Cloud accounting products have arguably been the biggest leap forward in accounting tech since the arrival of the personal computer. The advantages in terms of time saving on bookkeeping, real time performance reporting and collaboration with other users do in my option greatly outweigh the costs of these products even for very small businesses. The adoption rate of cloud accounting in this country is already ahead of most other developed countries, and the arrival of Making Tax Digital (MTD) for all but the smallest businesses thus year, will greatly accelerate the take up.
In my small practice the adoption rate of cloud accounting amongst my limited company clients is currently around 80% and within this group the split between products is about 60% Freeagent, 30% Xero and 10% Kashflow. I decided at the outset not to align myself solely to one provider, though doing so would have had clear advantages for me in terms of only then needing to learn one product and the resulting standardisation of work processes. Larger accountancy firms for these reasons inevitably end up offering one product only, usually Xero or Freeagent. What I soon realised as I started to learn about the different products and seen client’s using them is that though they have at their core the same basic processes, so some kind of method of importing bank transactions and then allocating the transactions to appropriate income or expense categories, beyond this they have very different designs and consequently different strengths and weaknesses. To help you decide what product might be the best fit for your business I’m going to give a condensed view of my thoughts and personal views on the 3 products I am most familiar with.
This has been designed with the one man contracting company in mind and certainly for small to medium sized service sector businesses it’s in my view some way ahead of the competition. It’s very intuitive to set up and use and I find that client’s coming to this for the first time need far less support than those using Xero or Kashflow. The user interface is very well designed and the key functions of bank reconciliation, invoicing, vat returns and payroll are all as good, or better than Xero. Support is either phone or online and is fast and good quality. It’s continually being updated with new features and improvements.
The weaknesses of the software are I think a result of the decision to focus mainly on the small company market and make it as user friendly as possible. The simplicity of the product means that there is quite limited scope for tailoring it to particular business types and this is most evidence in the financial reporting module which is very basic compared to its competitors. What it offers is a basic P & L, B/S, aged debtors and creditors and TB which going to be fine for one man contractors but larger businesses are going to want more than this. Similarly the scope for add-on products like CRM’s is much less than for Xero. Finally Freeagent is relatively expensive, see below, which can be an issue for very small businesses and it doesn’t offer a lower cost limited company starter package unlike Xero and Kashflow
The limited company version is £29/month + vat, and this allows for unlimited users, transactions and staff on payroll. You can accumulate referral discounts of 10% per referral for both parties which remain in place as long as you both continue to use the software so it’s possible to build up quite a decent discount if you can find other people to refer. https://www.freeagent.com/support/kb/getting-started/the-freeagent-referral-scheme/
Who should use it ?
Small to medium sized service sector businesses with a turnover in the region of £25,000 to £200,000 who don’t mind the price tag and the limited financial reporting.
Xero isn’t focused on any particular business sector or size and this is reflected in a greater degree of flexibility and functionality than Freeagent. The core functions are all good with the exception of the relatively new payroll module which I have struggled with and prefer Freeagent. The ability to set up rules and do mass cash coding will speed up bank reconciliations for businesses with a large number of transactions. Reporting is far more extensive than Freeagent and allows you to create bespoke reports, create and monitor budgets and set up cost centres. There is a large and growing range of add-ons that integrate with Xero.
In the same way that Freeagent’s strengths create its weaknesses, the same goes for Xero. The breadth and range of functions that it offers does make it harder to learn to use. I’ve been an accountant for 20 years and did a full day training course and even now 3 years in I sometimes have to spend time researching and understanding queries that client’s send to me. I find clients using Xero for the first time therefore need far more support than Freeagent, if left to their own devices they tend to make a mess of things. The sheer amount of information in the help section can be overwhelming and some of the terminology can be a bit confusing. As I mentioned about I’m not a great fan of the payroll module and the vat reporting has its weak points as well. I suspect this may be a reflection of the fact that Xero as a global company (that started in New Zealand) has to develop and keep updated different modules for these two areas for each country it operates in whereas Freeagent doesn’t as is currently only operates in the UK.
The limited company version costs £22/month + vat, but you then need to pay £5/month for payroll for up to 5 people then £1/month per person over that. There is a starter package for £10/month if you raise 5 or less invoices a month and have 20 or less bank transactions, though you will still need to fork out the extra £5 for the payroll for even one director unless you ask your accountant to put it on an annual basis for you. There are various promo codes available which offer discounts for up to 6 months typically for 40-60%. So overall the cost for most users, unless you can get away with not using the payroll module and/or use the starter version, is going to be around the same as Freeagent.
Who should use it ?
Larger businesses of all types who want greater flexibility and reporting and who are prepared to spend time learning how to use the software or are happy to outsource this to a bookkeeper. Businesses with a low volume of transaction, who are able to take advantage of the starter package which makes it considerably cheaper than Freeagent.
I want to like Kashflow really I do, it’s got an inspiring back story http://www.bbc.co.uk/news/business-19400039 and has always been the plucky underdog compared to Xero and Freeagent. It was bought by Iris, a big accounting software firm in 2013 and there was an expectation that there would be a major investment in the software to help it compete better with the other two but I haven’t noticed any major changes since then. It falls somewhere between Xero and Freeagent it terms of its main client focus group and if I’m honest the only reason I recommend it to clients is on cost grounds. Support is online only and seems fine though not as fast as the other two.
The design of the main interface is best describes as clunky and that term sums up the whole product really. It’s not terrible, and if Xero or Freeagent weren’t around to compare it against then I’d be happy to recommend it as it’s streets ahead of what went before. (don’t get me started on how many ways I disliked Sage) However it’s neither as intuitive to use as Freeagent nor as flexible, comprehensive and well supported as Xero. The fact that it seems to lag behind the other two in accountant partnering suggests it’s not just me that has reservations about it.
The starter package for companies if you have less than 10 invoices a month and less than 25 bank transactions is £7/month plus vat, the standard package is £13/month, though it’s an extra £5 if you need payroll. https://www.kashflow.com/features/
Who should use it ?
Very small businesses who are more concerned about cost than user experience.