The best accounting tools for small business in the UK

Doing the accounts may not be the most thrilling part of becoming your own boss, but it’s vital for ensuring the long-term success of your enterprise – and not just because you need to get the year end figures right for tax purposes. 

Up-to-date accounting also provides constant clarity on how your business is performing – you’ll see if your cash flow is in good shape, if you’re meeting your profit targets, and if your latest marketing strategy for small business success is translating into bottom line results.

It will also allow you to accurately track and categorise your business spending, so you can assess the return on investment you’re getting, and don’t miss out on any tax deductions for small business you’re entitled to.

The good news is there’s a host of accounting software available to do much of the heavy lifting for you. As long as you can provide the figures and receipts, they’ll take care of the calculations and organise the data to male them easy to access and submit to HMRC. 

Accounting tools for small business owners

You might be going it entirely alone when it comes to managing your finances, or you might have hired an accountant to deal with the larger tasks, and just want to handle the basic bookkeeping yourself. Either way, these are some of the best accounting tools for small business on the market right now.

QuickBooks

You don’t need to have started a business to be familiar with the name Intuit QuickBooks, as this is arguably the most well-known accounting software brand out there.

Its suite of tools can handle a vast range of tasks, from providing 24-month cash flow forecasts based on existing patterns of payments and expenses, to allowing you to easily input those expenses by simply taking photos of your receipts on your phone. These are then automatically sorted by QuickBooks into the right tax categories, so you don’t have to worry about stashing the receipts somewhere safe for years on end.

QuickBooks has a wider range of pricing tiers than many other accounting software brands. So, whether you’re only looking to log the income and expenses for a side hustle idea, you’re a full-time sole trader who has to create regular VAT returns for HMRC, or you have employees and require extra tools like payroll creation, there should be a package to suit your needs.

It should also be noted that, unlike some other software tools, QuickBooks offers support by phone as well as online chat, which can come in handy if you run into any difficulties.

Xero

As you’d expect from one of the best accounting tools for small business, Xero offers a diverse range of services, from day-to-day financial analysis providing key performance metrics like gross profits, through to smart inventory management.

The latter will be a vital part of operations management whether you run a physical shop or want to make money online by selling items through a virtual storefront. Xero will automatically track what you have in stock, tell you what is and isn’t selling, and compare profit margins for different items so you can refine your pricing strategies.

Xero makes it easy to pay employees and deduct pension contributions, and also allows you to grant employees self-service access to the platform so they can view payslips, submit timesheets and request leave.

Another benefit of Xero is that, if you run a shop or food and drink business with a point of sale system, you’ll be able to integrate your POS with the Xero platform, streamlining how you track your in-person transactions.

Sage

Another leading accounting tool for small business is Sage, which performs key tasks like tracking invoices, automatically processing expenses data from photos of receipts, and providing detailed reports on important metrics like your operating cash flow.

While it has fewer pricing tier options compared to some other top brands, it clearly lays out what you can expect from each, with the most advanced package allowing you to keep tabs on your inventory and use your financial data to set the most viable small business budget for a particular time period.

Sage has distinguished itself by being quick off the mark when it comes to leveraging generative AI. Its human-like Sage Copilot answers questions on all aspects of small business accounting, carries out tasks like the creation of net cash flow reports and client emails, and generally functions like a member of your team. 

Plus, if your actual team is growing and you need software solutions to facilitate how you scale your business, Sage has that covered thanks to a plethora of advanced financial management and HR tools for larger enterprises. 

QuickFile

Free accounting tools for small business do exist, and while they will necessarily have a more limited capabilities, they can be a useful go-to if you’re exploring the most low cost business ideas, or if your small business finances are tight.

A prime example is QuickFile, which provides a very useful suite of services for no cost whatsoever (as long as your total number of nominal ledger entries don’t exceed 1,000 in a rolling 12 month period). 

You can swiftly log your expenses by taking snaps of receipts, just as with paid-for software brands, and create financial reporting documents such as profit and loss accounts and balance sheets. 

It also allows you to provide your clients with a fully branded online portal where they can access invoices and statements, make payments, and have a simple and convenient way to communicate – this can go a long way towards clarifying queries and other issues which may be raised by difficult clients.

FreeAgent

As the name suggests, FreeAgent is another free accounting tool for small business, as long as you have a business bank account with NatWest, Royal Bank of Scotland or Ulster Bank, or make at least one transaction per month through Mettle.

If you don’t qualify for the cost-free service, FreeAgent does have a relatively low cost entry-level tier specifically designed with sole traders in mind. This package allows you to process expenses, track the profitability of specific projects, and generate VAT returns, among other tasks which can be so important for running a business.

If you’re setting up a limited company, you can subscribe to a higher tier which comes with additional services like payroll software which will automatically calculate what’s owed to your employees, and submit necessary details straight to HMRC.

Either way, FreeAgent – like the other leading accounting tools – also provides invoicing tools so you can create, send and keep tabs on the invoices sent to clients.

FreshBooks

All the top accounting tools for small business owners have clean, intuitive interfaces, and FreshBooks is no exception. This neat suite of solutions has everything an entrepreneur needs to make small business tax returns less daunting, with tools for tracking all your business transactions and ensuring your expenses are accurate and itemised.

It can also provide insights into your workplace culture by letting you track how much time you and your team are spending on particular tasks and clients, so you can spot where lag may be taking place, and where you might need to intervene to boost efficiency.

Depending on which tier you subscribe to, FreshBooks also captures receipt data, tracks project profitability, and provides a channel for submitting unlimited numbers of quotes and proposals, which can play a decisive role when it comes to how to get clients.

Zoho Books

If you’re just commencing your entrepreneurial journey, or are only looking to make money on the side with your business, Zoho Books should be on your radar. 

That’s because it has a free tier for businesses which have an annual revenue below £35,000, and this covers a plethora of services including generating small business VAT returns, putting together financial reports, and charting expenses. 

The platform also has a multitude of paid tiers to consider, which progressively add more functionality to the platform, including cash flow forecasting, inventory tracking, timesheet creation and a fully customisable dashboard so you can manage your finances in a way that suits you.

Benefits of accounting tools for small businesses

Whether or not you subscribe to an accounting tool will come down to your personal circumstances and the small business ideas you’re interested in pursuing.

For example, if you have a very modestly-sized enterprise in mind – say, an online print-on-demand store to bring in a passive income – you may not feel it’s worth investing in software for handling your finances. 

However, it’s worth bearing in mind that the best accounting tools for small businesses offer low or even zero-cost tiers, so you’ll lose nothing by signing up. Plus, you’ll be obliged to use HMRC-compatible software if you’re VAT registered, as your VAT returns must be submitted using such software as part of Making Tax Digital for VAT.

That obligation aside, here are some other benefits you can gain from using a small business accounting tool.

Ensures your accounts are in order

Manually tracking your transactions and small business expenses can be a major hassle, taking up precious time that could be better spent on important business operations like engaging with customers on social media, doing market research, and training employees. 

A good accounting tool will dramatically cut the time you need to spend on accounts, automatically collating all the salient information, generating reports and setting out the details required for filing your tax return.

Cuts the risk of errors

As well as being a chore, doing your accounts manually also runs the risk of human error. Spending hours transcribing numbers between spreadsheets, sifting through receipts to track expenses, and doing calculations with a literal calculator, it can be all too easy for mistakes to occur. 

By automating the process, you can be almost certain that your records will be accurate. This is a particularly vital consideration when dealing with HMRC, as any mistakes can increase the chance of being singled out for a tax investigation. 

Provides access at all times

Another major advantage of using accounting software is that it puts your finances at your fingertips wherever you are. 

As the best tools are cloud-based, you’ll be able to inspect your reports, timesheets, invoices and other important documents wherever you happen to be, as long as you have a computer, laptop or mobile device and an internet connection. 

Depending on the package, you’ll also be able to grant access to your staff so they’ll be able to consult documents relating to their hours worked and salary payments. This can make them feel more connected to the business and help create a positive working environment.

Helps you develop business strategies

Having the latest financial details and analysis on tap can be invaluable when it comes to change management for small business success. 

By seeing which products and services are turning a profit, which aren’t pulling their weight, and whether efforts to advertise your business are paying off, you can make informed judgments on the changes you need to make in order to improve cash flow and put you in a better position to pursue business growth strategies.

How to choose the right accounting software for your business

As we’ve seen, there are plenty of accounting tools for small business to choose from, and with all this choice it can be tricky deciding which to go with. Here are the questions to ask when weighing up the options.

What are my genuine requirements?

The best accounting tools come equipped with all kinds of bells and whistles which may sound exciting, but which may be pretty irrelevant to your business. 

For example, someone opening a brick-and-mortar retail store on the high street will inevitably have more complex requirements compared to someone pursuing business ideas from home, and so will need a more elaborate software solution encompassing things like payroll and inventory management.

It’s a good idea to sit down and write a business plan to map out exactly how your enterprise will operate so you’ll be clear on the kind of software to seek out.

How do the tiers compare?

All the best accounting tools for small business offer tiered packages, and it’s important to check how the equivalent tiers from different providers compare. For example, one provider’s entry-level package may include receipt photo capture capabilities for tracking expenses, while another provider’s might not. 

By paying careful attention to the tiers, you’ll see where you might get the most bang for your buck. It’s also worth considering what’s included in the more advanced packages, so you can be sure the provider will be able to cater to your needs later along the line. After all, you don’t want to go through the hassle of switching software platforms when your business scales up.

What customer support is available? 

Some accounting software platforms are backed up by expert support teams you can reach by phone and online live chat. Others limit interactions to online only, and this is worth checking if being able to speak to a human is an important consideration for you.

Does the price fit your budget?

As with all investments you make into your business, you need to be clear-eyed about the price tag. While accounting software is unlikely to rank among your major expenses as a small business, the cost of a monthly subscription will add up – so ensure it falls within your budget and that the services will give you the necessary return on investment.

Disclaimer: The contents of this page are intended for informational purposes only and should not be construed as professional advice. For matters requiring legal or financial expertise, it’s recommended to seek guidance from qualified professionals.