What are the main functions and differences?
In all honesty, they all do similar things, and it may come down to your personal preference. You may not need all the fantastic features of the most expensive one, but you may outgrow the cheap one and need more features sooner than you think. So don't focus on the price of the software as the main factor. Instead, think about how you will want to use it and what kind of business you want to have in the future.
Let me explain. If you want to keep your business as a side hustle, go for something that will do the job, it's free or doesn't cost much. Make sure it gives you features and benefits for the
MTD (Making Tax Digital), but don't worry about any other fancy tools.
However, if you plan to grow your business, get VAT registered or employ people. The cheapest software may not be the winner. It is all about sorting your priorities. Some people will buy the latest iPhone but worry about paying for their accounting software.
Some people look at paying for accounting software as a cost, whilst they should look at it as an investment that will move their business forward and save their time.
You may find that your business will outgrow some of the cheaper software quicker than the others, and when it does, you will have to move your books. Legally, you have to keep 6 years' worth of accounts records. More about that later. There is software to help you do that, but depending on how many years of accounts you want to move, it may cost you. So don't make the price of the software your main decision-maker.
FreeAgent
If you are starting your business and don't want to pay for your accounting software, it might be worth looking at FreeAgent. It's owned by Nat West, and if you have a current business account with them or Royal Bank of Scotland or Ulster Bank, you will be able to access the full version of
FreeAgent completely free of charge!
It will allow you to invoice your clients, connect your bank feed, deal with VAT, see your cash flow and run reports. It is MTD (Making Tax Digital) compatible, meaning it's HMRC-recognised software for submitting MTD-compatible VAT returns. It will even remind you of your upcoming deadlines.
Xero and QuickBooks Online are the most commonly used accounting software; you have probably heard of them or seen their adverts. They both tick most boxes for day-to-day accounting features and are great for small to mid-sized businesses.
Xero and QuickBooks
Both Xero and
QuickBooks let you invoice, send reminders to customers, and have a good dashboard where you can see your expenses and cash flow at a glance. They also integrate well with third-party apps such as GoCardless, stripe or PayPal. Running reports such as your monthly Profit and loss and balance sheet is a breeze, with Xero being able to add more customization in places. They are both MTD-compatible and HMRC-recognised software, just like FreeAgent.
If you send out lots of invoices, you may need to upgrade to a standard package with Xero; whereabout QuickBooks online comes with unlimited invoicing. On the other hand, suppose you are a product-based business and need to record inventory. In that case, Xero has an inventory management system available on all plans, but you would have to upgrade with QuickBooks.
If you are a freelancer or a small business and want to keep it that way because you are perhaps running your business around your primary employment, QuickBooks may be a great low-cost choice.
Xero is more popular in the UK, and if you are thinking of growing your business, it might be a better choice because it will evolve with your company and will be able to support you well.
Subscriptions
Both Xero and QuickBooks start at around £10 per month, with QuickBooks a bit less and Xero a bit more, but remember, you get what you pay for, just like with anything else you buy. Furthermore, they both often advertise up to 50% off for the first few months, making using software a complete no-brainer. So why would anyone want to waste their time with a spreadsheet?
Should you believe adverts?
Whatever your choice of software, be a bit wary of some of those misleading adverts out there telling you accounting software will replace a whole finance team for your business. Yes, accounting software is a definite way forward for your business and will make your life easier. However, your expenses won't magically allocate themselves to the correct codes, and you won't get the most out of reports if you don't fully understand what those numbers mean.
Having your accounts done by a professional
Bookkeepers and accountants usually charge per hour or by transactions, but they charge for the knowledge and expertise, not the actual entry itself, and no software can replace that. So, in essence, your accountant isn't selling you a service. Instead, they are selling you peace of mind, free time to grow your business and earn more profit, and most of all, a certainty that your accounts are in order and you are not missing any deadlines.
I use
Xero
in my practice because it does what it says on the tin and is user-friendly for accountants and general users. In addition, I love that it grows with your business and can give you more as your business goes from a small one-man-band to a big company with many employees.
Most of my clients have never used accounting software before and find it easy to use and understand. Of course, I'm always on hand should they need help with anything, but all I need them to do is to use their mobile app to download their receipts and forward their emails to
Hubdoc, which is free with Xero and refresh the bank feed every 90 days. I do the rest, whilst they focus on
running their business. 
