Digital accountancy tools have done nothing short of revolutionise accounting and bookkeeping for small businesses and sole traders.
What was once a laborious, time-consuming, brain-numbing and often stressful task often left to catch-up sprints (frequently around a dining table late into the evening with boxes of receipts for company) has become an easy, on-the-go activity. All your documentation is reliably stored in the cloud with just a minute or two’s effort as and when you need to do it. And keeping on top of it just takes a few clicks.
And it’s not just about the well-known accounting platforms themselves. There’s also the whole ecosystem of apps and bolt-on tools that has built up around them. These can streamline almost every stage of your accounting process, from the moment you’re handed a receipt at the garage or trade counter to the point where you’re working out whether you can afford a new van in November.
Here, we take a look at the kind of accountancy tools available and weigh up the benefits. So you can decide for yourself which will be the best way to go for your business.
Core platforms: the industry’s workhorses
Our industry’s core platforms such as Xero and QuickBooks are all cloud-based and readily configured to allow attachments, data feeds and updates from the wide range of third-party apps you can find for business transactions. This means the software you start with doesn’t have to be the limit of what you end up using.
People used to say “There’s an app for that” for everything, and the same is true for your business. However, the number and type of apps that will genuinely be useful to you depends on the kind of organisation you’re trading as. For example: a sole trader plasterer will have very different needs to a business holding stock across two units, but the ecosystem is broad enough to serve both.
The main platforms also do something less obvious but just as valuable. They give you and your accountant a shared workspace, where both of you can see the same transactions at the same time, from whatever device you have to hand. So, let’s take a look at what kind of apps are available to enhance the way both you and your accountant can work on your business.
The main event: receipt capture
If you only ever add one thing to your accounting software, make it a receipt capture app. Apps such as Dext allow you to photograph a receipt on your phone – the fuel, the sandwich, the goods from Howdens or your local suppliers – and then forget about it.
The app reads the information off the receipt: the description of the expense, the supplier names and the numerical values. When the matching transaction comes through your automated bank feed, it auto-matches the receipt with the payment.
That does two things. First, it vastly improves identification and traceability in your bookkeeping, because every figure in your accounts has its evidence attached rather than sitting in a pile somewhere waiting to be reconciled. Second, it takes a huge volume of filing out of the hands of someone who has a day job to be getting on with. There’s no end-of-week or end-of-month receipt archiving session and no receipt library to maintain.
In practice, once a receipt has been adequately captured, that digital copy is good enough to show you’ve kept the record, so it can, in theory, go in the bin. You don’t need a box of paper in the garage for six years. The space it takes up is on a hard drive or in the cloud instead.
Other bolt-on apps you might want to consider
Beyond receipt capture, most of the genuinely useful additions fall into three categories:
Inventory management
If you hold stock, apps can track the type of stock held, its value and its consumption over time. For businesses where stock is the main asset on the balance sheet, having that visible and accurate as you go – rather than reconstructed at year end – makes a considerable difference to how well you understand your margins.
Budgeting
Not every small business creates a formal, rigid budget and plenty get along perfectly well without one. But if you’re large enough, or simply inclined to do it, apps such as Syft let you build a budget for sales and expenses over whatever period suits you: three, six, nine or twelve months.
Linking the app to accounting software like Xero allows it to report variances against that budget as the year goes on, surfacing variances in revenue and expenditure. The value here is in the timing. Instead of a reactive review at the end of six or twelve months telling you how the business performed after the event, you get to see how performance is tracking against what you expected while there’s still time to take action if you need to.
Cash flow forecasting:
Cash flow tools such as Float and Fathom connect to your accounting software and your bank feeds, then track cash inflows and outflows on a daily, weekly, monthly or annual basis. Based on the information you feed in and a reading of previous trends, they’ll forecast what your cash position is likely to be at any point on the horizon you care to look at.
For a small business, this is powerful from a cash management point of view, and from a sanity point of view, too. Knowing roughly what will be in the bank in six weeks’ time is worth a great deal when you’re weighing up whether to commit to something like a new vehicle or upgraded business hardware.
Because of those links to your software and your bank, cash flow tools can also:
- Flag upcoming tax payments (e.g.: Self Assessment in January and July, VAT quarters, corporation tax) so you can prepare
- Prompt you about regular supplier payments where the terms aren’t immediate
- Show you where there might be an opportunity to fund significant purchases from reserves rather than third-party finance
- Generally provide comfort and sanity by giving you a clear read on how the organisation is performing against your own goals
That tax reminder function is more useful than it sounds. HMRC are reasonably good at writing to people about what’s due, but post gets put to one side and emails get skimmed. If a payment is already sitting in your cash flow document, the app will prompt you that you need to make it.
Do banking apps provide the same kind of service?
This is worth addressing, because clients ask us about this fairly often.
Business bank accounts with the likes of Starling or Monzo now offer a basic ability to raise invoices and allocate cost types, and for a very simple business that can feel like enough. In our experience, though, they aren’t as user-friendly, or as accountant-friendly, as they could be. They also still require you to create an output from your banking app and send it to your accountant, so that we can see what the banking software has recorded.
The bigger issue is that there’s no shared access, and the setup is rigid. If clients are repeatedly misposting or mis-allocating invoices or expenses, it can turn into a problem. On shared accounting software, the accountant can spot it and advise the client about it in good time. On a bank’s platform, repeated errors could go unnoticed for months.
As a rule, we don’t want access to a client’s bank account in the first place. Your bank account is a personal thing. We choose not to operate in that environment mostly because of privacy and trust, but also partly because of risk: if we were moving things around in a live banking app, there’s a faint but real possibility of doing something adverse – interrupting a payment you were about to make, or affecting money coming in. That’s business critical, so it isn’t an area we want to play in.
Cloud accounting software works around this neatly. It sits alongside the bank as a standalone layer and records transactions; it doesn’t affect your bank or your cash balance. So we can move transactions around, reallocate an expense, or pick up VAT that should have been claimed and wasn’t, and make those corrections more or less in real time without touching your day-to-day banking.
And because we can see patterns, we can advise on them too. Errors get spotted and explained rather than quietly compounding for months, and we can say it would be better if this kind of expense, or this income stream, were treated this way going forward.
So, what are the right accounting tools for your business?
What you need depends on what you do and how you do it. Every business is unique, and what works well for one can be an expensive irrelevance for another.
A sensible starting point for almost anyone is a core cloud platform with receipt capture bolted on, because those two together remove the bulk of the admin and stress. After that, add tools to solve the problems you actually have: stock if stock is your business, budgeting if you want to plan formally, cash flow forecasting if the future is what keeps you awake.
If you’re still looking for the right combination, get in touch. We’ll go over your business set-up and give you our honest view on what’s likely to help, what you can safely ignore and happily talk over any other queries you might have.
