In order to run any business, you need to keep accounts or pay someone to do this for you. Keeping accounts is a legal requirement, but keeping them well is vital to running your business effectively. There are many ways of keeping accounts, including:

• paper-based accounts
• spreadsheet accounts
• computerised accounting packages

Paper-based accounts

Traditionally, accounts were kept on paper with handwritten entries. Many small businesses relied on the traditional methods of bookkeeping, often using specially printed books to organise records. However, handwritten accounts can take a significant amount of business time and it is easy to make mistakes.

If you currently keep paper records such as a notebook or paper receipts, you can continue doing so. However, if you are a VAT-registered business, you must also keep your records of sales and purchases digitally (unless you are exempt). Find out more about Making Tax Digital for VAT.

Accounting spreadsheets

You can set up computing spreadsheets to keep accounts. They can do the sums for you and update all data in a series of spreadsheets simultaneously. However, designing and maintaining a spreadsheet accounts system can be a significant task. Mistakes made in a spreadsheet may go unnoticed and not get corrected until the end of the year.

If you choose to keep digital records on a spreadsheet, you should use bridging software to make sure your spreadsheet is Making Tax Digital compliant. You can use the HMRC online service to search for bridging software.

Accounting software packages

The ease and efficiency of accounting software generally make it a better choice for most businesses. If you choose carefully, the right package can:

• save you time and money
• reduce mistakes in your calculations
• help you gain insights into your business that you would not easily see in paper accounts

A software package that is compatible with Making Tax Digital for VAT will also allow you to keep digital records and submit VAT returns, to ensure that you meet your responsibilities towards HMRC. To find out more, watch a video about getting compatible software.

Read more about the advantages and disadvantages of accounting software.

Reliable accounting software is likely to benefit many businesses. However, such software sometimes comes with its share of problems, so it is important not to overlook the possible issues.

Advantages of accounting software

Benefits of accounting software include:

• simple data entry - it is typically fast, straightforward and only required once
• fast processes - delays, for example between a sale and invoicing, are minimal
• digital record keeping - essential for compliance with Making Tax Digital for VAT
• automation of reports and analysis - eg on profit and loss, debtors and creditors, customer accounts, inventory counts, sales, forecasting, etc
• automation of tasks - eg calculating pay, producing payslips, calculating and submitting VAT, etc
• reduction of errors - eg transposition of figures, incorrect or incomplete recording of transactions, etc
• integration with other systems, such as online banking and e-filing

Using accounting software can help you save time and money, and offer you valuable insight into your business. If you choose the package carefully, investing in a computerised accounting system can be one of the best decisions you can make for your business.

Find tips on choosing the right accounting package and use this HMRC service to search for Making Tax Digital for VAT compliant software.

Disadvantages of accounting software

Certain problems and disadvantages are worth considering if you are looking to use accounting software in your business. For example:

• Price - the package cost, although small in relation to your other costs, is higher than a paper-based system.
• Implementation - manual accounts are generally easier to set up and can be more flexible than computerised accounting. You will probably need some initial help setting up accounting software. Your accountant or system provider will usually charge you for this service.
• Support - you may need to purchase yearly maintenance and support for your package.
• Specialised needs - an accounts package will typically suit most types of business. However, specialist businesses may need to refine the package or change their processes to use accounting software successfully. See more on specialised requirements for your accounting package.

Accounting software may sometimes also have a steep learning curve, so if you are more comfortable writing up ledgers and books, keeping manual accounts may be a simpler option.

Do I need to use accounting software?

Not all businesses will benefit from using accounting software. However, you can't successfully manage your business without some sort of an accounting system. Whether you choose manual over computerised accounting, it's entirely up to you. See how to keep business accounts.

Small or new businesses are probably likely to use manual accounts or a combination of manual and computerised systems until their accounting needs become more complex. You can use our accounting requirements checklist to help you assess and prioritise your accounting needs.

Accounting software allows you to monitor and manage the financial health of your business. Many different types of accounting packages are available on the market, with options to suit different business sizes, sectors, industries and even work processes.

Free accounting software

It is possible to get small business accounting software for free. However, free software often comes with limitations - for example, disruptive advertising or locked access to advanced features that are bundled into paid tiers.

If you're not sure which accounting software to use, freeware may allow you to try out different products without having to commit. It can also help you familiarise yourself with using different features so you have a better idea of what type of product you might need.

Small business accounting software

Small business accounting software typically provides all the basic bookkeeping features like invoicing, payroll, reporting and more. These are usually simple programs, easy to use, available off-the-shelf or over the internet. They may have different tiered price plans, providing more functionality for additional fees.

Some small business accounting packages may allow you to integrate them with other services you use in your business, for example, job scheduling or online payments. Other solutions may allow you to create customised functions or modules to fit your specific needs. 

Enterprise accounting software

Enterprise accounting software is a package of programmes that allows an organisation to track their financial transactions and the resulting data.

These types of packages are usually more expensive and offer all the standard financial tools and reports, as well as a wider range of features and functions. For example, they will often integrate:

• billing
• purchasing
• reconciliation
• supply chain software
• inventory control
• customer relationship management
• business intelligence through analytics and dashboards

Enterprise-level software commonly features industry-specific modules, eg for construction or manufacturing. Keep in mind that advanced features come at a higher price, so unless you run a complex operation or have very specific business needs, investing in such software may not be worth your while.

Online accounting software

Both free and paid for accounting software may be hosted online or on remote servers in the cloud. Such products offer accounting capabilities in a way that is similar to Software as a Service (SaaS) business model.

Online accounting software usually offers great flexibility and cost benefits. It frees you from having to install and maintain software on your premises and allows you to access your data and your services from remote offices or on the go. However, due to their nature, online accounting software systems pose certain risks, in particular to:

• data protection
• portability of your data
• business continuity options
• service level agreements around service provision
• reliance on internet access and connectivity

If you're considering cloud computing, read about the advantages and disadvantages of SaaS.

Within all the different categories of accounting packages, you can choose from many different options. It is important to choose a solution that fits your business needs. Avoid paying for extra features if you don't need them and, if possible, check trial versions first to make sure that the software meets your expectations.

Find software compatible with Making Tax Digital

All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. If you're not signed up, HM Revenue & Customs will sign you up automatically unless you are exempt or have applied for exemption.

You should now keep VAT records and submit VAT Returns using compatible software. This may be:

• record-keeping software that updates and stores your records digitally and works directly with HMRC systems allowing you to file a VAT Return
• bridging software which works with non-compatible software like spreadsheets, accounting systems and other digital bookkeeping products and lets you send the required information digitally to HMRC in the correct format

If you haven't got it already, search for compatible software to ensure you can meet your Making Tax Digital obligations.

See more on choosing the right accounting package.

Finding the best accounting software that will deliver on all your business needs isn't always easy. Here are some things to consider:

• Is the software built for a particular size of business? For example, a micro business' needs will usually be different from those of a large company.
• Is the software a good fit for your specific industry or business sector?
• How much does it cost and are there any add-on expenses for maintaining the software?
• What features does the software offer? Can you customise it if the basic components don't fit your specific needs?
• Will the software help you comply with statutory requirements, such as audit trails, tax returns or annual accounts?
• Is the software accredited as compliant with all the necessary services? For example, the HMRC's Making Tax Digital for VAT or the PAYE recognition scheme.
• What support is available for the setup, staff training and running and maintenance of the system, and at what cost?
• What security measures are in place to back up data and keep business and customer information safe?
• Is your accountant familiar with the software and is the software itself compatible with the accountant's package? If you're working with an accountant to submit your business accounts, you will most likely want to be able to exchange accounts data electronically.

To help you search for the right software, HMRC offers two tools: find payroll software that is recognised by HMRC and find software for Making Tax Digital for VAT.

Define your business requirements

Once you determine what package options are available, you should define your business requirements and needs, and match them to the existing packages. To assist you with this, we have developed two resources:

• an accounting requirements checklist - to help you assess your business' basic accounting needs
• a list of key features of accounting packages - to help you understand the different tasks accounting software packages can carry out

If your business needs are complex or industry-specific tasks, see specialised requirements for your accounting package.

Keeping good accounts is vital for the health and survival of your business. In order to assess what your business' accounting requirements are, it may be helpful to consider the following:

• Is your business a limited company or do you operate as a sole trader? Sole traders may be able to use a personal accounts package rather than a business package, as they are unlikely to need payroll processing.
• Do you have to comply with Making Tax Digital for VAT? All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. If you're not signed up, HM Revenue & Customs will sign you up automatically unless you are exempt or have applied for exemption. You should now keep VAT records and submit VAT Returns using compatible software.
• Do you have employees? If so, you may want an accounting package with a payroll function rather than separate payroll software. You may need to file certain PAYE returns online, so check that the software can handle e-filing and meets the HM Revenue & Customs payroll standard.
• What is the number of transactions that you expect to do in a month? If less than ten, you may find that a manual accounts system will be the best choice. If more than ten, you may need to select a package designed for higher levels of activity.
• What is the number of users of the accounts package at any given time? If one person does all the accounts work, a simple low-cost package may suffice. However, if several people are entering transactions at the same time, you will need something more sophisticated.
• What computer systems do you use? Most businesses use personal computers with a Windows Operating System and there is a wide range of accounts software for this platform. If you use Macintosh or Linux, your choice of software may be restricted and you may need to consider using a Windows-based PC just for the accounts package. Some applications rely on additional software to link a Macintosh computer to a Windows-based PC.

When you've worked out your business' basic accounting needs, you may want to consider any specialised requirements for your accounting package.

How to prioritise your business' accounting needs

When you are looking at your accounting needs, it is unlikely that a single software package will tick every box on your list. You may need to prioritise features that are essential to your core requirements. To help you do this, think about:

• how much time and cost a particular feature will save you
• what are the consequences of omitting the feature
• could you add the feature on in the future
• how your requirements are likely to change in the future

You could give each detailed feature a rating, for example:

• must have - without this feature the package is not usable
• advantageous - the feature would save a lot of time
• nice to have - useful, but not essential

This will allow you to compare your requirements against each accounting package. If the package doesn't meet your basic or 'must have' business requirements, discard it. From the rest, select the one that delivers the greatest number of advantageous and 'nice to have' features at a price your business can afford.

See also how to choose software for your business.

There are many types of accounting packages for business, with many different features and key functionalities. The software you should consider will depend on the type of business you have and how you run it.

Ideally, you should look for an accounts package that can meet all your basic business needs as well as detailed requirements. To help you work out your basic needs, see our accounting requirements checklist.

Detailed requirements for accounting packages

Requirements you may want to consider include:

• Basic bookkeeping - eg sales and purchase ledgers, nominal ledger and invoicing.
• Ability to keep digital records for Making Tax Digital for VAT purposes.
• VAT calculations - your accounts system should be able to keep track of VAT and calculate your VAT payment at the end of each VAT period.
• Payroll processing - if you have employees, consider a payroll function that calculates PAYE (Pay As You Earn) and National Insurance contributions weekly or monthly.
• Automatisation of management reports - you may need to prepare internal management reports periodically, and a system that gives regular management accounts will help improve business efficiency.
• Invoicing - any accounts package needs to be able to produce invoices, but you will probably want to be able to customise them and you may want to send them by email.
• Credit control - an accounts package can help by highlighting where customers have exceeded their limits and providing statements to chase them.
• Compatibility with other computer systems - including accounts system used by your accountant, as well as stock control systems, an e-commerce website or customer relationship management systems.
• Industry accreditation - from an independent industry body such as the Business Application Software Developers Association.

If your business needs are more complex, see also specialised requirements for your accounting package.

If you are struggling to find the right accounting package, it might be worth asking for advice, or finding out how others in your industry computerise their accounts.

When choosing an accounts package for your business, you may find that general-purpose applications don't entirely fit your requirements. Depending on how complex your needs are, you may need to consider:

• software with integrated or add-on modules for specific tasks, eg project accounting
• industry-specific solutions
• custom-built solutions

Some of the more common specialised features in accounting software are listed below. You can get accounts packages with all of these features if you need them, but the cost is likely to be higher.

Specialised VAT schemes

There are a number of these, the most familiar of which is the Cash Accounting Scheme where you pay VAT when your invoices have been paid. There are others such as the Flat Rate and Retail Schemes. If you use any of these schemes you should look for a package that supports them.

Foreign currency

If you buy and sell in foreign currencies your accounts may be more complex. You can purchase accounts packages that fully support foreign currencies, but these tend to be designed and priced for larger businesses. You can still operate with a cheaper package, but you will have to do more of the work manually.

Stock control

If your business sells products rather than services and you have a high turnover of sales, you may benefit from integrating your stock control function with your accounts. 

Retail point-of-sale

If you have a high volume of small value sales, eg if you have a shop, you should look for an accounts system that supports this type of operation.

Electronic payments

There are significant benefits in paying invoices online using electronic funds transfer. Some accounts packages support this capability in an integrated fashion. If this would deliver significant benefits for your business it is worth investigating how the packages work and the costs that apply to this type of service.

Integration with other IT systems

You may wish to integrate your accounting software with your other software such as customer relationship management or e-commerce website. For example, you may want online financial transactions to be recorded directly to your accounting software.

To help you work out your business' accounting needs, see also our accounting requirements checklist.

There are many approaches to setting up a new accounting package and making it work for your business. Most begin with careful planning and analysis of critical steps that you need to carry out for a successful implementation of the package.

Accounting software implementation checklist

Your implementation plan should consider the following:-

Step 1: Package installation

This will usually be in the form of a CD-Rom, or via internet if hosted in the cloud, and may require you to register the package with the supplier so it is fully licensed and works correctly. Depending on the complexity of the package, the supplier may install it for you.

Step 2: Initial company setup

You will need to enter details of your business including the year-end date, the form of VAT accounting you use and other details. Your accounts package may have several different Charts of Accounts - ie the headings you use in your accounts - so you can choose to suit your type of business. However, you may need to tailor this to your requirements. Your accountant should be able to advise you on this work, or undertake it for you. See how to choose an accountant.

Step 3: Parallel running

You may find it useful to run your old accounts and the new package alongside each other for a while to ensure that you are getting the correct results. However, it is difficult to maintain parallel running for very long because of the duplication of effort.

Step 4: Training

The staff who will work with the accounts package on a day-to-day basis should ideally have some formal training. You should time this training so that it is done shortly before the installation of the software.

Step 5: Support

It is a good idea to purchase a support agreement from your supplier for your new accounts package, at least for the first year of operation so that you have a readily available contact to help sort out queries and problems. Many small businesses find that a support agreement is a good investment even after this initial period.

For more best practice tips, see also software installation and maintenance.

In order to run any business, you need to keep accounts or pay someone to do this for you. Keeping accounts is a legal requirement, but keeping them well is vital to running your business effectively. There are many ways of keeping accounts, including:

• paper-based accounts
• spreadsheet accounts
• computerised accounting packages

Paper-based accounts

Traditionally, accounts were kept on paper with handwritten entries. Many small businesses relied on the traditional methods of bookkeeping, often using specially printed books to organise records. However, handwritten accounts can take a significant amount of business time and it is easy to make mistakes.

If you currently keep paper records such as a notebook or paper receipts, you can continue doing so. However, if you are a VAT-registered business, you must also keep your records of sales and purchases digitally (unless you are exempt). Find out more about Making Tax Digital for VAT.

Accounting spreadsheets

You can set up computing spreadsheets to keep accounts. They can do the sums for you and update all data in a series of spreadsheets simultaneously. However, designing and maintaining a spreadsheet accounts system can be a significant task. Mistakes made in a spreadsheet may go unnoticed and not get corrected until the end of the year.

If you choose to keep digital records on a spreadsheet, you should use bridging software to make sure your spreadsheet is Making Tax Digital compliant. You can use the HMRC online service to search for bridging software.

Accounting software packages

The ease and efficiency of accounting software generally make it a better choice for most businesses. If you choose carefully, the right package can:

• save you time and money
• reduce mistakes in your calculations
• help you gain insights into your business that you would not easily see in paper accounts

A software package that is compatible with Making Tax Digital for VAT will also allow you to keep digital records and submit VAT returns, to ensure that you meet your responsibilities towards HMRC. To find out more, watch a video about getting compatible software.

Read more about the advantages and disadvantages of accounting software.

Reliable accounting software is likely to benefit many businesses. However, such software sometimes comes with its share of problems, so it is important not to overlook the possible issues.

Advantages of accounting software

Benefits of accounting software include:

• simple data entry - it is typically fast, straightforward and only required once
• fast processes - delays, for example between a sale and invoicing, are minimal
• digital record keeping - essential for compliance with Making Tax Digital for VAT
• automation of reports and analysis - eg on profit and loss, debtors and creditors, customer accounts, inventory counts, sales, forecasting, etc
• automation of tasks - eg calculating pay, producing payslips, calculating and submitting VAT, etc
• reduction of errors - eg transposition of figures, incorrect or incomplete recording of transactions, etc
• integration with other systems, such as online banking and e-filing

Using accounting software can help you save time and money, and offer you valuable insight into your business. If you choose the package carefully, investing in a computerised accounting system can be one of the best decisions you can make for your business.

Find tips on choosing the right accounting package and use this HMRC service to search for Making Tax Digital for VAT compliant software.

Disadvantages of accounting software

Certain problems and disadvantages are worth considering if you are looking to use accounting software in your business. For example:

• Price - the package cost, although small in relation to your other costs, is higher than a paper-based system.
• Implementation - manual accounts are generally easier to set up and can be more flexible than computerised accounting. You will probably need some initial help setting up accounting software. Your accountant or system provider will usually charge you for this service.
• Support - you may need to purchase yearly maintenance and support for your package.
• Specialised needs - an accounts package will typically suit most types of business. However, specialist businesses may need to refine the package or change their processes to use accounting software successfully. See more on specialised requirements for your accounting package.

Accounting software may sometimes also have a steep learning curve, so if you are more comfortable writing up ledgers and books, keeping manual accounts may be a simpler option.

Do I need to use accounting software?

Not all businesses will benefit from using accounting software. However, you can't successfully manage your business without some sort of an accounting system. Whether you choose manual over computerised accounting, it's entirely up to you. See how to keep business accounts.

Small or new businesses are probably likely to use manual accounts or a combination of manual and computerised systems until their accounting needs become more complex. You can use our accounting requirements checklist to help you assess and prioritise your accounting needs.

Accounting software allows you to monitor and manage the financial health of your business. Many different types of accounting packages are available on the market, with options to suit different business sizes, sectors, industries and even work processes.

Free accounting software

It is possible to get small business accounting software for free. However, free software often comes with limitations - for example, disruptive advertising or locked access to advanced features that are bundled into paid tiers.

If you're not sure which accounting software to use, freeware may allow you to try out different products without having to commit. It can also help you familiarise yourself with using different features so you have a better idea of what type of product you might need.

Small business accounting software

Small business accounting software typically provides all the basic bookkeeping features like invoicing, payroll, reporting and more. These are usually simple programs, easy to use, available off-the-shelf or over the internet. They may have different tiered price plans, providing more functionality for additional fees.

Some small business accounting packages may allow you to integrate them with other services you use in your business, for example, job scheduling or online payments. Other solutions may allow you to create customised functions or modules to fit your specific needs. 

Enterprise accounting software

Enterprise accounting software is a package of programmes that allows an organisation to track their financial transactions and the resulting data.

These types of packages are usually more expensive and offer all the standard financial tools and reports, as well as a wider range of features and functions. For example, they will often integrate:

• billing
• purchasing
• reconciliation
• supply chain software
• inventory control
• customer relationship management
• business intelligence through analytics and dashboards

Enterprise-level software commonly features industry-specific modules, eg for construction or manufacturing. Keep in mind that advanced features come at a higher price, so unless you run a complex operation or have very specific business needs, investing in such software may not be worth your while.

Online accounting software

Both free and paid for accounting software may be hosted online or on remote servers in the cloud. Such products offer accounting capabilities in a way that is similar to Software as a Service (SaaS) business model.

Online accounting software usually offers great flexibility and cost benefits. It frees you from having to install and maintain software on your premises and allows you to access your data and your services from remote offices or on the go. However, due to their nature, online accounting software systems pose certain risks, in particular to:

• data protection
• portability of your data
• business continuity options
• service level agreements around service provision
• reliance on internet access and connectivity

If you're considering cloud computing, read about the advantages and disadvantages of SaaS.

Within all the different categories of accounting packages, you can choose from many different options. It is important to choose a solution that fits your business needs. Avoid paying for extra features if you don't need them and, if possible, check trial versions first to make sure that the software meets your expectations.

Find software compatible with Making Tax Digital

All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. If you're not signed up, HM Revenue & Customs will sign you up automatically unless you are exempt or have applied for exemption.

You should now keep VAT records and submit VAT Returns using compatible software. This may be:

• record-keeping software that updates and stores your records digitally and works directly with HMRC systems allowing you to file a VAT Return
• bridging software which works with non-compatible software like spreadsheets, accounting systems and other digital bookkeeping products and lets you send the required information digitally to HMRC in the correct format

If you haven't got it already, search for compatible software to ensure you can meet your Making Tax Digital obligations.

See more on choosing the right accounting package.

Finding the best accounting software that will deliver on all your business needs isn't always easy. Here are some things to consider:

• Is the software built for a particular size of business? For example, a micro business' needs will usually be different from those of a large company.
• Is the software a good fit for your specific industry or business sector?
• How much does it cost and are there any add-on expenses for maintaining the software?
• What features does the software offer? Can you customise it if the basic components don't fit your specific needs?
• Will the software help you comply with statutory requirements, such as audit trails, tax returns or annual accounts?
• Is the software accredited as compliant with all the necessary services? For example, the HMRC's Making Tax Digital for VAT or the PAYE recognition scheme.
• What support is available for the setup, staff training and running and maintenance of the system, and at what cost?
• What security measures are in place to back up data and keep business and customer information safe?
• Is your accountant familiar with the software and is the software itself compatible with the accountant's package? If you're working with an accountant to submit your business accounts, you will most likely want to be able to exchange accounts data electronically.

To help you search for the right software, HMRC offers two tools: find payroll software that is recognised by HMRC and find software for Making Tax Digital for VAT.

Define your business requirements

Once you determine what package options are available, you should define your business requirements and needs, and match them to the existing packages. To assist you with this, we have developed two resources:

• an accounting requirements checklist - to help you assess your business' basic accounting needs
• a list of key features of accounting packages - to help you understand the different tasks accounting software packages can carry out

If your business needs are complex or industry-specific tasks, see specialised requirements for your accounting package.

Keeping good accounts is vital for the health and survival of your business. In order to assess what your business' accounting requirements are, it may be helpful to consider the following:

• Is your business a limited company or do you operate as a sole trader? Sole traders may be able to use a personal accounts package rather than a business package, as they are unlikely to need payroll processing.
• Do you have to comply with Making Tax Digital for VAT? All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. If you're not signed up, HM Revenue & Customs will sign you up automatically unless you are exempt or have applied for exemption. You should now keep VAT records and submit VAT Returns using compatible software.
• Do you have employees? If so, you may want an accounting package with a payroll function rather than separate payroll software. You may need to file certain PAYE returns online, so check that the software can handle e-filing and meets the HM Revenue & Customs payroll standard.
• What is the number of transactions that you expect to do in a month? If less than ten, you may find that a manual accounts system will be the best choice. If more than ten, you may need to select a package designed for higher levels of activity.
• What is the number of users of the accounts package at any given time? If one person does all the accounts work, a simple low-cost package may suffice. However, if several people are entering transactions at the same time, you will need something more sophisticated.
• What computer systems do you use? Most businesses use personal computers with a Windows Operating System and there is a wide range of accounts software for this platform. If you use Macintosh or Linux, your choice of software may be restricted and you may need to consider using a Windows-based PC just for the accounts package. Some applications rely on additional software to link a Macintosh computer to a Windows-based PC.

When you've worked out your business' basic accounting needs, you may want to consider any specialised requirements for your accounting package.

How to prioritise your business' accounting needs

When you are looking at your accounting needs, it is unlikely that a single software package will tick every box on your list. You may need to prioritise features that are essential to your core requirements. To help you do this, think about:

• how much time and cost a particular feature will save you
• what are the consequences of omitting the feature
• could you add the feature on in the future
• how your requirements are likely to change in the future

You could give each detailed feature a rating, for example:

• must have - without this feature the package is not usable
• advantageous - the feature would save a lot of time
• nice to have - useful, but not essential

This will allow you to compare your requirements against each accounting package. If the package doesn't meet your basic or 'must have' business requirements, discard it. From the rest, select the one that delivers the greatest number of advantageous and 'nice to have' features at a price your business can afford.

See also how to choose software for your business.

There are many types of accounting packages for business, with many different features and key functionalities. The software you should consider will depend on the type of business you have and how you run it.

Ideally, you should look for an accounts package that can meet all your basic business needs as well as detailed requirements. To help you work out your basic needs, see our accounting requirements checklist.

Detailed requirements for accounting packages

Requirements you may want to consider include:

• Basic bookkeeping - eg sales and purchase ledgers, nominal ledger and invoicing.
• Ability to keep digital records for Making Tax Digital for VAT purposes.
• VAT calculations - your accounts system should be able to keep track of VAT and calculate your VAT payment at the end of each VAT period.
• Payroll processing - if you have employees, consider a payroll function that calculates PAYE (Pay As You Earn) and National Insurance contributions weekly or monthly.
• Automatisation of management reports - you may need to prepare internal management reports periodically, and a system that gives regular management accounts will help improve business efficiency.
• Invoicing - any accounts package needs to be able to produce invoices, but you will probably want to be able to customise them and you may want to send them by email.
• Credit control - an accounts package can help by highlighting where customers have exceeded their limits and providing statements to chase them.
• Compatibility with other computer systems - including accounts system used by your accountant, as well as stock control systems, an e-commerce website or customer relationship management systems.
• Industry accreditation - from an independent industry body such as the Business Application Software Developers Association.

If your business needs are more complex, see also specialised requirements for your accounting package.

If you are struggling to find the right accounting package, it might be worth asking for advice, or finding out how others in your industry computerise their accounts.

When choosing an accounts package for your business, you may find that general-purpose applications don't entirely fit your requirements. Depending on how complex your needs are, you may need to consider:

• software with integrated or add-on modules for specific tasks, eg project accounting
• industry-specific solutions
• custom-built solutions

Some of the more common specialised features in accounting software are listed below. You can get accounts packages with all of these features if you need them, but the cost is likely to be higher.

Specialised VAT schemes

There are a number of these, the most familiar of which is the Cash Accounting Scheme where you pay VAT when your invoices have been paid. There are others such as the Flat Rate and Retail Schemes. If you use any of these schemes you should look for a package that supports them.

Foreign currency

If you buy and sell in foreign currencies your accounts may be more complex. You can purchase accounts packages that fully support foreign currencies, but these tend to be designed and priced for larger businesses. You can still operate with a cheaper package, but you will have to do more of the work manually.

Stock control

If your business sells products rather than services and you have a high turnover of sales, you may benefit from integrating your stock control function with your accounts. 

Retail point-of-sale

If you have a high volume of small value sales, eg if you have a shop, you should look for an accounts system that supports this type of operation.

Electronic payments

There are significant benefits in paying invoices online using electronic funds transfer. Some accounts packages support this capability in an integrated fashion. If this would deliver significant benefits for your business it is worth investigating how the packages work and the costs that apply to this type of service.

Integration with other IT systems

You may wish to integrate your accounting software with your other software such as customer relationship management or e-commerce website. For example, you may want online financial transactions to be recorded directly to your accounting software.

To help you work out your business' accounting needs, see also our accounting requirements checklist.

There are many approaches to setting up a new accounting package and making it work for your business. Most begin with careful planning and analysis of critical steps that you need to carry out for a successful implementation of the package.

Accounting software implementation checklist

Your implementation plan should consider the following:-

Step 1: Package installation

This will usually be in the form of a CD-Rom, or via internet if hosted in the cloud, and may require you to register the package with the supplier so it is fully licensed and works correctly. Depending on the complexity of the package, the supplier may install it for you.

Step 2: Initial company setup

You will need to enter details of your business including the year-end date, the form of VAT accounting you use and other details. Your accounts package may have several different Charts of Accounts - ie the headings you use in your accounts - so you can choose to suit your type of business. However, you may need to tailor this to your requirements. Your accountant should be able to advise you on this work, or undertake it for you. See how to choose an accountant.

Step 3: Parallel running

You may find it useful to run your old accounts and the new package alongside each other for a while to ensure that you are getting the correct results. However, it is difficult to maintain parallel running for very long because of the duplication of effort.

Step 4: Training

The staff who will work with the accounts package on a day-to-day basis should ideally have some formal training. You should time this training so that it is done shortly before the installation of the software.

Step 5: Support

It is a good idea to purchase a support agreement from your supplier for your new accounts package, at least for the first year of operation so that you have a readily available contact to help sort out queries and problems. Many small businesses find that a support agreement is a good investment even after this initial period.

For more best practice tips, see also software installation and maintenance.