The right online accounting software for you
Nick Huber looks at the how and why of buying the right online accounting software for your firm
The global market for cloud accounting software will grow from $2.6bn (£2bn) in 2019 to $4.3bn (£3.3bn) by 2024, according to research by Market Study Report LLC.
In 2017, about three in four (72%) of organisations using cloud accounting software worldwide, were small and medium-sized enterprises, the research also found.
Most accounting software suppliers offer cloud software, which runs online rather than on a desktop at the customer’s premises. Cloud accounting suppliers typically charge a monthly subscription fee, rather than a licence. You own traditional software, but you rent cloud software.
Cloud software has been around since the 2000s but the current market for cloud accounting software is about 10 years old. In the UK, the Making Tax Digital initiative, which will require businesses to keep digital records of their tax and send tax returns to HM Revenue & Customs electronically, will likely boost demand for cloud accounting software.
With so many products to choose from, many with similar features (uploading images of receipts, invoicing, payroll etc), how can accountants pick the best product for their business – and their clients?
The CA magazine spoke to some of the main suppliers of cloud accounting software, accounting firms using the software and a technology analyst.
Why switch to the cloud?
Benefits include flexibility (it’s easy to add users and computing power) and “mobility” − being able to instantly view accounting information and clients’ bank transactions from any device and location. This “real time” view can help accountants provide more timely advice for the clients – for example, spotting cash-flow problems earlier, or advising clients on how to (legally) reduce their tax bill before the end of the tax year.
A spokesperson for Xero, a cloud accounting supplier, said its research found that cloud computing software saves accountants an average of up to 117.5 hours (15 days) a year by spending less time on administrative tasks. Xero also says that one in four (26%) small business owners report that cloud accounting software helps them manage their accounts in less time.
Chris Downing, Director of Product Management (Accountants and Bookkeepers) at Sage, an accounting software supplier, says: “Clients and employees have both come to expect that their accountancy firm has access to a certain technology stack … that enables them to work in the most effective way possible. Increasingly, we are all demanding that everything is accessible in one place, and available seamlessly from any device. The cloud allows for this, making for a far better user experience.”
The accountant’s view
Dawn Goddard CA is Director of Goddard Solutions, an accounting firm in Perth and Kinross. She uses cloud accounting software from FreeAgent. The biggest benefit of cloud accounting software is that accountants can view a client’s live tax position and financial position, Goddard says.
Some accounting firms use cloud accounting software from different suppliers. Dawn prefers to keep things simple by using FreeAgent for almost all her firm’s clients.
“When I was looking [for accounting software, FreeAgent] seemed the most user friendly and the most intuitive and I still think it is the case today. We prefer to know [one] accounting software product really well for our clients. [And] if we use one system, we get better discounts.”
Nick Longden, Vice President Sales, at FreeAgent, says that its customers access its software in different ways.
“Some SME [customers] will log in on a daily basis and access [our software] via the mobile app. It allows them to sit on the train in the morning and review the financial health of the business and see what invoices have been paid and see what invoices they need to pay. It alerts them to the fact that they’ve got a VAT submission coming up. Other customers will log in to FreeAgent’s web app every couple of days.”
FreeAgent is aimed at businesses of fewer than 10 employees. Many of its customers are start-ups that have never used accounting software. They want software that’s easy to use.
Do you want an app with that?
Jennifer Hatfield CA is Lead Accountant at Hummingbird Chartered Accountants in West Yorkshire. The firm uses Xero and has been using cloud accounting software for five years.
Jennifer says: “I am the only accountant in my practice and employ a bookkeeper. By using the software to do the data entry we can spend more of our time reviewing it and doing more value-added work such as accounting and advisory and less time doing basic data entry. My time is [spent] more [efficiently] and it allows us to take on more clients without hiring more staff.”
Her clients also save time, as she explains: “[They feel] on top of things as they record items as they go along … no admin is hanging over them. My clients know as soon as the quarter end hits I can do their VAT return and don’t need anything from them. This also allows me to take on more clients.”
Cloud accounting suppliers integrate with business apps, including receipt scanning, card payments, inventory and time tracking.
For example, Xero says that it has one of the industry’s largest marketplaces with more than 700 small business cloud applications and services that integrate with Xero.
According to a Xero spokesperson: “When using Xero-PayPal integration, we know that businesses get paid 21 days faster.”
Jennifer says her clients like the convenience of being able to scan pictures of their business receipts.
“By using an app to send receipts straight to me from their mobiles they can do it as they go, from anywhere. I get a lot of pictures of train tickets or parking tickets on people’s legs, so I know they are using it on the go!”
Cost of the cloud
Accountants probably don’t move to the cloud software to save money, however.
“From an accountant’s point of view, there are fewer economies of scale in the cloud accounting software than traditional desktop software,” Hatfield says. “Desktop software had accountants paying a large fee for the licences and then only very small fees for each new client, saving money as the practice grows.”
In contrast, cloud software tends to be charged per client with a small discount for higher client numbers, she says. “It has changed the financial model significantly, greatly increasing software costs. But it has opened the market up further to smaller practices as there is less difference in fees based on client numbers.”
Allan Davidson, Manager, Business Support and Head of the Digital Division of Chiene + Tait, a CA firm in Edinburgh, says that cloud platforms work on a pay-as-you-go model. You pay monthly, often with a 30-day cancellation policy.
“Rarely will we see accounting packages exceeding £25 + VAT per month,” he says.
Cloud migration
For accountants, perhaps the trickiest part of cloud accounting software is before they start using it − moving their customers from their old software to the cloud programs.
Allan advises clients to consider migrating either at the end of a VAT quarter or at the financial year end. Or, for those that are not VAT registered, an appropriate month end.
To minimise disruption for customers, accounting firms should keep as much of the underlying “structure” of the old software (the codes for categories of transactions, such as sales, overheads, fixed assets and bank accounts) when moving to the new, cloud software, according to Allan. The new software will recognise the transaction codes.
“It’s about configuring the transaction for the client to get the path of least resistance,” Allan says.
A typical migration from desktop accounting software to the cloud can be done in a couple of days, he adds.
Test before you buy
Don’t assume that your cloud software will automatically integrate with your cloud accounting software, or automatically update to include changes to government tax and financial-reporting rules.
“From my experience of cloud software, integration isn’t always a given,” says Rob Bamforth, an IT analyst.
The software’s ease of use can also vary, he says. Some cloud accounting software seem to be rooted in the past, when accounting specialists did tasks, such as number crunching, using Excel, Rob says. The makers of software can assume that its users have more knowledge than they do.
When buying cloud accounting software, also pay attention to the ease you can do accounting tasks, such as invoicing and expenses on a small screen, such as a smartphone, he says.
“When you’re using accounting software on a smaller screen it’s harder to do some tasks than on a big screen. For example, if [you need to] enter a country and there is a drop-down menu of more than 120 countries, it is a nightmare. You need more guidance.”
Accountants and their customers are still getting used to cloud accounting software. But as the market matures, it’s likely to become the standard for how accounting information is stored and communicated.
As FreeAgent’s Nick says: “It has become fairly well accepted in the accountancy profession and the financial software market that cloud is here and it’s here to stay. I think it has become more accepted than not.”