Accounting software helps keep you in control of the finances and the future of your business. You can automate regular tasks, manage invoices and expenses, and complete statutory returns.
Accounting software can also provide useful management information, help you prepare forecasts and monitor business performance.
1. Routine savings
Accounting software gives you control over your company's financial management. You only need to enter information on customers, suppliers and more once, with the software doing the hard work.
Create invoices and bills on screen
- Enter details of purchases and sales, then use the software to automatically create purchase orders and invoices.
- Add or link details of customers and suppliers, so that contact details are pulled in automatically.
- Store information about your products or services, so you can insert names, prices and other details automatically.
- Set details of VAT rates (and any VAT schemes you use), discounts and commissions. Most packages will allow you to customise these for different customers and products, so that invoices can be completed automatically.
- Use the software’s built-in checking capabilities to minimise data entry errors. For example, the software should check dates, customer numbers, VAT codes and other entries to ensure they're accurate.
- Minimise waste, delays and cost by sending documents like invoices, statements and remittance notes via email where possible.
- Some packages offer electronic invoicing, where the invoice is transmitted to your customer's purchasing system for payment.
Routine book-keeping is handled by the software
- As you enter details of sales, purchases and other transactions, the software will update your accounts automatically. For instance, if you record a purchase of stock, the cost will be recorded and your stock level will be updated.
- As a result, you should be able to view the latest information on customer status and stocks whenever you need it.
- This can help streamline the stock-ordering process. Many accounting packages can be automatically linked with a stock control module or separate stock control software.
Keep a close eye on your cash position
- The software should show the impact of payments and receipts on your cash position, with details of your bank balance together with information on any payments that have not yet cleared.
- If you use multiple bank accounts (plus any credit or debit cards) make sure the system is set up to allocate payments correctly.
- Securely connect to your online banking. This allows the software to download details of your latest transactions and reconcile them with your accounts, giving you a truly up-to-date cash position.
Make the most of any additional modules that can help with routine administration
- Many providers offer payroll functionality that makes it easier to calculate and print payslips and send payroll data to HMRC. You usually have to pay extra for this.
- All businesses must now report payroll data to HM Revenue & Customs online, each time they pay their employees.
2. Completing statutory returns
Automatic book-keeping makes it much easier to prepare statutory returns and annual accounts.
Software should simplify and speed up the preparation of VAT returns
- As long as you enter all your transaction details, the software should show all the information you need for your VAT return.
- Accounting software should also be able to display your VAT liability at any time, and keep track of when your next tax bill is due.
The software will make it easier to deal with HMRC
- You should be able to produce a statement showing profits (or losses) for the year to date.
- Preparing forecasts will help you estimate future profits and how much tax you will owe. Your cash flow forecast will show when your tax bill will arrive, and whether you will have the cash in the business to pay it.
Some accounting packages can help automate tax and VAT returns
- Most accounting software can file VAT returns directly to HMRC.
- Businesses affected by Making Tax Digital are advised to use accounting software to prepare and file VAT returns.
- Giving your accountant online access to the software can make completing tax returns easier and quicker, reducing costs.
The software helps your accountants prepare your year-end accounts
- The software should let you produce a 'trial balance' which totals all debit and credit balances and checks for mismatches.
- All accounting software should be able to produce a profit and loss account, summarising your performance for the year.
- Accounting software should be able to produce a balance sheet summarising assets and liabilities.
VAT without tears
Any package should be able to handle invoice-based VAT accounting.
The figures needed for your VAT return should be automatically available, together with a full list of all transactions.
Check the software can handle any VAT scheme you use
- For example, if you use the VAT cash accounting scheme or the flat rate scheme.
- Some packages may have difficulty coping with less common VAT schemes.
You should be able to specify the VAT rates for different products
- Check that the software can cope with different VAT rates and regulations, particularly if your business sells abroad.
Check how easy it is to change the way the software handles VAT
- This will be important if your business is not registered for VAT, or if you expect to register or de-register in future.
3. Financial control
Accounting software gives you instant access to information that can help with your daily activities.
Tighten up your credit control
- You should be able to run reports to show how much your customers owe you.
- You can spot potential problems by analysing the information by various criteria, such as geography or salesperson.
- The software should also be able to produce reports showing the payment history and outstanding balance for each customer to help you determine how much credit to offer them.
- Accounting software can be particularly effective when integrated with a customer relationship management (CRM) system to give your sales team access to every customer's history.
Analyse sales information
- You should be able to analyse sales by different categories, such as customer, outlet or salesperson.
- You can identify your most profitable customers, track seasonal variations in sales and so on.
Monitor your stock position
- Movements in stock levels should be picked up automatically.
- You may need additional hardware to gather information on fast-moving stock.
- For example, you may want to connect POS ('point of sale') terminals to your accounting software.
- With accurate, detailed stock level information, you can streamline your inventory, minimising the amount of cash tied up in your warehouse.
4. Preparing forecasts
Accounting software should make it easier to prepare revenue and expenditure forecasts.
These forecasts will enable you to check actual performance against expected performance. As a result, you can identify where and why you have performed better (or worse) than expected.
Prepare budgets showing the sales, costs and profits you expect
- The software should be able to handle recurring costs such as rent and wages. If necessary, consider purchasing additional budgeting or forecasting functionality.
- You can use past experience to forecast sales levels and to identify the cost of fulfilling your orders.
- Establish an expected ‘standard cost’ for different items, and measure actual costs against them.
Prepare cash flow forecasts
- The forecasts show what cash you expect to come in, and when.
- Such forecasts will enable you to take steps to identify and rectify any shortfalls.
Make 'what if' calculations
- For example, you can see what impact there will be if your sales assumptions turn out to be over-optimistic.
Use graphics to make information easier to understand
- if the software has limited capabilities, export the information into a spreadsheet and use that to produce the charts you want.
5. Monitoring performance
Accounting software makes it easier to assess the overall performance of your business, and how well individual parts are performing.
Compare performance against budget or against other comparable periods
- Set up a system that allows you to monitor each individual area.
- You will be able to identify problem areas and pinpoint the cause of poor performance. For example, if your sales are behind forecast, you may be able to trace this back to a marketing underspend.
- You should be able to identify problems earlier and take action to fix things sooner.
Determine the real performance of each department
- The software should allow you to break down your costs for different departments, products and individuals. You can match costs with income to determine how much each activity earns you.
- More advanced software allows you to allocate costs to different products, services or projects to determine their real costs.
Set up a 'dashboard' of key performance indicators
- The dashboard quickly highlights the most important information, and is updated as soon as new transactions are entered. You can drill down into more detail if you need it.
- Dashboards can display your performance graphically, which makes it easier to understand, particularly for those who are not confident with figures.The dashboard can be made available throughout your company, so all employees know how the business is performing.
Produce management accounts
- Monthly management accounts will give you a good idea of how well your company is performing against targets. Some companies may want to produce them more often.
- Track both profitability and cash flow. Make sure non-cash items such as depreciation and pre-payments are handled correctly.
- Consider breaking the figures down by product, service or division.
- The accounts should cover the latest period, and also show the picture for the year to date.
- You can check the performance of each part of the company and produce a 'profit and loss' account summarising overall performance.
You can update budgets and forecasts easily
- The actual performance to date can be used to amend your forecast for the year.
Information overload
Accounting software can produce detailed reports covering every area of your business. Think carefully about how you use and interpret this information.
With so much data, information overload can be a problem
- Stay focused on the core objectives of your business.
- Be wary of jumping to conclusions. For example, a lower-than-expected profit can have many causes.
Ensure you interpret data correctly and measure the effect of changes properly
- For instance, try not to make several major changes to your marketing at once. If you do, it can be difficult to discern the impact of each change.
- The impact of changes, even large ones, can take time to filter through to sales performance.
6. Getting started
If you are using software for the first time, or are radically upgrading your system, you may have to change how you work. Review the various accounting software packages on the market to make sure you get one that will meet your needs.
You might need help to get a system up and running
- Having a system compatible with your accountant's can make it easier to prepare figures. You may want to adopt the one your accountant uses, for ease in preparing year-end figures. Only do this if you are confident it meets your own requirements too.
- The best time to introduce a new system is usually at the beginning of a new accounting period. However, you can switch at any time, as long as you enter in the right starting figures.
- You need to decide who has access to the system, and how you will maintain its security.
Learning a new system takes time
- Allow time for all staff to get familiar and confident with the system. Trial and error could be very expensive.
- Make sure you can get adequate support and training for you and your employees.
- Think about how much training you will need. Different personnel will need different levels of training.
Expert quote
"The businesses that are going to succeed in the new world will be those that are the most agile, relying on accurate key performance indicators and data that can now be delivered in seconds, not days. Today's accounting systems offer so much more; they are financial management solutions that are proven to improve operational efficiency and responsiveness." - Paul Sparkes, IRIS Accounting and Business solutions