Gone are the days when businesses were wholly reliant on the services of a bookkeeper or accountant to handle their financial matters. One of the biggest shifts in business innovation in the last decade must surely be the evolution of “all singing and all dancing” accounting software. Online accounting software such as Xero and Quickbooks are now extremely popular with small and medium enterprises. For larger businesses ERP solutions from SAP, Microsoft and Oracle tend to be the preferred choices.
Modern cloud-based software can handle most of the financial administration needs of small and medium-sized businesses including VAT returns, payroll, invoicing and even credit control. Many businesses choose to have the best of both worlds, however, using accounting software and also the services of a chartered accountant. Using this approach, the accountant can ensure the proper use of the software generate the necessary accounts and returns from the information produced. In this article we will explain why now is the time to unleash the benefits of accounting software for your business.
What is accounting software?
Accounting software is used by businesses and companies of all types and sizes to manage their finances. Most modern online accounting software tends to be “cloud-based” and accessed through a web browser or a mobile phone or tablet application (or “app”). The term “accounting software” understates the capabilities of most modern cloud-based accounting packages. The latest generation of cloud-based accounting software offerings can handle a wide range of business needs including:
- Bill payment management
- Contact management
- Expenses management
- File storage (e.g. contracts, invoices, bills, receipts)
- Financial reporting (e.g. P&L and balance sheets)
- HMRC returns (e.g. VAT)
- Management reporting and analytics
- Payroll / PAYE
- Project cost management
- Purchase orders
- Stock inventory.
Accessible at any time, anywhere, by anyone
Cloud-based accounting software offers companies and users a number of important advantages over traditional software. Because the system and data exist in the “cloud” (i.e. they are held securely online) they can be accessed at any time, anywhere, by anyone on any compatible device. This removes the need for businesses to host and maintain their own in-house software, reducing cost and complexity.
Streamline your financial processes
Accounting software provides a structured way of managing your business’s finances. Predefined workflows ensure that each aspect of your financial management (e.g. payroll, expenses and invoicing) is as efficient and robust as possible. Many financial tasks that used to take many hours can now be fully or partially automated. This means that financial administration tasks are handled in the same consistent manner, to the highest standards and without errors or unnecessary duplication of effort.
Modern cloud-based accounting software such as Xero and QuickBooks, for example, can automatically connect to your business bank accounts and synchronise all of your transactions. They will then reconcile each bank transaction to ensure that each is properly accounted-for against the correct ledger. If a payment is received from a customer then it will be reconciled against the invoice. At a later stage, when a VAT return is generated, the software will automatically calculate any VAT to be paid based on the sales in a given quarter. All of this removes the need to undertake laborious and time-consuming manual financial tasks.
In addition, reminders can be set up to prompt users to take specific actions, providing confidence that deadlines will always be met.
Real-time view of your financial position
Perhaps one of the greatest benefits of modern accounting software is the ability to gain insights that you may never have considered before. In the past, businesses typically struggled to understand their financial position at any given time. Accounting software now lets one view dashboards and run management reports to see your financial performance in real time. Dashboards can be tailored to the needs of each user to let them see, for example, the current balance sheet including assets, liabilities, equity, the bank balance, invoices owing, bills due, expense claims, profit and loss, cash flow and a great deal more useful information. This is information that, traditionally, would have taken hours or days of work to extract using manual processes.
Accounting software management reports enable users to extract detailed information about the financial health of the business, including:
- Aged payables
- Aged receivables
- Budget variances
- Business summary reports
- Depreciation schedules
- Fixed asset reconciliation
- Management summary reports
- Statement of cash flows
- Statement of changes in equity
- Trial balances.
Not only can these kinds of reports be run at any time, revealing the live financial status of the business, but they can also be tailored to your exact needs. Doing so will enable your management team to gain insights and identify anomalies which may be key to making day-to-day and strategic decisions. Online accounting software also makes it easy to share financial information and reports with others to ensure effective collaboration.
Improves the quality of financial data and reporting
Traditional accounting and financial management methods can be prone to error. Errors can occur at any stage – for example during data entry, when importing data from other systems or when running financial calculations. Mistakes can also arise due to the double entry of data, incomplete or incorrect reconciliation or simply forgetting to add transactions. Furthermore, when using paper-based accounting systems, financial information may become illegible or lost due to poor filing procedures. The resulting poor quality data can have serious implications, not least:
- Accounts, ledger, financial reports and returns may be incorrect
- Incorrect calculation and payment of tax
- Loss of revenue
- Incorrect decision making.
The latest cloud-based accounting packages remove the potential for poor-quality data. For example, in-built data validation and automated calculations remove the potential for human error.
Reduces financial management costs
Online cloud-based accounting software reduces costs in a number of ways.
- Your business can redirect manpower that is currently dedicated to financial administration. In turn, this may remove the need to hire more staff in the future, reducing your overall costs.
- The automation built into many accounting packages reduces administrative overhead. Rather than manually contacting all customers with overdue invoices, the software can automatically send them reminder notices at set intervals. Core tasks such as payroll, VAT returns and invoicing can all be automated. One can set up automatic payments (i.e. direct debits) to reduce the time needed to handle them. It also allows management reports to be produced “on the fly”, removing the time and cost of manual preparation.
- Less time is required to fix errors. Mistakes can be costly, not just because they may result in overpaying tax or VAT but also because it can take considerable time – and hence cost – to fix errors if they arise. Accounting software greatly reduces the potential for data errors and, hence, the overheads associated with fixing them. It also makes it easier to find problems early before damage is done.
- Provides all of the information that your accountant needs to prepare your accounts and returns. In order to prepare your financial accounts and returns, your accountant requires lots of information – e.g. details of your sales, expenses and assets. Most accounting software automatically provides all of the information required by accountants as and when needed.
Handles your VAT tax returns to HMRC
All VAT-registered businesses are required by law to keep and maintain records. The preparation of HMRC VAT returns can be a complex and lengthy process, typically carried out every quarter. Many accounting software packages are fully compatible with the “Making Tax Digital” (MTD) service, enabling VAT returns to be sent to HMRC directly and without delay. Crucially, you can be confident that any returns sent from your accounting software through the MTD service meet HMRC’s strict compliance standards.
Data security and protection
Some businesses who are considering cloud-based accounting software may be concerned about data security and the potential for breaches of legislation. Accounting software vendors understand the importance to businesses of GDPR and data protection compliance. Regardless of whichever system you choose, your financial data will be stored and processed in accordance with the GDPR and data protection rules. Data is also highly secure due to the use of encryption technology and robust back-up processes by online cloud-based software providers.
Accounting software is now a mainstay of most SMEs and large organisations and can handle many core business functions. Being able to view your financial performance in real time and make business decisions accordingly will give you a considerable competitive advantage over your rivals. When considering which accounting software to implement within your business – e.g. Xero, Sage, Quickbooks or Zoho – it is important to consider not only your immediate but also future needs. Selecting the right software today means that it will support your growth and expansion tomorrow and in the coming years without the need for costly replacement and retraining.
At Uniwide Formations we understand the importance of timely and accurate financial accounts. Our trusted specialist accountancy partner can handle all of your accounting needs for a reasonable monthly fixed fee, including the preparation and submission of your annual accounts and Corporation Tax Returns.