"Free" accounting software

With online accounting options for small and home businesses becoming more and more readily available, and taking a variety of different forms, Phil Astley asks whether the free services available are worthwhile. While he feels they might be for some, he warns "free" could well be costly for the unwary.

Free accounting software can sound attractive - why pay when you can get it for free? Of course there ain't no such thing as a free lunch - or accounting system. And it's not necessarily the obvious things that can come back to haunt you. 

Cloud software has become fashionable, and suppliers like the monthly income this gives them. Today desktop software is often discouraged - or repackaged with monthly subscriptions. The move to the cloud has seen rising prices (cloud software has created a new high as normal), so more people are looking at "free" software.

I handle purchases or upgrades when requested, but encourage clients to take specials through retailers who often sell for prices below my cost. Unlike many accountants, I have no financial incentive in particular software.

When I was first asked to look at some free accounting software, I was surprised. It wasn't bad - in fact some was quite good. A cloud system I tried was slow when compared with commercial cloud systems - but it did a good job of accounting. Desktop systems are as expected much faster.

But sadly I'd forgotten something. I'm an accountant. I know a bit about debits and credits and various checks and balances that accountants assume - they're part of our DNA. Not everyone is so unfortunate.

When our main system was a steam-driven mini-computer, I preferred Lotus 123 - quick and simple. Lotus 123 cost more than basic accounting packages today. I have since seen so many things done so badly in spreadsheets, now I will not work with anything other than a "proper" accounting package.

If you're considering using a free accounting package, there are some points to consider. Of course the usual catches with free software apply - advertising, support (especially on an ongoing basis), etc.

Proper setup will take a day or more. If you buy a Kiwi package, it will be quickly set up to work for Kiwis. Most of the free packages are American, although can come from other places such as the UK or Australia. However all are designed for an international market. You choose your country - but even then it is not customised for NZ.

The chart of accounts will need considerable work. Most don't even split expenses between cost of sales and overheads - let alone have another section to group items like tax and non-deductibles at the end of profit reports. Fortunately setup is a one-off - even if you have more than one ledger, you can usually copy the first to the second.

GST won't be largely automatic - and this is becoming more important as IRD moves to taking GST returns from our accounting systems. GST is the simplest VAT in the world, but that also means we're not used to thinking about it. GST reports won't default to Kiwi frequencies. How GST is handled for customers and suppliers varies - but in the worst case you may need to set up every one with the GST code.

If you don't reconcile each GST return with your balance sheet, that's a sign you're probably not ready for these "free" packages.

Recurring transactions are often non-existent in one or more areas. Details of depreciation varies from system to system, as do end of year rollovers. Some even use the old fashioned data entry by batch.

Most of the standard accounting reports are fairly general - although some require the start and end date to be entered each time rather than say "last year", "last month", etc.

This is not a comprehensive list of glitches - just a summary of the more obvious ones. There's nothing in them that would mean they won't do a good job of basic accounting. But they're even more prone to a larger number of errors than our own packages - so it's buyer beware. Please be careful. If you make mistakes with commercial packages tailored for NZ, you will have to do considerably more work with generic packages.

From my perspective, if a client wants to use one of these, I will have to raise my monthly fees to cover the time required to check all the extra possible errors. As always, it's up to you to keep your accounts in order. Free software can do it - but requires much more effort, especially from untrained users.

Topics: 

  • Accounting

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Phil Astley's picture

I'm a Certified Public Accountant who's also a member of RAN ONE to help me with my passion - helping business owners in achieving their goals. I do accounting and business development "virtually" - so location's not important as long as you have broadband. I worked for government departments...