The US is the most significant public cloud market with an expected spending of $124.6 billion in 2019
42% of Australian businesses are using paid cloud computing to run their business processes
But what exactly is the cloud, and its importance to businesses today? To many, the term "cloud" may feel overused and a little worn out at this point. In reality, the cloud has never been more relevant for SMBs, particularly in the area of accounting. In simple terms, "the cloud" or "cloud computing" refers to the delivery of computing services via the internet. That may be storage services, data analysis tools, or - in the case of this article - accounting services.
Cloud accounting software can revolutionise the efficiency of your bookkeeping, streamline your financial administration and provide a real-time view of your key numbers. But with so many platforms on the market, how do you know which one is right for you? In this article, we’ll guide you through the core benefits of switching to cloud accounting, with advice on which platforms are available to suit you.
What is Cloud Accounting?
Recording the income and expenditure of your small business to keep track of your historical financial performance is nothing new. Double-entry bookkeeping has been around for centuries and accounting software has existed for decades, giving finance teams the ability to record and track the money coming into, and out of, the company.
So, how does cloud accounting improve on this? Let’s take a look at the key differences:
Traditional accounting software
Prior to cloud, most accounting software was desktop-based. In other words, the actual application was installed and run from the hard drive of your office desktop computer. This has a number of drawbacks, including limited access to your data, the need for constant software updates and the ongoing cost of backing up all this financial information.
Cloud accounting software
Cloud accounting (or online accounting) has all the same functionality as desktop accounting, but moves the whole process to the cloud and expands upon it. There’s no desktop application – you log in to an always-up-to-date online solution and all data is safely stored on a cloud server. Most cloud platforms will also have an open API, which basically means third party software can connect with your system to provide even further value to you as a business owner.
Benefits of Cloud Accounting
Moving accounting from the desktop to the cloud has been a huge leap forward in financial management, with many of the drawbacks and cost implications of traditional accounting being removed from the equation. But how exactly does cloud accounting benefit your business?
Below are the key areas where a cloud accounting system adds real, tangible value.
Access your accounts anywhere
Cloud accounting gives you access to your key business numbers 24/7, from any location where you can access the internet, removing the need to work from one central office-based computer. Log in via a web browser from your laptop, or use your provider’s mobile app to access your accounts from your phone or tablet.
Access to real-time information
By keeping your bookkeeping and bank reconciliation up to date, you can achieve real-time reporting. Instead of looking at historical reports that are days, weeks, or even months out of date, you have an instant overview of the company’s current financial position. This real-time overview is vital when looking at your cash position, planning future spending and when making big financial and strategic decisions as a management team.
Access to the app ecosystem
Open APIs mean you can add a range of third-party apps and tools to expand your core business system. There are cash flow forecasting apps, online invoicing apps, industry-specific project management tools and a host of other practical solutions to choose from. These tools enable you to further save time, reduce resourcing costs, identify problems further in advance, and generally ease the pain of unnecessary admin that’s weighing you down.
Live bank feeds
Many cloud accounting platforms offer live feeds to your bank accounts, giving you the ability to link your banking directly with your accounting. Instead of manually keying-in each bank statement line, or uploading a .CSV file that you've downloaded from your internet banking portal, a live feed pulls your bank data straight through into your accounts. This speeds up bank reconciliation and gives you a more accurate view of your bank balance.
Always working with the latest software version
When you log in to your accounting platform in the cloud, you’re always using the latest version of the software. There’s no need for time-consuming and costly updates – you just sign in and start working. Plus, you don't have to be responsible for applying security fixes - your software provider will handle that for you automatically.
Secure sharing of data
When you’re working with your accountant, bank or other advisers, you can easily grant access to your accounts with cloud accounting software. There’s no need for USB memory sticks or sending emails back and forth. Your advisers have safe and secure access to all your financial information, in real time. This is quicker, safer and gives your advisers the information needed to support and advise you, going forward.
Connected online payment
Payment apps like GoCardless can be connected to your online accounting and invoices, allowing customers to pay you automatically, speeding up payment times and reducing the burden of admin work on you or your staff.
When should your company use Cloud Accounting?
To get the most from cloud accounting, it pays to make use of the additional digital connectivity and real-time data capabilities that cloud offers.
The enhanced real-time data capabilities of cloud accounting make it ideal if your business wants fast access to detailed financial breakdowns, management information and key performance indicator (KPI) metrics. And with most platforms offering an open API, there’s a wealth of choice when it comes to building an app stack and creating a custom suite of business apps.
Key areas where you can utilise cloud accounting include:
Using automation to reduce workloads
The cloud accounting ecosystem allows for automated bookkeeping, automated cash collection and automated bank reconciliation, all of which radically cuts down on your team’s admin workload.
Getting more insight from your financial data
With instant access to real-time reporting and financial intelligence, you and your management team have the numbers, insights and key data needed to make sound and informed decisions.
Paying VAT or GST online
Paying your taxes is far quicker and simpler through a cloud accounting platform. Your transactions will be recorded as you go, and can then be swiftly exported into the relevant tax return templates and sent digitally to the revenue.
Making Tax Digital (MTD), the UK government’s move to digital tax accounts, requires mandatory digital record-keeping and tax returns. With a cloud platform, you’re digital-ready and can send returns in the required iXBRL format.
If you want your business to leverage the benefits of remote or flexible working, cloud accounting allows the management team and your finance department to access all the key numbers from anywhere they have access to the internet.
Cloud Accounting Software options
The cloud accounting market is a busy one, with a range of different providers to choose from. Ultimately, the cloud accounting software that’s the best fit for your business will come down to your size, your accounting needs and the choice you want from your app ecosystem.
Cloud providers to choose from include:
Xero – A great choice for small businesses that wants simple accounting alongside detailed reporting as the business grows. Xero also has a huge global app ecosystem.
QuickBooks Online – A platform that’s aimed squarely at small businesses, with all the accounting functionality of QuickBooks classic desktop version, plus a great app store.
KashFlow – A good choice for small businesses that want a straightforward platform that gets the job done. All the basics are there but with fewer options when it comes to apps.
Zoho Books – Unlike many cloud accounting providers, Zoho provides several other business softwares of its own to connect Zoho Books with. It also sports a few connections to third party software too.
FreeAgent – For freelancers, contractors or microbusinesses, FreeAgent gets your accounts done without all the additional bells and whistles.
ClearBooks – Great for small businesses, ClearBooks even offers a free option called Micro which they say is best suited to "new or super small business". It offers a few third-party apps to connect to, but not at the same scale as Xero or QuickBooks.
QuickFile – Like ClearBooks, QuickFile also offers a free option to businesses under a certain size.
Exact – For both small businesses and enterprises, Exact offers a range of financial software which can offer additional functionality beyond accounting. There's also an app store to add even further functionality.
Sage Business Cloud Accounting – Bigger businesses will like the scalable accounting of Sage’s cloud platform, with all the business functionality of their desktop version. Third-party apps are available, but extra Sage modules will add to your costs and budget.
MYOB – One of the key providers in Australia, MYOB is designed for small businesses that want a streamlined accounting solution with all the benefits of the cloud.
Glossary of Cloud Accounting terms
If you’re still getting your head around the jargon of cloud accounting, here’s our breakdown of some common terms.
Application Programming Interface. Put simply, a "gateway" that allows different pieces of software to connect with each other. In the case of cloud accounting, an API is necessary to connect third-party software.
Apps are third-party software solutions that integrate with your cloud accounting platform, fulfilling a variety of business purposes such as automating payments, producing cash flow forecasts, or helping you manage your inventory.
The collective term used to describe the suite of strategically-selected apps your business uses.
A bank feed is the direct integration of your internet banking with your cloud accounting platform, allowing you to access all your banking data.
Real-time reporting and business intelligence provided by dashboard and reporting apps.
The online computer server where your financial data is stored. This will be off site, securely hosted by an external, specialist company, rather than being physically located on your business premises.
The process of chasing up your unpaid invoices (a task that can be automated by certain apps).
Digital transformation is the process of moving your company over to a digital model, usually with cloud at the heart of your systems.
Cash flow forecasting projects your current financial data forward in time, to predict your cash position in the future, aiding business decision-making.
In the UK, HM Revenue & Customs (HMRC) is running the Making Tax Digital (MTD) initiative to make digital tax accounts mandatory for all VAT-registered businesses. With a cloud accounting platform in place, you can record, track and pay your VAT and tax in the digital space and stay MTD-compliant.
Using the open API in your cloud accounting platform to connect (or "integrate") apps with your accounts.
Key performance indicators (KPIs) are the main metrics you use to measure the performance of your business, and will be displayed in your accounting dashboard or business intelligence software.
Cloud accounting can be accessed from your phone, tablet or laptop, giving you access to your key numbers wherever you are.
The cloud equivalent of a desktop application or software.
Data that represents the current financial of the company, as opposed to historic actuals that show the past financial position.
Bank reconciliation is the administrative process of matching your bank transactions against your customer invoices and supplier bills. With a cloud platform, much of this reconciliation process can be automated and time saved.
Software as a Service (SaaS) is the name for supplying your computing services via the internet, in an on-demand fashion.
The interactive elements of your cloud accounting software, that enable you to access the various features and tools.
XBRL / iXBRL
XBRL (from "eXtensible Business Reporting Language") is a global framework for exchanging business information, and the format used by your accounting platform for digital tax returns and records. iXBRL stands for "inline XBRL" and is a similar file format, used for several types of corporate filings around the world.
Year-end is the end of your company’s accounting year, when you’ll need to submit statutory accounts and returns from your cloud platform.