What is cloud accounting?

One area of small business management that has been transformed by cloud based services is accounting. Dave Howell surveys the current state of the market

How small businesses manage their accounts has changed out of all recognition. As the cloud has taken hold to offer a myriad of services that can be accessed with any internet connected device, accounting was one of the first areas to be given a cloud makeover. Indeed, the market for these services has mushroomed over the last three years, with the number of vendors quadrupling.

There is little debate about whether cloud services can benefit businesses, as these hosted platforms offer lower capital costs and increase efficiency. But they also mirror how modern small businesses are managed. Today companies are run on the move, often with virtual workforces spread over geographically dispersed areas. For owner/ managers, accounting systems that rely on installed software simply don’t provide the flexibility they need to run their enterprises.

Holding back

However, a survey conducted by market research specialist OnePoll for cloud accounts firm Xero concluded that nearly half of UK small businesses are not making the leap to cloud accounting because they think their businesses are too small. The survey of 500 owners showed that 46 per cent of spreadsheet users didn’t think their businesses were big enough to warrant switching to more efficient cloud accounting software.

“It’s alarming that so many small firms still believe cloud software is expensive or only relevant for big businesses,” Xero managing director Gary Turner says. “In fact, the opposite is true. For less than the cost of your morning coffee, even the smallest start-up can invoice on the go and take tighter control of their cash flow and financial performance.”

Moving your business’ accounts to the cloud is not a decision to be taken lightly, but it can deliver significant benefits, not least of which is moving the cost structure to a subscription model, which many of the leading cloud accounting services offer. This alleviates the issue of high capital costs when purchasing installed accounting applications and their inevitable and expensive upgrades. With cloud-based accounts, upgrades are seamlessly installed with no intervention from your business.

Web design and SEO solutions company Hit Reach was founded by Chris Gilchrist, who uses FreeAgent cloud-based accounting software.

“We reduced our accountants fees from ?7,000 a year to ?1,000, which is a massive saving on top of the ?25 a month we now pay to FreeAgent,” he says. “The support staff often email back instantly and invoicing our clients now takes one hour instead of the whole day it took us previously.

“FreeAgent automatically sends out reminders, saving us time and helping us get paid on time. I can run our own management accounts any time I like, instead of paying to have it done quarterly.”

Hannah Rowbotham, co-founder of design business Club Studio, believes paying monthly for a cloud-based accounting solution suits the unpredictable nature of a young business’ cash flow.

“You can sometimes get a better deal by paying annually, so that’s worth looking into too,” she adds. “As well as the service, you’re also paying for the reliability, security, updates and support, so while it might seem like a big investment, it’s most definitely a worthwhile one.”

When considering which cloud-based accounting system to invest in, think about how your business is likely to grow in the future, as the software you choose will need to expand with you. The last thing your business needs is the disruption of moving to a new accounts system when new, more advanced features are needed. Try and build into your initial purchase a level of future proofing where possible.

Security concerns

One of the main areas of concern when business owners begin to consider cloud accounting is security. The cloud has been labelled as an insecure environment, but this isn’t the case if sensible precautions are taken to ensure financial data is protected with robust security measures. The cloud isn’t inherently any more insecure than an accounting system installed on a desktop computer, but when choosing a vendor ensure their services have SAS 70 Part II/SSAE 16/ISAE 3402 and ISO 27001 certification.

Cloud-based software’s main benefit is that it allows business owners to work on their companies, instead of spending their time performing repetitiveand time consuming tasks.

“I split my time between the UK and Spain and I simply wouldn’t be able to run my business without cloud-based tools,” Xavier Colomes, web analytics and CRO consultant at Conversion Garden, a digital marketing consultancy, says. “They underpin the vital processes that make my business work.

“I use an online time tracking system for project management and I store my business critical files in Google Drive and Dropbox. I also use cloud-based accounting software QuickBooks Online, which allows me to access my invoices and estimates instantly, gives clear visibility of cash flow status and what I can do to improve it and also helps me collaborate with my accountant.

“There are pragmatic benefits too. My laptop is basically the portal to my business, but if I lost it or it was stolen my revenue and client relations wouldn’t be in jeopardy because they have zero reliance on hardware. This is especially important for a micro business, when just one customer service slip up can damage your reputation. Also, because all good cloud technology is mobile optimised, if I’m travelling and run out of battery power I can still access my online documents using my mobile.”

Your decision when to move to a cloud-based accounting platform could be driven by a number of factors. Perhaps your existing accounting system is showing its age and needs upgrading. This is the perfect opportunity to embrace cloud services.

Or you may use the cloud in other areas of your enterprise and want to leverage it across your accounting function. And increasingly, accountancy practices are offering cloud-based services that come with smartphone and tablet apps, enhancing the relationship they have with their clients.

Making the move

Chris Gilchrist says: “When I think of the headaches of using a traditional accountant, I wish we’d made the move much sooner. We no longer rely on anyone to get VAT returns in on time, compile reports and lists of debtors, query profits before dividend payouts or go back and forward just to get invoices created or changed. We’ll never go back.”

All accounting applications basically offer the same set of services - they allow you to track your income and expenditure to ensure your company remains solvent and can meet its tax liabilities.

Good accounting applications are also a business tool that should enable your company to run tests that will assess whether new staff or other investments can be afforded. These simple features can, however, become vastly more useful when they are in the cloud. MM