So you have a fantastic idea for a business. You’ve done your business plan, set yourself up either as a sole trader; a partnership or a limited company, opened a bank account and you’ve made your first sale. So what next?
Well you’ll need to decide how you are going to record the day to day bookkeeping transactions of your business and how you’re going to pull all the information together in such a way that will give you a clear idea of whether your business is succeeding or indeed failing. But which way is best?
There are many different options that are available to you and your choice may come down to a few key factors. Factors such as; ease of use, cost, functionality or familiarity. You may have previous experience with a particular product or way of doing things, but is it right for what you’re doing now? Let’s take a look at the options.
1/ Bag & Box
Many people in business simply don’t have the time to do the bookkeeping themselves and that’s perfectly understandable; after all you do have a business to run. So they put all their invoices and receipts into a bag, a shoe box or a folder and leave it until the end of the financial year and pass it to their accountant from them to deal with.
No problem, that is what you pay them for after all. But it does mean that you have no real idea how your business is performing; other than the money you have in the bank. The pitfall with this is that you’re always second guessing what’s happening in your business. Who owes you money? What are your overheads? Are you making a profit? What will your tax liabilities be?
Recording (or not in this case) your financial information in this way gives your accountant little or no way of offering you advice on your business until well after your financial year end. Everything they will be able to tell you about your business is retrospective and can not be influenced or changed in any way.
The next option is to use a spreadsheet to record your income and expenditure. This is great for people who have some experience of excel or google docs. Whilst experience isn’t always necessary (as your accountant may be able to provide you with a pre-designed spreadsheet to help you), they can go wrong if formulas are altered, overtyped or removed and this can have a drastic effect on your understanding of the numbers.
In my time as an accountant, I have used and seen many excel spreadsheets with a variety of complex formulas. I have also seen the discrepancies formulas can cause when they are altered and the detrimental effect this can have on a business owner understanding the key figures glened from a spreadsheet.
As with the bag and box way of recording your information, spreadsheets also offer very little way for your accountant to give you sound business advice. Whilst you would be able to email a copy of the spreadsheet to your accountant for them to give you some advice, you wouldn’t want to be doing this more than once a month let alone weekly.
3/ Desktop accounting software
There are a variety of desktop based bookkeeping & accounting software products on the market these days, the most popular and well known of these is Sage; but there are also Quickbooks, Oracle and SAP to name just a few.
All of these products have their place in the market and have been around for many years. For some time now Sage has been seen as the industry leader in desktop based accounting software for small/medium business and has developed its product time and time again. However, as an accountant, even I find it difficult to use, clunky and far too complicated so how would someone with little or no experience be able to use it to produce accurate financial information.
As for collaboration with your accountant this is no easier than with a spreadsheet. The software is on a desktop P.C or a laptop which (unless you take it to them) your accountant doesn’t have access to. You can make a copy of your latest backup and give it to your accountant, either on a disc, memory stick or using something like dropbox but again, this information is already out of date. If your accountant reviewed the information and then made some changes, you wouldn’t be able to continue with your bookkeeping until you had re-installed the latest backup…..not ideal.
4/ Cloud accounting
Now we move on to the new breed of accounting software. Cloud accounting evolved from the earlier cloud computing technology of the late 90’s and its ability to share data simultaneously with others users anywhere they have an internet connection.
There are many providers of cloud accounting software, Clearbooks, Freeagent and Kashflow immediately spring to mind. All of these are great cloud based accounting software solutions and all have a lot to offer a small business. They all allow a business to collaborate virtually with it’s bookkeeper and accountant or indeed with different members of the team. However, having trialled a couple and collaborated with clients using some of them, they seem to me to come up short of their potential.
Xero on the other hand (in my opinion) is in a different league to the others. Its ability to drastically reduce the time you will spend “doing your books”, being able to do business “on the go” with Xero Touch (it’s phone app), the ability to get a real-time view of your cashflow, it’s online quotes, automatic bank feeds, in depth reporting functions, payroll…….I could go on but I think you get the picture. The icing on the cake for me though is its “add-on” marketplace with literally hundreds of applications that will perform even more functions to streamline your business even further.
Do you have trouble getting your invoices paid on time? Then perhaps use Chaser to send automated reminder emails to your customers which you can tailor to your own style.
They will be sent every 7 days with the first going a week before the due date, it will also send a thank you once you’ve been paid.
Do you spend ages processing a pile of purchase invoices every week? Then use Receipt Bank to process them for you. Email your invoices to your unique email address with Receipt Bank or take a photo of them with the Receipt Bank phone app and let Receipt Bank do everything else for you….simple.
Have you ever gone to a meeting and forgotten to record your mileage? Then Tripcatcher is the one for you. You can either record the journey on your web account using the start and end postcodes and Tripcatcher will do the rest, calculating the mileage claim using the latest HMRC approved rates. Or you could use the iphone or android app to record the journey for you. Then you just link it to your Xero account and the information will be there ready for you to make your expenses claim.
Well all of the above have different strengths and weaknesses but for me, the way forward is definitely in “the cloud” and I firmly believe that Xero is the industry leader.
Why not give it a try with a 30 day free trial or call us on 01902 212937 for a free demonstration.