Cloud accounting has revolutionised the world of financial management and reporting. The emergence of cloud accounting software has been a game-changer for businesses of all sizes, providing more flexible, efficient, and safer ways to record and manage financial data. In this article we’ll explain what the terms ‘cloud accounting’ and ‘cloud bookkeeping’ mean and discuss the advantages and benefits of harnessing the power of the cloud in your business.
The terms cloud accounting and cloud bookkeeping are related and somewhat interchangeable. Both involve using cloud-based (internet) technology and software for financial management. However, the scope of a cloud accountant’s role and responsibilities has some subtle differences to that of a cloud bookkeeper.
What is cloud bookkeeping?
Cloud bookkeeping primarily focuses on the recording of financial transactions and making sure these are organised correctly within the financial accounts. The key tasks of a cloud bookkeeper include recording and categorising expenses (accounts payable), reconciling bank statements, managing the generation of invoices (accounts receivable) and processing their payment. They might also monitor and manage the cashflow of a business and produce cash flow forecasts. In small to medium businesses a bookkeeper might also provide payroll services; in larger firms a specialised payroll officer will often perform these tasks.
As the name suggests, in cloud bookkeeping the bookkeeper uses cloud-based accounting software and tools. Due to this, a cloud bookkeeper can work remotely and doesn’t need to carry out their tasks at a business’s physical address. This feature of cloud bookkeeping provides many benefits to businesses, including the ability to outsource their bookkeeping needs to professional, specialist bookkeeping firms with a team of experts at their disposal.
Darcy Bookkeeping has been providing cloud bookkeeping services to Australian businesses for more than 10 years. Our team are experts in the popular cloud accounting software programs and can work onsite at your office or remotely. Give us a call on 1300 728 875 or send us a message.
What is cloud accounting?
Cloud accounting goes beyond the scope of bookkeeping and a cloud accountant will usually provide more strategic advice and services. This often includes in-depth analysis of the financial statements, tax management and planning, budgeting, analysing trends, and planning for the future.
Similar to cloud bookkeeping, cloud accounting is made possible by cloud accounting software and can be done remotely or onsite. A cloud accountant is sometimes referred to as a Virtual CFO and can be hired inhouse on a full- or part-time basis, or outsourced to a professional accounting firm.
Before cloud bookkeeping solutions came along
Manual, paper-based bookkeeping
Once upon a time, financial transactions and balances were manually entered into paper-based Journals and Ledgers by hand. Can you imagine how time-consuming that would have been? Not to mention how easy it would have been to make an error, tediously search for it, fix the error, and redo all the balances.
Desktop accounting software
Then computers came along and made it easy to enter, update and calculate the figures, populating the connected relevant reports instantly. It was considered a transformative revolution, and so it was. However, desktop accounting software still had its flaws.
A business would have to purchase a copy of their preferred financial accounting software and install it on a desktop computer that sat in an office. Businesses would have to purchase and install the programs on multiple computers if they had more than one person working on their accounts. Data was stored on local machines or network servers and backups were kept both onsite and offsite to prevent loss due to hardware failures or disasters. When it came time to update the software a business would need to purchase a new version and install it all over again.
In larger businesses, financial reports were manually compiled from various sources, often with delays when team members weren’t available, or figures weren’t ready.
Data sharing with remote teams or an external accountant was done through email or sending physical copies of discs. Not only was this a potential security risk, version control could also become a costly nightmare if somebody was referring to a superseded file.
Cloud accounting software: turbo charge your business
In 2006 the world’s first cloud-based accounting software, Xero, was released in New Zealand and then later in Australia. Xero’s software-as-a-service (Saas) business model made accounting software more accessible to small businesses and provided the scalability and automation solutions larger businesses needed.
As with any change, initially there was some fear around the security of data in web-based accounting software. However, as long as you use a reputable software provider, security can actually be increased. No longer does sensitive financial data need to be sent via email or copied to USB drives that can fall into the wrong hands.
There are many benefits to be gained from adopting cloud accounting software in your business.
Advantages and benefits of cloud-based accounting software
Reduces the risk for human error
In this digital, online age, it is rare that we have to enter a transaction from scratch. Bills (accounts payable) are often received digitally and can be emailed to the accounting software, which then sets up a draft with pre-filled information that then just needs to be checked and approved for payment. Hard copy bills can be scanned with a phone and sent to the software too. This helps to reduce manual data entry errors (and misplaced paperwork). Less errors leads to more accurate financial reporting and reduces the time needed to be spent on error correction.
Cloud accounting software allows users to access their financial data from anywhere, at any time, as long as they have an internet connection (and the correct security permissions, of course). This flexibility is especially valuable for businesses with remote teams and those that aren’t office-bound (eg tradies and salespeople who travel a lot).
When financial data is no longer stored on standalone computers or servers ‘back at the office’, multiple users can access and collaborate on the same data simultaneously. This eliminates the need for sending files back and forth, reducing the security risks and ensures that all stakeholders are working with the most up-to-date information.
Real-time data and reporting
Cloud accounting software provides real-time data in dashboards and reports that are constantly updated as transactions are entered. This allows businesses to gain accurate and up-to-date insights into their financial health, and thus make informed decisions when needed.
With the introduction of software-as-a-service (Saas), businesses no longer have to bide their time and plan for when they can afford to invest in upgrading to the latest version of a software program. Instead, the software provider usually releases updates as part of the subscription for as long as it is active. To remain competitive, this usually means Saas programs are regularly updated with new features and security enhancements. These updates occur when a user logs in to the program and are fairly unobtrusive – no more sitting around waiting for a manual, large update to finish installing.
Cashflow and cost savings
Most cloud accounting software is subscribed to rather than purchased outright. These subscription plans are often offered as either monthly or yearly options, providing flexibility for businesses to be able to budget for the expense and save money with a yearly subscription. Many also offer tiered subscription plans with different levels of features, allowing businesses to only pay for what they need. Software providers are no longer trying to achieve economies of scale by distributing a one-size-fits-all product that may contain advanced features many businesses don’t need.
As mentioned above, the tiered subscription plans with different features allow growing businesses to scale up to more advanced features or increased volumes as needed. For example, as your company grows you might want to upgrade to a level that includes timesheets and staff rostering features, or inventory management. In addition, you won’t need to upgrade computer hardware just because you’re now processing more transactions.
Easy integrations and add-ons
Many cloud accounting platforms offer integrations with other business tools, such as e-commerce systems and mobile apps, to streamline data input and prevent double handling of data. These integrations and add-ons are usually fairly easy to implement and, being cloud-based, incompatibility issues are reduced.
Data security and protection
Reputable cloud accounting providers implement robust security measures, such as data encryption and multi-factor authentication when users attempt to login. This ensures that sensitive financial information is kept safe. They also maintain regular backups for customers automatically, so data can be restored. In the event of a misfortune, such as a fire in the office or theft, your data has a better chance of being protected as the software provider will be hosting it offsite and often in numerous secure locations.
Remote support and assistance
Cloud accounting software often comes with customer support options via online chat, email, or phone support. There is also usually online documentation readily available for users to find answers to questions or when they need guidance.
Although cloud accounting software is hosted on the internet, there are also usually work offline options so you can still access your data in the event of an internet outage. Once you’re back online you can automatically sync your data when you login to the software.
As you can see, there are many compelling reasons to switch to cloud accounting solutions. The adoption of cloud accounting and cloud bookkeeping services provides opportunities for businesses to manage their finances efficiently and make well-informed decisions in an increasingly high-paced business environment.
Are you ready to harness the power of the cloud but don’t know where to start? Give us a call on 1300 728 875 or send us a message to discuss your needs.