Choosing accounting software

1.1 A computerised system can automate many tasks.

• Book-keeping is simplified and automated.

  For example, when you enter an order, the software will update the stock and customer records and allows you to translate the order into a sales invoice.

• Bank reconciliations, VAT returns, monthly management accounts and other tasks can be completed quickly and accurately.
• Some software supports electronic banking and online tax filling. This could save time.
• Most packages let you add a payroll module to automate the calculation and payment of wages.

1.2 Accounting software provides a wide range of up-to-the-minute management reports at the touch of a button.

• For example, aged debtor and creditor lists, the bank account balance, tax and VAT owed, balance sheet, profit and loss, stock values and performance against budget.
• Other useful calculations, such as project profitability assessments, can be produced by linking into job costing software.

1.3 The software makes it easy to prepare for your annual accounts, or your audit.

1.4 You can make further improvements by integrating different processes.

• For example, you could use the information contained in your ledgers to generate debt-chasing letters or mailshots automatically.

2.1 What are your business objectives?

For example, you may aim to capture ten per cent of a given market within five years, or to open ten new shops across the UK.

2.2 Who is going to use the software?

• Involve the employees who are going to be directly affected by changes you make.

  What would your employees like to see in a future accounting system, and what are the limitations of your existing system?

• Fully involve your accountants from the start. Check they will be able to use the information generated by the software to produce your end-of-year accounts and to satisfy the requirements of the annual audit.

2.3 What management information is crucial to the running of your business?

You may need to involve an accountant or outside consultant to help determine what information you will need to extract from the system.

• A consultant may be able to identify new ways in which you can use your financial data to improve your business.

2.4 Can the software handle all the book-keeping tasks you need it to perform?

These might include:

• Sales, invoicing and receipts.
• Purchases and payments.
• Banking and cash management.
• VAT, tax and accounts.
• Stock control and payroll.

2.5 What special needs does your business have?

• For example, do you have more than one business, or trade internationally?
• If you run an online business, can the software integrate with your e-commerce solution?

  If you buy and sell in different countries, check that the software can cope with the currencies you deal in.

3.1 Can the software interface be tailored to suit your needs?

Features to look for include:

• The ability to add new fields and controls.

  For example, do you want your sales ledger to contain additional information, such as the name and contact details of the person who placed the order?

• The option to set defaults for fields.

  For example, do you want your payroll software to add a list of standard benefits automatically each time a new employee's details are entered?

• The option to define a range of values.

  For example, can you minimise data entry errors by defining entries in advance?

• The option to customise screens.

  For example, do you want the screen layout to look like your working documents?

3.2 Can you paste information from other programs?

This saves time and allows you to make the best use of all your software.

• Ensure you can import and export information between the accounting package and any word processing packages, spreadsheets and databases.

4.1 Start by looking at how the software handles sales and purchase transactions.

Most software provides these functions in the form of a sales and purchase ledger.

• Can you input detailed information on your customers and suppliers?

4.2 How flexible is the structure of the nominal ledger?

Most accounting software is constructed around the nominal ledger, which brings together your assets, liabilities, income and expenses. A ledger with a flexible structure allows you to define the best accounts structure for your business.

• Can you categorise different items according to departments or cost centres?
• More flexible systems allow you to define how your accounts are allocated.

  Simple systems require items to appear in the order in which they occur on the balance sheet or profit and loss account.

• Does the software allow you to input a full range of transactions?
• What budgeting facilities does the ledger allow for?
• Can you generate separate ledgers to track specific pieces of information?

4.3 The more flexible the software is, the more you can tailor it to your business. This can make a major difference to the overall usefulness of the software.

• Will your accountant be able to use the reports to prepare year-end information?

5.1 Sole traders with simple book-keeping needs may be able to use 'money management' software.

• Well-known packages include Microsoft Money Plus and Simply Books.
• Remember that these packages may be designed for managing personal finances and often have limited business capabilities.

5.2 Accounting packages have been developed to meet the needs of most small businesses.

• Well-known packages include Sage Instant Accounts and Sage 50, Intuit QuickBooks SimpleStart and QuickBooks Pro, Mamut One and Microsoft Money Plus Home & Business.

5.3 More advanced accounting packages come in modules, with each module handling one aspect of financial management (eg sales ledger).

• Well-known packages include Sage 200 and Pegasus Opera. Most businesses use at least three modules (sales, purchase and nominal ledger).

5.4 Multi-user networked systems generally demand more computing power than single-user systems.

• Check your existing hardware can run the packages you are considering.

  Updating your IT and accounts systems at the same time will be expensive.

• Most Windows packages need at least 256Mb of RAM and 500Mb free disk space on a 1GHz processor.

5.5 You may want to consider a hosted accounting package.

• A hosted package runs on a server operated by another company. You pay a regular fee to access the software over the Internet.
• There are no upfront costs and management costs are lower as the hosting company takes care of the infrastructure and technical support.
• Hosted packages allow you to access your data anytime, anywhere and make it easier to collaborate with your accountant or advisors.
• However, your company's financial data resides outside your business, so you need total confidence in the hosting company.
• Hosted accounting applications have evolved significantly and with the advent of broadband have increased in availability and popularity.
• The number of companies using SaaS (Software as a Service) systems has risen considerably in the last years and now represents approximately 10 per cent of the total market for accountancy software used.
• Hosted packages include Kashflow, Xero and accountsIQ.

5.6 Look for accredited software.

• The Institute of Chartered Accountants in England and Wales maintains a list of accredited accounting software. Visit www.icaew.com for more information.

5.7 Different users will need different amounts of training.

• The person responsible for managing your accounts will need a more detailed understanding of how the system works.
• Employees responsible for particular functions need to be able to perform those tasks only.

  For example, a sales person may only need to know how to raise an invoice.

• Thorough training can be costly, but is far cheaper than learning by trial and error.

5.8 Maintenance and support are key aspects to consider when purchasing your software.

• You may need to pay an annual fee to receive ongoing technical support.
• You may need to update the software from time to time.

  Ask about the vendor's track record in providing support for older systems.

• You may need to upgrade your computer system periodically.
• Using a hosted package will reduce supports costs and maintenance considerably.

6.1 Most accountants can advise businesses on what software to choose. But some are far more experienced than others.

• Your own accountant may not have experience of a sufficiently large number of software packages.
• Accountants may be primarily interested in how well the software tracks transactions, which makes auditing easier. You may be interested in the possibility of obtaining management information that will help you run your business more effectively.

Some firms of accountants are software resellers (see 6.2). They will have IT departments dedicated to accounting and other software.

6.2 Most software is purchased through resellers, which can provide expert advice on the products they sell.

• Does the reseller supply businesses similar to yours?

  For example, an advertising agency with specialised billing requirements may prefer a supplier with experience in dealing with such needs.

• What is the reseller's track record in providing support and training?

  Ask if you can speak to businesses it has supplied about their experiences.

• Many resellers are also software developers. They can customise the software to meet your exact needs.

  Ensure the benefits of having a system customised will outweigh the costs.

• Resellers can also give you advice about your IT requirements.
• Remember that advice from a reseller is likely to favour the packages they offer. You may wish to seek impartial advice.

6.3 Be wary of any software which does not already have a large 'installed user base'.

• A large user base removes a significant element of risk. It usually indicates an established product with better support and more investment in upgraded versions of the software.