7 accounting packages for Australian small businesses compared: including MYOB, QuickBooks Online, Reckon, Xero

7 accounting packages for Australian small businesses compared: including MYOB, QuickBooks Online, Reckon, Xero
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Shopping for a small business accounting package like MYOB, Quickbooks Online, Xero or Reckon? Here is our special guide to making the right choice with this important business software.

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Prior to 2000, a lot of small businesses got by quite happily using paper-based accounting systems. But the introduction of the GST saw many of them switch to using accounting software, assisted by the $100 voucher from the Commonwealth Government that practically covered the cost of the most popular small business packages.

While keeping track of things on paper was still practical if your business had a modest number of transactions, the quarterly BAS added significantly to the reporting load. There was some overhead involved in making the switch from paper to computerised bookkeeping - a process that this writer went through in his own business at that time - but moving to a computer-based system meant you could extract the required numbers faster than you could transcribe them to the official form.

The Government was also keen to get small businesses onto computerised systems as it believed this would allow owners to more closely track their operations and hence improve their performance.

“GST has been a good thing for small businesses as owners now have to look at accounts quarterly rather than waiting until the end of the year,” says Debra Anderson, owner of bookkeeping and tax agent firm Legally BAS.

Not everyone likes the additional work introduced by GST.

 

Your accounting software can create your BAS report

Kelvin Deer, director of PT Partners Accountants and Business Advisors and the Australian Bookkeepers Network, notes that “some businesses simply don't want additional reports. That’s surprising when you consider the failure rates among small businesses - you'd think they'd want to know how they track quarter on quarter for sales, profit margins, cash flow, or whether their expenses are increasing. Working with a bookkeeper or accountant on regular reporting could bring about better outcomes.”

The computerisation of small business accounting also laid the foundation for electronic reporting to the government. Your accounting software can create your BAS report, and you don't necessarily even need to fill in a piece of paper anymore to file it with the ATO, potentially reducing the ATO’s costs (no more scanning of paper forms) and speeding processing.

Apart from the end-of-quarter and end-of-year chores, a computerised system really does make it easy to determine your exact position at any time (provided you keep up to date with data entry). Later we'll explain why this can be useful.

But it's important to go about this the right way. “The time to set up your accounting software is when you start a business. It’s the first thing you should do after getting an ABN,” says Debra Anderson.

Even if you plan to do your own bookkeeping, “make sure it's setup professionally,” she advises. “It's not a big task, and once it’s done properly you can mind your own business. But get it wrong and you'll be reporting the wrong figures in your BAS and income tax returns, as well has having an erroneous view of how your business is performing.”

If your business is not big enough to justify even a part-time accounts clerk and neither the principals nor their spouses want the job, you can engage a bookkeeping service. It may be worth seeking out one with expertise in your field of business - if you are a manufacturer, a bookkeeper that has previously only worked with medical practices may not be the best fit.

 

But I've done without this software for years, why change now?

There is nothing wrong with using a paper-based system or perhaps a spreadsheet to do your books. But there are some compelling reasons to consider switching to accounting software.

Here is one reason: Entering all the transactions into your system can be a headache. Some accounting packages can link to your bank account(s), and can substantially reduce the time you need to devote to this task. The software automatically matches a bank transaction it sees in your bank account with an existing item in your books, or enters a new item in your books automatically if there's not one there (using the information it finds in your bank account). These systems are not perfect, as we explain later. But if done well, it means you may never have to record a phone bill or rent payment again, and customer payments will automatically be reconciled with your invoices.

But that’s not such a big deal if you make most payments from petty cash and you have a relatively small number of customers that pay you once a month (if you’re lucky!).

Here is another reason: accounting software also comes into its own each time you need to submit a BAS. Typically, such packages have a ‘BAS report’ (the terminology may differ) that can be generated with a few clicks of the mouse - all you really need to do is specify the relevant quarter, though a sensible design would default to the most recent quarter. Then it’s just a matter of either transcribing the numbers yourself to the ATO’s form (our preference is that the report mimics the layout of the form to minimise the risk of copying a number to the wrong place), or you can even do away with paper and file it electronically via a feature called SBR (Standard Business Reporting), the Australian standard for business-to-government reporting). You will even save the cost of a stamp each quarter, and we know how much some small business people resent paying postage on mandatory reporting.

There’s nothing wrong with staying with a paper-based system if it suits your business. “We survey around 1,000 bookkeepers each year, and 13% of them still offer a manual bookkeeping system,” said Deer. “Manual can be cheap, and easy to handle if the requirements are basic.”

"But if you hand over a shoebox of records and expect your accountant to turn it into a pristine set of accounts, that could be an expensive exercise at $150 to $200 per hour,” he warns.

Some businesses get by with a set of spreadsheets. “A lot of tradies, for example, don't use packages at all. It's a lot easier for them to type the information into a spreadsheet,” says Deer. “Since many don't have any staff, they don't have to worry about payroll.”

The downside comes when they go along to their accountant at the end of a financial year, and have to pay to have that spreadsheet turned into a balance sheet and profit and loss statement.

These are some of the day-to-day advantages of using accounting software. But there can also be some long term advantages, as we'll explain.

 

Paper vs accounting software

Let's look at the day-to-day advantages of each approach in a little more detail.

There are still some situations where it makes sense to stick with a manual system. As business.gov.au (one of our favourite online resources for small business) points out, “While manual systems require more time spent on paperwork, they can be ideal for business owners who aren't confident using a computer and have simple affairs.”

The ATO offers a set of blank forms that can be printed and used to keep the financial records of a small business. You can buy duplicate receipt and invoice books and other business stationery from newsagents and office suppliers.

The ATO also provides specific guides to record keeping in certain sectors, such as cafes and plastering.

If you are a taxi driver, for example, your records will probably be very simple. You collect cash and credit fares from customers, pay a rental to the taxi owner or operator (whether that is a flat amount or a share of the takings) and incur a few other expenses (like mobile phone bills, parking fees and buying a GPS). It’s hard to see why anyone would not stick with paper records in this situation, and the ATO even provides a worksheet for taxi drivers to record their takings and expenses.

Accounting software comes into its own as things get more complicated. Do you operate in an industry where it is customary to extend credit to customers? Unless you put in extra effort upfront, determining who owes you what can be a time-consuming process with a manual system.

Accounting software can also save you money. “I think a lot of small business people are ripping themselves off,” says Debra Anderson. “Every small business person pulls out their wallet and buys things on an almost daily basis. They can claim back the 10% GST and the expense is tax deductible, but only if it gets into their books.

“That’s the beauty of systems like MYOB LiveAccounts that have automatic bank feeds. Once linked to the business account or credit card, these transactions are automatically recorded. For example, I've setup a rule so that if ‘Silver Service’ appears in a transaction in my bank account, the software allocates it to taxi travel.

“We small business people are time poor, and this type of automation helps ensure the accounts are up to date and increases the likelihood of everything being captured and claimed.”

While this "bank feed" feature can save time, be aware the process cannot always be completely automated.

“Think of a café or restaurant purchasing supplies from a supermarket,” says Kelvin Deer. “A bank feed can take care of the initial data entry, but human intervention will be needed unless all the items on the invoice are either all taxable or all GST-free. Some items - salad mix, perhaps - might be GST-free while other items - say cans of soft drink - might attract GST. These items must be manually allocated from the single invoice to correctly determine any GST. Some software lets you allocate items individually, but if you receive an invoice for 20 or so items that’s a significant amount of work.”

Furthermore, some suggest bank feeds are not 100% accurate, so a manual reconciliation is still needed. Still, that’s less work than keying in each transaction.

BankLink - the service used by MYOB, among others - says it “uses sophisticated error checking systems to verify every one of the 15 million transactions we process every month… The incidence of our data feeds needing to be corrected, after data has been sent out, average less than 10 transactions per month. Our overall data accuracy is better than 99.9999 percent.” (See also this BoxFreeIT interview with BankLink CEO John Dunkerley).

 

Paper vs accounting software: Pros and Cons

 

Paper system

Software system

Consideration

Pro

Con

Pro

Con

Cost and Simplicity

Easy and cheap in simple situations

Does not scale well as business volume and complexity increases.

Most small business accounting software is quite cheap.

Cloud services and other subscription plans lock you in to a stream of payments. Switching between programs (or services) takes effort.

Backup

Low risk of technical failure

What happens in a fire or flood?

Automated off-site backup is easy (and inherent in cloud systems)

Working life of hard disks (and possibility of data damage by malware) means a rigorous backup regime is essential

Dealing with your accountant

An accountant can always read paper records

Fees likely to be higher, as it is usually easier for an accountant to work with electronic records

If used appropriately you can get more advice and less donkeywork from your accountant for the same price. Cloud and hybrid cloud systems can give your accountant "live" access to your records

May increase fees if used inappropriately, resulting in more work for the accountant in unscrambling your mess. There is a risk that an accountant might usher you towards a package that suits their business rather than yours

Automation

 

Practically nil. All data entry, analysis and reporting done by hand

Plenty of scope for automation. Data may come from bank feeds, reports generated with a few clicks. BAS may be lodged electronically

 

Physical bulk

 

Can become an issue over time

Practically speaking, space required is independent of the amount of data being stored. Possibility of digitising (scanning) any original paper documents such as receipts to save space

 

 

 

Keeping on top of your books vs playing catch-up

To a large extent, your books act as a rear-view mirror. They tell you where you’ve been, not where you’re going. But if you stay on top of the bookkeeping, you won’t be looking so far back down the road - you’ll be a lot closer to ‘where you are’ than ‘where you’ve been’. So whatever system you use, it helps to get the data entry done promptly.

If your books are computerised, any reports you need can be generated with very little effort. Turning paper records into a profit and loss statement or even just checking whether you should have enough cash on hand to meet a large pending expense, can take a significant amount of work.

Why does any of this matter? For one thing, if you want to borrow money from a bank or other lender, they’ll expect to see your financial records, among other things (see here). If those records are already up to date it will save you making a special effort, as well as helping to project an image of a responsible operator who is in control of their business.

If you use an accountant, up to date books will also help them provide you with more accurate and timely advice. Examples include predicting cash flow peaks and troughs, and more accurately estimating your future tax liability. While a big tax bill is usually a good thing as it means you’ve made plenty of money, an accurate forecast means you can set aside just the right amount of money. Being suddenly told that you face a $50,000 tax bill in a few months can be a strain.

“It's always better to be up to date with your accounts,” says Ben Vojtisek, senior accountant at MDB Taxation & Business Advisors. “Then when you consult your accountant he or she can work with current rather than historical data.”

Rather than presenting your accountant with the proverbial shoebox full of receipts and other documents, the use of accounting software means you can provide them with a copy of the data file so they can generate the relevant set of reports, manipulate the numbers and make appropriate forecasts, assuming you’ve been using the software correctly and been promptly entering transactions. The less time the accountant takes to extract the information they need, the less it should cost you.

And if you are using a cloud-based system, you can grant your accountant access to your data so you don’t even need to provide them with a copy - the latest entries are there whenever they need it. (This capability is not exclusive to cloud systems - Kelvin Deer points out that it is possible to give your accountant the ability to remotely log into your computer to carry out necessary tasks, even if you don't use a cloud system).

“Cloud products are especially handy,” says Ben Vojtisek. “If a client keeps their books up to date on a regular basis, we can log in, print out a set of reports, work on them quickly to get a good idea of how the client is going at that point in time, and then project to the end of the financial year to advise them of their likely tax outcome.”

Another benefit can be seen when a bookkeeper phones for help tracking down an error: “We can log in and fix it without delay,” he says.

“A lot of small business owners have become comfortable with the programs they have been using for years,” he says, noting that few of his clients actually use cloud accounting systems. “They don’t realise the benefits to be had from giving their accountants immediate access to their financial information.”

Things like the new asset write-off rules (an immediate deduction is available to small businesses for most assets costing less than $6,500 each) are further reasons why it is important to keep on top of your financial records and abreast of any changes. Your accountant or bookkeeper is your ally in this regard.

 

How complicated a system do you need?

If you or your spouse are going to keep the books and bookkeeping isn’t your thing, you need software that makes it as easy as possible to do the tasks you need to perform.

Having all the bells and whistles might not be necessary. If you don’t employ anyone, you don’t need a system with a payroll function. If you don’t keep stocks of goods, you don’t need inventory (and even if you do, that feature is not always necessary). If you don’t charge for the principals’ or employees’ time, you don’t need time tracking and billing, and so on.

You may find that to get a broad area of functionality that you require, you may need to buy a program that also included things you don’t need. Inventory may come in the same edition as time billing, for example, in which case you just grin and bear it.

Sometimes it is the minor features that will be particularly important for you. One example is an automatic check that an invoice includes your customer’s purchase order number. A missing order number can affect your cash flow, so this ability is worth having if any of your customers have that requirement.

If you trade strictly on a cash basis, a cashbook program is probably all you need and you’ll find it simpler than more advanced programs. In this context, a cashbook is a relatively simple program for recording expenditure and receipts. It collects the information needed to meet small business reporting obligations, but is likely to lack the broad range of management reports found in full-blown accounting software, as well as functions such as budgeting.

Just because your business has grown to become quite a bit larger than when it started, that doesn't necessarily mean you need a more complicated system. “A common question is ‘When do I leave MYOB? When I get to $10 million in turnover?’,” observes Debra Anderson. “It's got nothing to do with that, it's about the complexity of your business and the number of transactions per month."

“If you really need to analyse the performance of each salesperson or every item in your inventory, then you need software that will do that for you. But I know some business owners that track everything, but only generate the most basic reports - they’re just slaves to their business systems who have made unnecessary work for themselves.”

At one extreme, Anderson has a client who is an IT consultant and typically produces one or at most two invoices per month, so whether that task takes a few extra seconds is neither here nor there.

At the other end of the spectrum is a client that provides low-cost web hosting and processes more than 11,000 transactions per month, which means an accounting system suited for this is essential. “They use a front-end system to manage the web hosting accounts but then use the bank feed functionality and PayPal integration to automatically code the income to sales without having to actually enter anything,” she says.

 

Sample business

Type of accounting package

Example product (Note, this is not a recommendation, but one example of a product that might be used in this scenario)

Fencer. Pays upfront for all supplies by credit card, receives cash/cheque/card payments from all customers. Sufficient transactions per month to justify a computer-based system.

Cashbook - unless s/he wants to electronically bill customers on the spot, in which case a cloud or cloud-enabled system may be appropriate. Bank feed feature would be a significant timesaver.

MYOB LiveAccounts (we haven’t focused on cashbook programs in this article.

Freelance news photographer. All customers insist on credit, some insist order numbers are shown on invoice, some require that invoices are sent to specific publications but payment comes from the parent company. Supplies are paid for by cash, credit card or internet banking.

Middle-range small business accounting software. Doesn’t need to update software every year (no payroll, so no need for new tax tables) so a traditional perpetual software licence will probably be cheaper than a subscription or cloud arrangement.

MoneyWorks Express

Small coffee shop. All customers pay by cash or card, no need to track individual customers. Most suppliers offer terms, some items bought for cash from supermarket. No need for inventory. Enough staff (several part-timers, each working one or two shifts a week) to justify computerised payroll. Owner uses a bookkeeper but wants to keep a close eye on the figures.

Cloud or cloud-enabled middle-range small business accounting system with payroll.

QuickBooks Online plus Web Payroll

Manufacturing company with complex inventory requirements, many suppliers and customers who extend or receive credit, employees working irregular amounts of overtime

Consider specialised accounting software or ERP system

We don't cover these in this article, as these are more specialised products designed for specific industries.

 

 

Which features do you need?

Many of the programs described in this article come in different versions. As the prices increase, so do the number of features.

In some cases, extra features are available via add-on software. For example, QuickBooks Online does not include payroll, but you can subscribe to a separate cloud payroll program that integrates with it.

  • Inventory allows you to keep track of the products that you buy and resell to customers. Apart from reflecting the value of stock in your books, integrating inventory with the rest of the accounting system means that the records are adjusted when you make a sale or receive a delivery. “It’s really important that inventory is fully integrated into the rest of the package,” says Anderson. “A lot of systems say they're integrated but they're really talking about an add-on module that may mean more work for the user.” An inventory function can also warn you when the stock of an item falls below the re-order level. You won’t need inventory facilities if you run a services business or only buy-in items in response to a firm customer order (say, if you are an IT consultant looking after small business clients and you purchase and install hardware or software items and present one invoice for the complete job. Or for example if you are the owner of an online store that operates exclusively by "drop-shipping" goods from the manufacturer or distributor - meaning you don't keep a stock of the goods yourself).
  • POS - Retail and hospitality businesses increasingly use point of sale systems to track what is being sold with minimum effort. If your business can justify such a system, you will want it to integrate with your accounting and inventory. Seek specialist advice.
  • Time tracking and billing - In a way this is the other side of the inventory coin. A service business’s product is billable hours rather than tangible goods, and so it needs a way of capturing the amount of time spent on different tasks and then billing the clients appropriately.
  • Payroll - is fairly self-explanatory. If you employ people, you need to pay them. But you don’t necessarily need a special payroll function if you only have a few employees and the employment arrangements are straightforward - you can calculate the payroll manually, and then make the payments in the form of cash, cheque or bank transfer.

Unfortunately, it’s not always that as simple as ticking the boxes on a broad feature checklist. Pam Madytianos, director of bookkeeping service provider Bookkeepers4U.com.au and accounting and ERP consultancy 2 Peas, points out that it’s easy to become overwhelmed by choosing a package that is more complicated than you need, and that it’s possible to pay more for a less capable product. Many of her clients are now paying a monthly rental for their cloud-based software, moving away from the older arrangement of buying software outright. In many cases they add other software options to their cloud based accounting software, she says, paying additional monthly fees.

It’s important to consider what will happen as your business grows, either in terms of the features required, the number of transactions or the number of users of the software. Look for a system that can accommodate your current and likely future needs, whether that’s by:

  • including those capabilities from the start
  • letting you upgrade to a more capable version of the same software
  • letting you pay for add-ons

Don’t rely on a ‘checklist’ approach to these features, warns Debra Anderson. Instead you should dig deeper and check that the program can really cater for your business. “MYOB LiveAccounts includes payroll, but only at a very basic level so it is not suitable for complicated construction businesses, for example. For that they should be looking at packages such as MYOB AccountRight Plus,” she says.

Rather than going for one of the general-purpose accounting packages, it may be better to look for one developed specifically for your industry, says Kelvin Deer. Examples include software for manufacturing, retail, restaurant and catering, and construction. “I have a client that manufactures forklift components,” he says. “They have 4,000 stock lines, so they’ve worked with a software developer to evolve its software to cater for that many lines.”

“And where a property developer’s needs are almost always met by generic software, a company in the construction industry has far more specialised needs and therefore may require more specialised software.”

 

Scared of the cloud?

Some small business owners are uncomfortable with the idea of cloud-based accounting products, where your financial records are kept on an Internet server, rather than the computer on your desk.

There are several advantages to this approach:

  • You don't have to be at your desk at work to login and view your records. You can access them at home or when travelling too. This means you can even record transactions into the system at job sites, meaning less work keying them in later back at the office.
  • You can let your bookkeeper or accountant login and see your records too, instead of having to send them USB keys or discs.
  • Most cloud products don't require you to install software on your computer - you access everything through a web browser. It also means you always have the most up to date version.
  • If your data is sitting in a data centre, in will in theory be backed up and protected.

From what we hear from various people in the accounting software industry and from software users, one concern seems to be about security, even though the same people who don't like the idea of using cloud accounting products are probably using other cloud-based services like Gmail and Internet banking.

One way of looking at this is to ask yourself who is better placed to keep your data secure - you, or an accounting software provider that can afford to employ or engage experts? Having your data in the cloud means it should at the very least be in a data centre monitored by professional IT staff, rather than on a computer you own, with all the risk of that computer failing.

That is not to say that cloud services can't "go down". We've seen occasional complaints online about problems connecting to accounting services - though we stress we haven't heard of widespread problems in this regard.

Of course it goes without saying that if you need to make sure you select a strong password that you don’t use anywhere else. And it is essential to keep your antivirus software up to date to minimise the risk of being infected by password-stealing malware.

Also keep in mind that not all cloud products are alike. Pam Madytianos - who works with MYOB and Xero - points out that someone could have an initial bad experience with a cloud system which might colour their view of cloud computing in general. “So it’s important to take advice from someone familiar with more than one cloud product,” she says.

 

Security and the way bank data is collected

However, there are drawbacks. Matthew Addison, executive director of the Institute of Certified bookkeepers recently warned of a security weakness in the way some systems collect bank data. The problem, he said, was where the program uses the US-based Yodlee service to collect the data, as that requires the user’s Internet banking username and password. Anyone gaining fraudulent access to those credentials could easily drain the bank account, and if you disclose your password your bank is unlikely to absorb any losses.

While MYOB uses the BankLink service to access transaction data without requiring Internet banking credentials, according to the above report Saasu and Xero both use Yodlee, although Xero does have direct access to the top seven banks in Australia. Similarly, Reckon’s BankData service takes direct feeds from Commonwealth Bank, Westpac, NAB, ANZ, St George, Bank of Melbourne and BankSA, and uses Yodlee for other banks.

 

Get good advice

Debra Anderson warns about bookkeepers and accountants pushing you into using a particular piece of software that might not necessarily be the best choice for your situation. While it may be that they have expertise with that product, there also may be commercial considerations. Xero, for example, pays accountants a commission on the subscriptions paid by their clients, and provides them with free practice management software if they have enough subscribers.

“The accounting software industry has always been about matching software with the needs of the accountant instead of matching it with the needs of client, and that needs to change,” she says.

Pam Madytianos agrees: “Xero is an innovative accounting product that suits many small businesses. But we have seen situations where Xero has been recommended when it hasn’t necessarily been the best choice for that particular business. Accountants and bookkeepers have an incentive to recommend the software, as the more clients an accountant or bookkeeper has using Xero, the bigger their commission and the more prominence they receive on the Xero website.”

While Anderson receives commissions from MYOB (but no free practice software), she says she doesn’t try to convert all potential clients: “If their needs go beyond tax returns or what MYOB can offer, I refer them to another bookkeeper or an accountant who can help with the product they are using.” And we stress that no doubt there are Xero specialists who take the same helpful approach.

Kelvin Deer also notes the tendency for bookkeepers to be aligned with one of the major software companies, but says the emergence of cloud-based systems means a growing number of bookkeepers are looking at a variety of software options in order to meet the needs of different types of client.

He also says that as bookkeepers are in frequent contact with their clients (perhaps on a monthly basis for data entry, or a weekly basis for payroll) they are starting to assist small business with regular reporting such as cash flow and quarterly analysis. In that situation, a bookkeeper that already has some experience in the client’s specific industry may be a better option than a generalist.

 

Now, let's take a look at the different products! Click for the next page…

Source: Copyright © BIT (Business IT). All rights reserved.

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