Choosing accounting software for your business
The good news for business owners is that there’s loads of software out there to help you run your business.
The bad news for business owners is that there’s loads of software out there to help you run your business!
So choosing software can be a major headache and one that’s likely to turn up several times as your company grows.
To keep it simple, systems fall into two fairly distinct buckets – installed software or ‘software as a service’ or SaaS.
Installed software is like things used to be. You buy a disc and copy the files onto your PC. Of course today you are just as likely to download the program from the net but the principle is the same in that the program lives on your machine.
SaaS doesn’t live on your machine, it exists in that exciting thing that they call the cloud. Someone somewhere on the planet owns the software and you pay a monthly licence fee to use it. A good example of SaaS is Microsoft office 365. You pay a monthly cost to have access to the whole suite of office products over the net.
Both of these methods have their own distinct advantages and disadvantages and what’s right for one business may not be right for you.
Let’s start with installed software. The market leader in the UK was always Sage and with good reason. In the early days of accounting software theirs was the most robust and feature rich system available and it was at a reasonable price. In the early 2000s though other companies began to catch up and products like Quickbooks and MYOB turned up.
Installed software is great if you have dodgy broadband. It sits on your machine or on your server and you use it from there. All of the data is held by you and you are in control of the program. If you don’t want to update or add extra features you don’t have to and with many of the better known packages you can find a developer to customise them for you. You can usually link them in easily to other systems you have in the business too such as EPOS, BACS or payroll software.
Many products will also have software as a buyable add on. Things like HR, Payroll, E commerce are now becoming the norm in a decent accounting package and making them more of an ERP (Enterprise Resource Planning) system than just a bit of software to do your books.
There are downsides to having a product installed locally though. Usually there will be updates. Most of the time you won’t have to buy them but in some cases you’ll have to pay (such as with payroll software) and there’s little point in using it if it won’t be right. You are also responsible for backing up not only the software but also the data files. You have to do this otherwise, if your PC or server goes Phut! then you’ll lose everything.
Generally speaking installed software turns out cheaper. You pay upfront for the software but then there is no monthly fee afterwards. It sounds more expensive in month one but if you work it out then over a year or two it’s much less expensive. You have to add in the cost of updates and of a backup solution plus any specific things you need for your particular setup such as multi user access or server installation. Sometimes the cost of support needs to be factored in and this can add quite a lot to the price.
If you take all of the benefits and disadvantages of installed software and reverse them then you’ll have a list of the good and bad points about SaaS.
SaaS is a great way to spread the cost of buying your software. The cost per user is usually very low, normally around £20 per month and this includes all of your hosting, backup and updates. You only buy what you need, so if you need access to only certain parts of the package or if you only need one user licence then that’s all you pay for. You can even get some free packages. The great thing about SaaS is that you can be up and running in minutes and you don’t have to worry about anything.
Very often SaaS will be accessible on a variety of devices. Given that the world is moving away from desktop PCs and much more towards smartphone and tablets for their information then this makes sense. A desktop install is generally not accessible in this way, especially at the lower end of the market.
The major problem with SaaS is that it works fine if you’re in Central London but Rural Dorset may be a different matter. You have to have a good robust broadband connection and it needs to be fast. It’s no good having the best system in the world if it moves at a snails pace. Don’t underestimate this point though, if you are using providing vital client services through SaaS and the water board digs up your broadband accidentally you ay find yourself a bit stuck. Still you could always go and log on at Starbucks!
You may also find that an internet based system doesn’t have the depth of features of an installed one and generally you can’t configure it the way you like. Think of Google docs. This is a fantastic suite of office products that are free to use but how customisable is it? The answer is that you can change the colours and appearance a bit but that’s your lot.
Whilst we’re on the subject of Google Docs; if you’ve used this SaaS for any length of time you’ll realise how completely at the whim of the developers you are. Google routinely changes its offering. Most of the time this is a good thing but occasionally they take away something that has been in use for a while and become an integral part of a company’s systems such as when they discontinued Gadgets. The other problem, especially with free software is that there’s no Service Level Agreement. This means that Google can go down at any point for any length of time it likes. Given that in general this is a US company it’s often in the middle of the night in the US. Which is fine if you’re in the US but not so good if you’re running a PR company in Milton Keynes.
When you’re looking for SaaS it’s important to bear in mind the maxim that ‘there’s no such thing as a free lunch’. SaaS gives you loads of stuff but you’ve got to pay for it somehow. Often this is just a case of paying more over a longer term but sometimes it can take the form of limits to features. So for example you may be allowed to print out 5 invoices at the £20 per month level but when you want to print the sixth it will move you up to £30.
What will it cost?
To help out I’ve done a comparison of features and costs for typical installs. This is not a fair comparison really as I’ve used Xero medium which doesn’t have a lot of the features of Quickbooks but it may give you a rough idea of typical costs.
A PC installation of Quickbooks is £269 plus VAT for a single user. This allows you 1 user but if you want up to 3 then it costs £684. You can install this across a network. Xero costs £19 per user per month.
If you were to buy Quickbooks and Xero for one user and one company then the first year costs would be £269 and £228 respectively so Xero looks like the best option. Add in 2 extra users and they come out at £684 in both cases.
Where Quickbooks wins big is in year 2. There are no more costs for the accounting package (although you’ll have to pay for a payroll update (around £100 if you use this) but of course you still have to pay for Xero. So the 24 month costs are quickbooks = £269 and Xero = £456 for one user and £684 and £1368 respectively for 3.
Quickbooks is also better if you run 2 or more companies. Multi company is included at this price level but with Xero you have to buy 2 subscriptions although they do give you a 15% discount on the second one.
There is of course a third option – outsource your bookkeeping. This makes sense because your bookkeeper will have their own system and you’ll probably get an economy of scale. Also whilst they are busy doing your books you can be off doing what you do well and probably earning more money as a result. When you add in all the costs of going it alone outsourcing starts to make sense. See our choosing a bookkeeper or accountant guide for more information.
The most important thing is to check out all the features and benefits of each system. Think about what you need now, but also where you see your company going. You may only need a 1 user system now but in a years time? Do you need payroll? Will you want to link with other systems like a CRM or EPoS system?
The following list of questions may help:
Do I need more than one user licence?
Do I need multi company?
Will I be working in foreign currencies?
Does my business use other systems that I want to link in?
How will I access support if the system goes wrong?
Do I have a stable and fast broadband link?
Have I got the cash now to spend on a system?
Have I got the technical know how to install a system or do I need someone else to do it for me?
How often will I be required to upgrade and what is the cost?
If I expand will the system scale up to cope?
Can I add on extra modules such as Payroll, HR or CRM?
Are there any activity levels that I need to be aware of and will they increase the cost?
Can I access it using any other devices?
Can I file accounts and payroll information directly with HMRC?
What happens if I stop paying my subscription?
How will I back up my data?
Brought to you by Sochall Smith, Sheffield Accountants