At its most basic accounting software consists of spreadsheets with rows and columns on which you can record sales and expenses. The spreadsheets are inbuilt with clever functions so that for example columns of figures add themselves up, totals work themselves out and each month’s numbers are summarised and collated on a separate summary page.
How does it work?
There are two types of accountancy software – software which you buy outright and download onto your computer, and software which you access online via a website and pay an ongoing monthly fee.
Why do I need it?
When you start up a business, you will quickly discover that there is a lot of number crunching involved. Not only will you need to record every sale made and every cost incurred, but you will also need to work out your annual corporation tax bill, file your accounts with Companies House if you are a limited company, and submit a VAT return every three months if you are VAT registered. Writing things down in a book is not going to be enough – you will need some basic accountancy software to record it on.
The practicalities
A basic accountancy software package will enable you to create financial accounts, calculate and submit your VAT return, keep track of money going in and out of your bank accounts, manage payroll and create professional quotes and invoices. More complex packages can do a lot more, such as issuing invoices automatically and then chasing bills when they become overdue.
Things to consider
1. Before you buy any accountancy software think about who is going to need to access it. Some packages only allow a single user, but others will allow two or more users.
2. Ask your accountant, if you have one, what software they would recommend because you need to make sure that you are working with software that your accountant is familiar with and which will do the job you need it to.
Top tip
If you are a one-man band with simple requirements, or example you have started a consultancy with only a handful of clients, ask your accountant, if you have one, if they can provide you with a free basic computer-based accounting template which you can use to record your sales figures, VAT costs and so on in the early stages of your business. You can then graduate on to a fully blown accounting system as you need it.
How much does it cost?
From around £125 plus VAT for software which you download onto your computer and from £5 plus VAT a month for an online version. There is also some free software available. Companies which provide accountancy software include Sage, Intuit, Kashflow, Microsoft, Netbooks, Accountz.