How to choose and get the best out of cloud accounting software

In recent years, the move to cloud-based finance tools has gone from a nice-to-have to a necessity for many, with the introduction of HMRC’s Making Tax Digital (MTD) for VAT-registered businesses in 2019.

As HMRC introduces and rolls out Making Tax Digital for Income Tax (MTD IT), many sole traders and landlords will need to keep digital records and submit tax returns electronically quarterly. When you need to start doing this will depend on the income you report in your Self Assessment tax return – you can check on GOV.UK.

Beyond compliance, cloud accounting also brings clear day-to-day benefits:

• Access anywhere, anytime – manage your finances on the go and collaborate easily with your accountant.
  
  
• Automatic updates and backups – no more lost files or software installs.
  
  
• Real-time data – see what’s happening in your business right now, not weeks later.

All of this will help you feel more in control of your business finances, reducing stress and allowing you to use saved time and energy elsewhere.

Every business stands to gain from adopting cloud accounting, but the starting point differs depending on your size, setup and goals.

If you’re new to accounting software

Many micro-businesses and sole traders start with spreadsheets. Cloud accounting tools simplify this by automating tasks like invoicing, expense tracking and VAT calculations.

Enabling you to complete tasks in the moment while on the move – such as snapping a picture of a receipt – can make things less stressful and overwhelming on the day-to-day financial management, allowing you to focus on other tasks.

If you’re growing and managing a small team

As your business becomes more complex, cloud software helps you manage cashflow, track payments, and integrate with other tools, such as point-of-sale systems or ecommerce platforms.

Many tools have chaser functions, automatically reminding customers of overdue payments, saving you time and hassle versus manually checking and following up. It also makes things easier if you have appointed another person in your business, or an external bookkeeper or accountant to manage finances, as you can have more than one user.

If you’re already established and looking to optimise

For more advanced users, cloud accounting software offers powerful reporting and automation features. You can analyse trends, forecast future performance, and use AI-driven insights to improve decision-making and financial planning.

Having greater confidence in your numbers can enable you to spot issues early and address them, helping you to avoid stressful tax surprises or cashflow problems, for example. You can also run scenarios more easily and see the impact of taking on a new staff member, a loan, or investing in a new product or service development to help grow your business.

There’s a huge range of options available, from simple bookkeeping tools to comprehensive finance systems. When comparing them, consider the following:

Must-have features

• Invoicing and expense management – create and send invoices, match receipts, and manage cashflow.
  
  
• Bank integration – connect your business bank account for automatic reconciliation.
  
  
• VAT and tax management – stay compliant with Making Tax Digital and file directly to HMRC.
  
  
• Real-time dashboards – track your income, outgoings and profit at a glance.

Nice-to-have and advanced features

• Payroll integration – save time on staff payments and reporting.
  
  
• Multi-currency support – essential if you trade internationally.
  
  
• Project costing and time tracking – useful for service-based businesses.
  
  
• Automation rules – automatically categorise transactions or flag anomalies.

Hidden gems that many businesses miss

• Receipt scanning – upload receipts via your phone and let the software extract the data automatically.
  
  
• AI-driven forecasting – predict cashflow and highlight upcoming risks.
  
  
• Custom reports and dashboards – focus on the metrics that matter to you.
  
  
• Third-party integrations – link your accounting software with CRM, payroll or inventory tools to streamline your entire workflow.

Popular options include Xero, QuickBooks Online, FreeAgent and Sage Business Cloud. If you’re starting out with cloud accounting or considering changing platforms, take a look at finance software to help your business for an overview of what’s available.

You might be able to get software licences free or at a reduced cost as part of a professional service such as your accountant or bank, or through a professional body. You can also check out FounderPass, which has exclusive deals on hundreds of tools, software and services.

Use GOV.UK’s tool to check that software is suitable for Making Tax Digital for Income Tax. 

Before you commit, take time to assess what you really need.

1. Think about your business stage and goals.
If you’re a sole trader, simplicity and price might be most important. For growing teams, scalability and multi-user access could matter more.

2. Look for integrations.
If you already use tools like Shopify, PayPal or HubSpot, check whether they connect easily.

3. Assess what support is available.
As you weigh up options, see what reviews and ratings say about how responsive customer service is, whether they have accessible help articles, and a strong user community that they listen to.

4. Test drive a few options.
Most platforms offer a free trial. Set aside an hour or two to explore how each handles your real data. You’ll quickly spot what feels intuitive and what doesn’t.

Once you’ve chosen your platform, planning and careful set-up will save you time and frustration later.

• Start with clean data. Before migrating, tidy up your existing spreadsheets and make sure balances reconcile.
  
  
• Bring your accountant on board early. They can help configure the chart of accounts (such as assets, liabilities, equity, income and expenses), tax codes and integrations.
  
  
• Train your team. Even simple systems can cause errors if users don’t understand the workflow.
  
  
• Go live in stages. Begin with basic functions (like invoicing), then expand to reporting and payroll once everyone’s confident.

Avoid rushing your set-up, and be prepared for it to take around three months for you to feel comfortable with it.

Once your system is up and running, there’s a lot more you can do to get the best return on your investment, and boost your efficiency:

• Automate repetitive tasks – set up bank rules, invoice reminders and expense categories to save time.
  
  
• Use reports to guide decisions – track cashflow trends, customer payment behaviour, and project profitability.
  
  
• Set goals and alerts – many systems can notify you when spending exceeds a set limit or when invoices are overdue.
  
  
• Explore add-ons and integrations – connect forecasting, inventory or CRM tools to build a unified data ecosystem.
  
  
• Stay ahead of updates – cloud platforms evolve quickly, so keep an eye out for new features like AI assistants or predictive analytics that can provide deeper insights.

These optimisations can help you transition from your accounting system being a compliance tool to a strategic decision-making asset.