The question has been asked many times before: Will tools like Xero, Quickbooks, FreeAgent, Sage — or any of the other accounting software tools out there — eventually replace your accountant?
The question is a valid one. And, indeed, many accountants and bookkeepers probably felt the “pinch” in their pockets as a result of some of these tools, before they discovered their value to their businesses.
Long gone are the days of a solopreneur sticking all their receipts in a shoebox and then, once a year (or once every quarter if they are VAT registered), calling up their bookkeeper and saying, “Help! My filing is a mess!”
Indeed, one of the primary features all these tools have in common is the ability to keep your day-to-day bookkeeping up-to-date and well organised.
How do tools like Xero, Quickbooks and FreeAgent actually work?
Bookkeeping and accounting are different things.
I know, I know, those of you familiar with the subject (or with Xero tax software or Quickbooks accounting) might consider that statement something on the order of “Well, you see, the moon and the sun are different things…”
But not everyone knows that, especially people who are new to business.
Bookkeeping is the act of noting down one’s income and expenditures in ledgers — or “books”. The most popular system for doing this is the “Double Ledger” system which requires that every debit in a ledger be followed by a credit entry in the corresponding ledger.
So, for example, if you buy a new computer, your cash is credited for, say, £500, but your assets are debited for £500.
Accounting, on the other hand, takes these “books” and prepare sophisticated and detailed reports for them:
- P&L (Profit and Loss) Statements
- Balance Sheets
- Aged Creditors
- Aged Debtors
- And so on.
Well, that’s what these software tools do:
- They allow a person to keep up their own “books” (in digital format) and then they…
- …provide the reports mentioned above
Some of them even go so far as to link directly with HMRC and submit the required tax or VAT forms when they are due.
Will Xero, Quickbooks or FreeAgent replace accountants?
So, what do accountants do now?
Well, firstly, accountants also use these tools! The makers of Xero, Quickbooks, FreeAgent, Sage, KashFlow and any of the other accounting software tools around, didn’t only make these tools for end-users, but also for accountants.
Every one of the tools above has an “Accountant” version or provides a special login for your accountant to come in and verify your books.
Just as these tools save time for people, they also save enormous amounts of time for accountants and bookkeepers!
Now, accountants and bookkeepers can serve, probably, a hundred clients when, before, they could only serve twelve or so in the same amount of time.
Technology helps everyone.
Accountants are specialists in their fields. They also need to stay constantly in tune with the latest legal developments in regulations from HMRC such as the requirement to Make Tax Digital, forcing all businesses to submit their VAT returns online.
Before the rise of accounting tools, accountants were not able to fully “flex their muscles” to their clients. By the time all the tedious bookkeeping was done, and the intricate reports were prepared, the accountant had to move on to another client because the work took so long.
These days, accountants are able to offer far more value to their clients because they have far more time to do things such as:
- Analyse reports for potential cash flow problems down the line.
- Advise on better savings.
- Warn of potential suspicion from HMRC for certain types of income or earnings and prepare for those questions ahead of time.
This additional time means that accounting has become a far more “personal” business, with strong client relationships building up over time.
How does Xero/Quickbooks/FreeAgent improve my business?
Time is money, but it is also opportunity.
Whether you decide to do all your bookkeeping yourself or to get your accountant to do it (BTW, we do all the bookkeeping for our clients as part of our monthly packages), time will always be saved on either end when using these tools.
Also, there will be far less room for error.
That saved time and those reduced errors mean that you and your accountant will be able to dedicate time to what you both do best:
- You: Running your business and making sure it is profitable.
- Your accountant: Advising on the best ways to keep you in the black, with cash always available — or a solid backup when it’s not.
With extra time, your accountant can also help you with preparing loan applications or assisting with applying for different types of government funding, as was the case for many accountants during the coronavirus pandemic and all the schemes and loan packages that were announced by the Chancellor.
Well, do you need an accountant or not?
So, do you need an accountant if you use Xero, Quickbooks or any other tool for your VAT returns, tax returns and bookkeeping?
A similar question might be whether you need a mechanic whom you can always go to when your car breaks down, or a designer when your website needs an upgrade.
Just as technology has made everyone more efficient, so have accountants become more efficient. And there are numerous packages for every budget that accountants can now offer as a result of the rise of technology.
It’s always good to have an affordable expert to go to when the car breaks down or just for a general checkup!
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.