All over the internet there’s advice on why businesses should switch to accounting software, particularly if they want to transition smoothly to HMRC’s Making Tax Digital (MTD) programme in 2018.
A lot of this advice is sensible. Move to online accounting, use software apps to streamline processes, turn transactions into digital data and submit tax information online – there are a whole host of software providers and accountants that are able to help business owners with that.
But let’s break it down. Why is it that 65% of UK200Group members' small business clients currently do not use software to manage their accounts?
No big surprise there. Here’s why:
1. It’s costing them more than manual record-keeping
Many small and micro businesses such as landlords, sole-traders, contractors and the self-employed are not likely to spend on software if they think they can manage without it. For them basic computer programs like spreadsheets do the job. So unless HMRC forces their hand, they will prefer not to switch to accounting software.
We think: It largely depends on the size of the business. It woudln't make any sense for landlords with fewer properties and low annual transactions to invest in software. If they are happy with managing it on spreadsheets, then why waste money on accounting software? But if they have tens of property and are planning to apply for business loans or want to sell their business then they should ideally be using accounting software. Horses for courses, we'd say.
2. They do not have any software training
Many SME owners are neither accounting savvy nor IT literate. They are stressed out by the lack of training in using software. They fear that training will cost them extra.
We think: This is a primary reason why businesses hire an accountant and see the software as an additional cost.
3. They fear being tied to the wrong accounting software
Many businesses are worried that they will not be able to switch if they commit to one software, either contractually or because it’s a big effort to change. Then there’s an additional concern that software companies will restrict the free software for MTD to the extent that businesses will be forced into moving to paid versions if they want to effectively manage their accounts and submissions to HMRC.
We think: Long-term contracts are partly a legacy of arrangements before the cloud came in. Software providers, nowadays, are more likely to offer short-term contracts, even pay-as-you-go, as flexibility is the key USP of the model.
4. Because their accountants haven’t told them so
One of the most important reasons why many small businesses don't use accounting software is because their accountants haven't told them to!
We think: While it is easy to understand that accounting software is a fantastic tool for large businesses, we think even micro businesses can benefit, especially with digital tax forcing everyone to think about software.The future is digital after all.