Online Accounting – The Nuts and Bolts…
. . . that every small business should know
Accounting software has been around for a couple of decades, but a combination of factors has led to something of a revolution in this area. More and more businesses worldwide are now turning to online accounting and away from traditional software packages. Why? Because online accounting can give a small business some very tangible benefits, not least of which are better management of cashflow and debtor information, plus time-savings and improved visibility of the exact balance sheet.
So if you haven’t looked at accountancy software since you looked at a Sage box in PCWorld back in the Nineties, what’s changed? Well, perhaps the biggest revolution is cloud computing, which is now so widespread that it hardly needs an introduction, but just in case, here’s a quick definition.
When you cut through the jargon, the cloud computing is pretty simple: users access and use software applications that exist on the internet rather than on their PCs’ hard disks. We can draw a parallel with how we consume electricity: few of us today choose to run household generators. Instead, we opt for the zero maintenance option of obtaining our power from a utility supplier, which has the worry of buying, service, refuelling and ensuring continuity of service.
With cloud computing, users no longer have capital outlay on file servers and network equipment, expensive software licenses and upgrade charges. Updates and maintenance are taken care of by the service provider, meaning that users can have access to the very latest features ‘pain-free’, with no CDs to insert or effort involved – and wherever they want as long as they have an Internet connection. Moreover, cloud computing lends itself well to pay-as-you-go, minimum-contract business models, making it easier to budget, as well as avoiding large, unpredicted costs.
One of the biggest advantages of cloud computing is its ‘connectedness’ and access to real-time information. With the recent advent of automatic live bank feeds, all transactions are updated each time you online accounting system. If you are a small business handle large volumes of transactions (such as a retailer) then this can save substantial amounts of time. We know of one firm – a small charity in the South of England – that estimates it saves 90 minutes a day just through this, because they no longer have to manually manage transaction data.
Make More of your Accountant
Also, because your accountant can be online as the same time as you, they can help identify possible issues (is there going to be a dip in cash flow next month that you hadn’t spotted?) before they escalate. This plays to the fact that there is a whole new vanguard of accountants who are evolving more into business advisors, not just number-crunchers. Given the challenges that small businesses have with securing financial assistance from their banks, the more ways that they can work with accountants to manage money more smartly, the better.
Cash Flow Management
Easier and more accurate cash flow visibility is probably the single biggest advantage of online accounting for a small business. It can help the way that businesses approach the whole topic of accounting: instead of looking at due payments in and out say, once a week or month, a small business can keep on top of accounts through small, daily actions. And many of the small businesses we work with also use their mobile devices to manage their finances on the move. For instance, minute you leave a customer’s premises, you can create and email them an invoice, all from within the mobile app.
This whole ‘in the moment’ approach to managing accounts has two immediate benefits. First, because invoices are issued as soon as job is complete – rather than being left to the end of the week or month – the chances of getting paid earlier are improved. Think about it: if you complete a job on the 15th of the month but don’t invoice until the 30th, you are adding 15 days, unnecessary.
The second advantage is less quantifiable but no less important. By dealing with small accounting tasks as they occur, then small business owners have less need to give up their precious evenings or weekends to manage the books, so there’s a definite quality-of-life benefit. Even expenses – a task many people dread – can be managed more efficiently: several mobile accounting apps allow you to photograph an expense receipt for it to then be automatically uploaded into the system.
I’ve painted a very positive picture, but are there any pitfalls to watch out for? Some people worry about the security or availability of cloud-computing. Of course there is that risk, but it is a very small one and think about this: PCs, hard disk drives and servers are not infallible. They can catch computer viruses or blow a motherboard. Sure, you may be very good at backing up, but with online accounting, that data is always there, up to date, in the cloud.
I’d also advise any small business to shop around and take advantage of trial offers. Don’t be tricked into lengthy contracts: online accounting should involve a simple monthly fee. Find the best accounting software solution for your company – don’t be dazzled by the bells and whistles, find something that has an intuitively designed user interface that is simple to understand and operate. After all, if it’s not easy to use, then you will be less tempted to keep up the good work.
By Gary Turner, UK MD, Xero