Best Cloud Accounting Software for Small Businesses (Updated for 2021)
Traditional accounting was for a very long time the core foundation for accounting methods and processes; however, with the use of desktop computers, accounting software brought a new level of ease and accuracy to the traditional accounting methods. With time the needs and demands of the markets rose as they became global and businesses started to seek expansion to countries other than their own. Therefore, businesses around the world are now shifting to cloud accounting software to manage their income and expenses; in a more technologically advanced and collaborative way.
These advance small business accounting software have changed the workings of traditional accounting and bookkeeping. The new systems are becoming a trend as SMEs are racing to become adopters of this useful technology. Using this innovation they are not only able to meet their goals related to statutory accounts and annual tax returns but are able to build complete eco-systems around business operations, reporting and filings. The cloud software service providers offer their clients with online accounting software in exchange for a small monthly fee. Therefore, small businesses seeking help in management accounts, and bookkeeping do not have to pay a lump sum amount to implement costly ERP or redundant desktop-based solutions.
What is a Cloud-based Software for Accounting?
Cloud accounting is a revolutionary way to manage high-grade accounting software without the need of expensive infrastructure; the term cloud means that you can access the software and the data within it from anywhere in the world with just a computer and the internet. Through cloud storage, one can securely and efficiently manage financial records and information. The cloud software system can handle big data much more easily than traditional desktop apps. The online integration makes the data accessible to users, any time, anywhere, and using any device. However, a basic internet connection and correct credentials for security are still essential to access the system. To increase efficiency and accessibility, many accounting software provides a cloud platform and have built their digital apps to be downloaded on different devices.
According to Mordor Intelligence businesses will opt for cloud accounting software and its market will grow between 2019 to 2025 with a predicted CAGR of 8.5%. The report reveals that the advancement and efficient functionality of bookkeeping software with the integration of supporting apps and technologies is what makes this market so much in demand. These cloud software can automate 50% of the accounting processes; however, you might still need an accountant to manage and analyse the data further for cash flow and financial forecasts.
Making Tax Digital Demands Digital Cloud Accounting Records
As the deadline looms for the initiative of Making Tax Digital by HMRC, businesses are looking for efficient, technically easy, yet comprehensive bookkeeping software. MTD (Making Tax Digital) has brought changes to the way, businesses used to manage and report their tax, and accounts. The VAT process already requires digital accounting records to be reported for business finances through MTD compliant solutions. These MTD compliant small business accounting software digitise the financial records, which were once kept using desktop apps or on paper. VAT registered businesses are required to digitise their business financial records through compatible accounting software to submit their VAT returns.
Sole traders, enterprises or anyone that is responsible for tax, will have to shift to some kind of business cloud accounting software or bridging software to remain compliant to the changes. The complexity of the procedures can be daunting and overwhelming for many and therefore, outsourcing to expert business advisors to help with the process of moving to an accounting system, can be time-saving as well as can guarantee accurate compliance.
Video: Why are Accounting Software important in a Business?
Payroll and Invoicing Software
When running a business, ensuring your finances are in order is essential, especially when you have to deal with paying your employees and sending out invoices. Thankfully, technology makes everything easy, as you can use cloud accounting software with built-in automated invoicing facilities and simple payroll functionality. With MTD (Making Tax Digital) in play, finding the right solution is even more important now.
Businesses initially only had the choice between using desktop accounting software with limited functionality, Microsoft office or expensive Enterprise Resource Planning or ERP’s, which could only be afforded by large corporations and enterprises. Cloud Accounting Software has changed the game, similar to marketplaces which are operated by large operating systems such as windows, google play or apple store. The biggest players in the cloud accounting software industry have also created huge marketplaces with smart and intuitive add-ons. Using these, a small business has at their disposal software and technologies which previously only enterprises could afford, and SME’s could dream about, to amplify their growth.
Why Do Businesses Need Cloud-Based Accounting?
Business across the world are now shifting to the cloud-based accounting phenomenon, and businesses based in the UK are no exception. But why would you need online accounting software when you are handling your accounts properly? Well, the answer is to stay compliant with HMRC and its tax policies; moreover, keeping business records digitally makes it easier to analyse the costs that you can claim as an allowable expense. For businesses, integrating technology might be challenging if the market is not familiar with technical and complex computing processes. Even online retailers and E-Commerce businesses struggle with technical accounting. However, now any business can access their business finances and accounts information in real-time without giving full control to outsourced accountants through cloud accounting software.
The Top Accounting Software in 2020 and what’s predicted to change for the Year 2021?
We have updated the list for the online accounting software, specifically cloud accounting software for the year 2021. Previously we listed down 8 software used and analysed by our expert chartered accountants for the year 2020. The list was as follows.
Xero was at the top of the list for 2020 and one of the leading players in the market. The ranking was mostly affected because of its affordable subscription plans. The ranking was based on its provision to its users with the functionality of raising invoices, processing payroll, submitting VAT in line with MTD (Making Tax Digital). Bank reconciliation was also a cinch; you could connect your business bank accounts, credit cards and payment gateways for live real-time data entry. The software also came with apps for both iPhone and Android phones. Prices started from £10 a month for a basic starter package last year when our experts analysed the Xero accounting software.
This year Xero kept its place in the industry as the leading Cloud accounting software as the integration and affiliated apps can help small business with a variety of business management tasks including inventory, bookkeeping, invoicing, payroll, business management dashboards, VAT returns, and expense claims. Xero can easily import the bank account, credit card, or other transactional data like pay pal. Moreover, the online accounting software is for every business type and can cater to different business owners, sole traders or organisations, according to the requirements of the business. The most important change that we observed for the coming year is the price as Xero makes its services cost-effective by reducing the starter price to £5 for the first three months in their basic package.
Quickbooks are one of the largest and the earliest small business accounting software providers in the world developed by Intuit. The software offers multiple features even in their most cost-effective package, and sole traders and freelancers can use this package to track their income. Moreover, QuickBooks is helping small businesses with creating invoices, cash flow insights, tracking business performance, running payroll and much much more. Previously their pricing started from £12 per month.
For the year 2021, QuickBooks has already updated its services and products, and a few of its other products will be launched soon. The competitive spirit and value addition make QuickBooks a major competitor for Xero. Some of the accounting software solutions soon to be offered will include more streamlined payments, and businesses will soon be able to accept multiple payment methods in the QuickBooks Self Employed package. Moreover, you and your clients will soon have access to mileage tracking through QuickBooks. The subscription prices are the same as last year, starting from £12 per month but you can now get all packages at reduced prices for the first few months. To maximise the value addition, most businesses outsource their accounting to Expert Accountants for QuickBooks.
3. Sage One
A veteran in the world of accounting, Sage business accounting software provides great value for its services. Cash flow forecasting, project tracking, invoices, managing VAT, and quotes were some of the many modules available to businesses that affected last years comparison done by our meticulous accountants looking for innovative accounting solutions. The cherry on top was the in-depth guides created by sage, to help simplify the use of their tools for increased usability, and to reduce the problems you face while using the software. The basic price last year was the same as QuickBooks, that is £12 per month.
This year Sage business cloud accounting introduced payroll integration which was missing last year. As a complete online accounting software, it now caters to small businesses as well as medium enterprises; meets the requirements of different business structures including sole traders and limited companies with complete business management and accounting solutions. Their products include a digital app, cloud-based accounting, payments methods, payroll solutions, HR software, enterprise management, CRM solutions, and international trade services. The basic prices remain the same however sage has been advertising a reduced offer of £4 per month for a limited time. Recently the accounting software was listed for free for six months during the Black Friday sale.
A top-notch software for businesses and their accountants, Clearbooks is the perfect tool for small and medium-sized businesses. When it comes to simple accounting, nothing can match the simplicity of this tool as observed by our team of expert accountants. It comes with an organisational dashboard integrated with numerous operations for small businesses. With this tool, small businesses could easily create and issue invoices, track and submit VAT; easily manage CIS while having unlimited access to free email and phone support. Their small business subscription started at £10 per month last year.
This year Clearbooks kept their place in the top list of cloud accounting software as its integration with other tools and valued additions along with easy solutions for VAT returns, payroll, payments, HR, and accounts, makes it one of the popular accounting software choices for businesses. The pricing remains the same as last year, but Clearbooks is also offering reduced pricing for the first three months.
5. Zoho Books
Zoho Books was a reliable accounting software solution for small businesses and accountancy firms with a comprehensive range of features. When it comes to creating transaction forms and records, you get granular control. Some of the other key features were multiple gateways for payment, simple user interface, and time/project tracking. All these key features can count as the reason that we ranked Zoho books in the last year’s listing. The basic package of Zoho books started at £6 per month for the year 2020.
Zoho Books and its complete range of features now include a customisable option; small businesses can now manage their invoicing, cash flow, expenses, banking, bills, projects, sales orders, purchase orders, payments, VAT returns, reporting, automation, and much more. The pricing for Zoho Books remains the same as the last year with basic starting from £6 per organisation (50 contacts) per month.
Freeagent has been developed, keeping in mind freelancers and small businesses. The key features listed last year were the invoicing, time tracking, and managing expenses. Prices for a basic package started at £14.50 per month for 6 months and then £29 per month thereafter.
This year Freeagent accelerated their performance by adding payroll, VAT, Accounting, and other features along with the previous ones. However, the aim of the Freeagent accounting software is still to cater to freelancers and small businesses while adding features which might be relevant to other business types as well. The pricing of the software remained the same as last observed; however, now you can start with Freeagent and get the first month of services totally free of cost.
Previously, we selected KashFlow because of its efficient features to import information from popular software such as Excel, and QuickBooks. With its easy-to-use interface, the time required to getting used to its features was close to nothing. It also allowed small businesses to create estimates, setup automation, record purchases and import bank transactions. Their starter package starts at £85 per year.
Kashflow is compatible and small businesses can directly connect it with HMRC; enabling them to have easy access to the accounts information uploaded in a single place. The direct connectivity simplifies processes for complex accounting and tax compliances for small businesses. In addition, the accounting software is integrated with advance payment processes like GoCardless and other globally acceptable payment methods. However, there have been a few changes made to the accounting software in terms of elimination of customisable dashboards. Therefore, the offered features are now less than what was initially offered through this simple yet advanced accounting software. Now you can also try KashFlow Payroll for free by filling the required form.
One of the most popular online software for small businesses and their accountants last year was FreshBooks. This last but not the least accounting software comes with countless features. Whether you want it to handle business reports, time tracking, expense tracking, or invoicing, you can do it all from its simple user-interface. Also, you can integrate it with third-party services such as Zendesk, MailChimp, WordPress, and PayPal. Their Lite package starts at $15 per month.
Are there free alternative cloud Accounting software?
If your budget is low or if you do not have a budget at all you can always opt for using free cloud accounting software offerings, accounting software such as Wave, SalesForce, Zipbooks, GnuCash etc. Wave software is completely free and can provide functionality such as invoicing, accounting, scanning of receipts. Other services are also available on a pay as you go basis. Gnucash is opensource, which means if you have a developer, you can modify the software as per your business requirements.
Which accounting software is the easiest to use?
Quickbooks can be considered the easiest software to use, not only due to its user-friendly interface; the free customer service it provides online and on the phone provides added value to new businesses or first-time users. A free 30-day trial can help you decide if QuickBooks is the best option for you or not. However, most accounting software is developed considering the fact that expert accountants will manage the accounts and therefore, some of the processes can be quite complex to understand unless you outsource an accountant to help you with that.
Cloud Software Resource
Making Tax Digital – Which software are compatible?
The deadline to register for digital self-assessment is nearing; the constant changes in legislation are keeping all business owners on the edge. Recently VAT became applicable to MTD requirements with other categories being planned to be included soon such as income tax. Most accounting software for the year 2021 will be compatible with HMRC’s requirements for MTD (Making Tax Digital). You can always visit the official UK government website to confirm the software compatibilities with MTD; before you decide on which software to buy.
For instance, Quickbooks claims that users can use it for completing and submitting Self Assessments to HMRC. However, on close inspection, our team of expert accountants realised that the reality is quite the opposite; you can only get access to the information HMRC requires from the software. You will have to copy and paste the information onto the online form currently used by HMRC to be able to submit the return.
On the contrary, FreeAgent can directly file tax returns for small businesses and individuals to HMRC and that also in just a few clicks. However, if HMRC decides to completely stop their system for repair or in an emergency, it can interrupt the smooth process for filing tax. It is better to try free trials to get accustomed to the most commonly used features and business requirements.
Our comparison image shows which software are MTD (Making Tax Digital) compliant and which ones are not.
Common Questions About Accounting Software Answered
What’s the difference between desktop accounting and cloud accounting?
The desktop accounting was quite an innovation but is now old school. To calculate your expenses through desktop accounting, you must download the required software in the computer to access the features. However, for cloud accounting, you only need official security credentials and internet connection.
Do I have to know about accounting to use accounting software?
If all of your business financial records are not online and are currently on papers or desktop apps; you may still need basic understanding and knowledge to use the online accounting software. The basic knowledge will help you find trends and identify spot opportunities. Moreover, the proficient accounting software will give you insights on the true standings for your company.
However, if you already have an accountant on board with your company; you might not have to worry about the complex procedures. However, the basic knowledge will help you understand your finances for better monitoring of the performance of the accountancy firm or accountant you have hired to do the difficult calculations and compliances.
I am a Startup. Do I also need accounting software?
For startups, it might look like an overkill to buy accounting software; you can easily manage initial financial records on the papers or desktop apps. However, with the HMRC making it compulsory for even sole traders to register for self-assessment; for that, you must have compatible accounting software to report your finances, accounts, and tax returns. It might look less compelling as you’ve just started your business; however, it would be much easier to understand the complexities when you start managing accounts online from day one.
What is the benefit of Cloud accounting Software?
Cloud accounting is more efficient, secure, and have vast storage to store for your financial records. The online documents and transaction also give you easy access to your business information. Most importantly the organised system will save your time by avoiding unnecessary procedures and headaches to manage the accounts.
How do I choose the right accounting software?
We have listed above accounting software that you can analyse for your usage. However, taking the trial versions of preferred accounting software will help in better understanding of each one as per your business requirements and needs. You may also hire an accountancy firm that can help you integrate the most compatible software for your business.
Can accounting software replace accountants?
Although the innovative accounting software is bringing change to, however, we cannot deny the importance of a certified chartered accountant in the rise of business performance.
Can I easily migrate my current accounting and customer information?
This question can be applied if you are already using any that you want to replace or upgrade. The last thing we would like you to experience is to encounter problems while moving all your old financial records to any other software. However, most leading software gets the clients on board after guiding them to the initial shifting procedures. So it solely depends on the type of accounting software hosting platform that you choose.
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants, and has over 10 years of experience in practice and across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. It was this dexterity that led him to be Enterprise Nation’s Top 50 Advisors.
Jibran is fueled by his passion for helping businesses. He unequivocally believes that as business advisors and accountants for our clients, it is our responsibility to work with them as business partners. As specialists, it is our duty to help our clients navigate through the complexities of constant change and the implications that come with it.
Over the past decade, innovative disruptions have changed the way businesses work, everything from cloud software, innovative business models, to AI and machine learning, have impacted how businesses operate, grow, and expand.
Jibran recognized the need to manage these disruptions sustainably, early on and shaped Clear House Accountants to not just be compliance specialists, but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
Jibran developed his prime role as the Managing Director to build Clear House’s capabilities so it can add value for their clients. He is of firm belief that this can be done through consistent high-level training, building the right tools, and creating roadmaps to help businesses cope with prospective disruptions. He envisages that every client that comes on board, is provided maximum value through onboarding, ongoing services and the right mix of tools to help them become the best in the world.