can manage your time more efficiently.
Read on to discover exactly what small business accounting software is, the benefits and drawbacks of using it and what’s involved in doing your own accounting.
Doing your own accounts
Rather than hiring an accountant, many small business owners choose to do their accounting themselves. This can be a complicated process, especially if you’re just starting out or you’re using unsuitable software. If you are considering managing your own books, here are some of the most common accounting terms to help make things a little clearer:
|Accounts payable||Any money you owe to vendors or suppliers.|
|Accounts receivable||Money owed to you for goods or services you've provided.|
|Accrual||Recording expenses or revenue that hasn't been accounted for yet.|
|Balance sheet||Also known as a ‘statement of financial position’, a balance sheet is a document that reports your assets, liability and net worth.|
|Bank reconciliation||If the balance in your accounting system doesn’t match the balance on your bank statement, you’ll have to find the difference and make it up. Accounting software can automate this process.|
|Capital items||An item that has a long-term effect on your business (such as machinery or office equipment like laptops and mobile phones) is classed as a capital item. Unless it is an item of considerable value (generally speaking more than £1,500), it can be recorded as a small equipment cost in the normal way.|
|Cash flow||The net amount of money that moves in and out of a business each month.|
|Dividends||A distribution of a company's profits to its shareholders. You will have an additional £2,000 tax-free allowance for your dividend income, meaning that sometimes paying yourself in dividends will allow you to pay less in tax.|
|Equity||The value of a company if all assets were liquidated and any debts were paid off.|
|Gross profit||Total sales minus the cost of the goods and services sold.|
|Invoicing||The record of a transaction between a buyer and seller.|
|Net income||Total profit minus all costs, expenses and tax.|
|Payroll||A list of all employees and their salaries. To be complaint with PAYE, this needs to be run every month.|
|PAYE||The Income Tax and National Insurance deductions that need to be calculated from the company employees' monthly salaries.|
|Revenue||The total amount made from selling goods or services, without taking into account any expenditure.|
It’s important that you understand what you’re doing when it comes to your accounts – not only for tax reasons, but also to keep your business finances in order, tracking your cash flow to help with budgeting and to avoid financial problems further down the line. You might find it helpful to read our glossary on some more accounting terms here.
What is accounting software?
Also known as ‘cloud accounting’, this type of software makes bookkeeping easier. As well as being able to pay bills and keep track of your expenses, at a quick glance it can help you see whether you’re making a profit and where you might need to make any cuts.
Unless all the information is clearly organised, having your accounts laid out in front of you can be daunting. With accounting software, though, everything is divided up into clear sections like invoicing, receipt capture and payroll. Good sites are pleasing to the eye and easy to navigate, give an overview of all the most important information on your homepage and remind you of any important tax dates. In your settings tab, you’ll be able to personalise your account to suit your business needs and do things like restricting access to certain users.
You'll pay either an annual or monthly subscription fee, and can access the software either in the browser or by installing a program onto your computer or laptop. Most packages are mobile-friendly too, with packages like Ember having an easily downloadable mobile app, so you can access your accounts wherever and whenever you need to.
The pros and cons of using accounting software as a small business
In 2019, the tax office introduced Making Tax Digital (MTD). This new legislation means it’s mandatory for businesses with a taxable turnover above the VAT threshold of £85,000 to submit VAT Returns via software, rather than the HMRC website. In April 2022, all VAT-registered companies will have to comply with this legislation regardless of the threshold, so it’s important to start thinking about a compatible accounting solution for your small business.
You might also want to consider accounting software if you’re growing as a business. Excel spreadsheets can be useful to begin with, but things will start to get messy as you expand, and as well as being time-consuming, there’s more room for human error. With certain types of software, it’s easier for more than one person to access your accounts simultaneously and you can have an instant overview of your company’s finances (in real-time), allowing you to make important financial decisions without having to sift through more and more information.
It could be that you don’t feel comfortable or confident doing your own accounts but can’t justify hiring a full-time accountant to do it for you. But while accounting software definitely has its benefits, you might find it difficult and time-consuming to use, or find that it's designed to be used by accountants and not business owners.
Why Ember might be for you
That's where Ember comes in. Not only is our platform jargon-free and easy to use, but with our in-app chat you're never alone when it comes to taking care of your accounts. Our team of fully qualified accountants are always on hand to offer support, so you have the reassurance that you're doing everything right.
Here are just a few more things our all-in-one accounting solution can do for you:
- Reports – You can generate reports quickly, based on data you put into templates that can be customised depending on what information you want to see.
- Banking – By linking to your business bank account, you don’t have to keep track of every transaction – it’s done automatically. Transaction classification predicts which category each one falls into, making it even easier to see where your money’s coming in from and going out to.
- Expenses – Accounting software allows you to snap and store your receipts in the cloud and view your expenses in graphs and charts, so you can keep a closer eye on them.
- Automatic data entry – To save you time, the software remembers certain data you input, meaning you don’t have to type in the same information again and again.
- Multi-currency – If you do business in another currency, your sums will be handled in the background so you don’t have to worry about keeping up with the current exchange rates.
- Tax filing – You can submit tax returns to HMRC directly, without having to do the sums yourself.
Join us in creating the new age of accounting.
Simple language, simple software, so that you can spend less time dealing with admin and more time focusing on what really matters.