Running a business is hard-freaking-work. You have to know everything from an MBA program, have a Ph.D. in how to operate duct tape as a technique to keep a machine running, utilize every ounce of street smarts you have, predict human emotional responses internally and externally, and maintain decorum in the process. I cannot tell you how many prospects I talk to regularly who ask, “so what is this cloud accounting buzz word I keep hearing”?
First and foremost, cloud accounting is not a new concept. It is just one that finally has a label and some traction. Fundamentally, cloud accounting utilizes technology that is generally offered as software as a service and accessed through the cloud. You basically log in with any Internet connection (a secure one if you are accessing financial data) and utilize the cloud-based software. There are some significant benefits to this type of technology for your accounting and finance functions.
Benefits of Cloud Accounting Tools
1. Shared Ledger (aka collaboration is easy)
In accounting, a ledger is where everything is tracked. A general ledger is the main piece that shows inflows and outflows of money in every account. A sub-ledger is where a specific set of transactions is tracked – e.g., payroll ledger. It is important to understand that during the dark ages, all of the sub-ledgers were tracked in twelve-column paper and then transcribed into the general ledger, which was the source of truth for all company financial purposes. I imagine these ledgers were locked in giant vaults where the accountant (or maybe team of accountants) and maybe the CEO had the combination to the vault. They would remove the giant tomes of financial data, present it to the board and then lock it away again. Reporting became a monthly chore to prepare statements that others could use. If the accountant was sick, well, the records fell behind.
Enter the computerized accounting information system revolution of the late 20th century! Everyone was thrilled that they could now have data stored on servers, automatically pull the sub-ledger to the general ledger, and reduce the time needed to prepare the reporting. It also made accessing and searching for transactions much simpler than combing through a paper sub-ledger. The accountant now accessed the records through a computer terminal connected to the “vault” – a server. They still had to go to the office and still had to access a server that was riddled with security risk (a topic for another time).
So why did I give you a history lesson to explain the importance of a shared ledger? If you are an entrepreneur in this day and age, you expect almost immediate feedback and data points to continue to run your company. The majority of small to mid-sized companies even today are utilizing server-based programs or even desktop-based (1985 was 35 years ago). If the accounting records live on one computer or one server, how can anyone get the immediate feedback we have learned to love? Enter cloud accounting! We can have logins for everyone that can use the data, limit what they see if needed, and access the information in real-time to work collaboratively.
I promise no more history lessons! When you use a cloud accounting tool – you can integrate it with other applications that handle your financial information! It is great. Integrations with accounting software happen much the same way they do with other SaaS products, through an API (Application Programming Interface). Some integrations are prebuilt by the software companies, and some integrations can be customized. Plus, you can utilize tools like Zapier for automating things quickly and easily.
Our favorite integrations are between functions. Companies frequently utilize an invoicing system that ties into their operations or project management, and it not native in the accounting software. When this happens, we need to pull the invoices into the accounts receivable ledger to ensure we track payments and outstanding invoices appropriately. Additionally, we see companies use services like Bill .com to pay their accounts payable – the integration automatically marks payments made and takes the bills out of the accounts payable ledger. And, can we talk about expense management? So many companies are still submitting paper forms with taped receipts for expense reimbursements. These need to be hand-entered at least two times (for the reimbursement payment and to record it in the general ledger). Expense reporting is the easiest technology to implement for companies and integrates seamlessly into the core cloud accounting system (and sometimes is even built directly in).
3. No more backups
Technically, if you really wanted to, you could backup your cloud accounting data. There are a few services that provide that. Mostly the services come in handy if you make a giant mistake and need to revert to an earlier version. However, most cloud tools do their own redundancy, so you do not have to concern yourself with disaster recovery worries. Cloud software distributes data and backups across servers worldwide, so if one server farm goes down, they can flip to another. The biggest players in this space you Amazon Web Services as the host. AWS adds innate redundancy.
4. Updates are history!
I think the most annoying part of utilizing a desktop or server-based software was the updates. You would log in expecting to get three hours of work done, only to find out there was a critical software update needed that takes an hour to run. Now, your computer is consumed by the critical update, and you are left to do some other work that is not computer related before being productive. I have to imagine the 1980s and 1990s were riddled with unproductive accountants reading the newspaper and smoking in the office waiting for updates to install. Well, in this instance, it is the future! Cloud tools update their programs continuously, and you never have to wait for a new version.
5. Security is better
I could talk all day about the security risks associated with financial data, but you are probably already bored with history lessons. I will now oversimplify the security risks associated with server-based programs and briefly explain why cloud tools do not have the same risks.
If you have your accounting software housed on your internal server, what is to stop someone from accessing it? If they come to your office and tell your receptionist that they are from the IT company doing routine maintenance, the receptionist will likely take them straight to the server. If the server is connected to the internet (which they always are nowadays), do you have strong enough security to keep people out? If your accounting software is installed on your bookkeeper’s laptop, and that bookkeeper leaves it on a table at a coffee shop, who’s to say someone won’t just walk off with it? Generally, these programs are housed in places without encryption, so merely accessing the terminal is enough to take the pertinent data.
Cloud accounting tools must comply with international security standards. They meet the European Union’s GDPR standard, they exceed bank-level security in the USA, and they have the ability to utilize two-factor authentication. Basically, the information is end-to-end encrypted, and you have a redundant passcode to ensure no one steals your access.
6. Bank feeds
If you have not figured it out yet, I love immediate information. With cloud tools came the ability to feed in banking transactions. The best part of this is that accountants can match your source documents and transactions to the bank statement line items in close to real-time! Most bank feeds are a day or two behind. However, having this functionality allows small businesses to have cloud financial management effectively.
Cashflow issues are always a concern for small businesses. Historically, the actuals in the accounting records were provided too late to help with cash flow. Small business owners have traditionally relied on their bank account information to ensure enough cash to cover payroll and expected expenses. Frequently, companies use credit cards to give themselves an extra 30-day window to equalize cash. With cloud accounting and bank feeds, the company’s actual spend can be considered when predicting cash needs for both short-term and long-term.
High Rock is filled with cloud accountants. That is all we recommend and all we know. We focus on utilizing cutting edge technology to give our clients the best strategic advantage possible. Every tool we use on a client is picked specifically with their needs and business in mind. Since you now understand cloud accounting benefits, I encourage you to do some research and see where you can replace some old-school technology with cloud solutions. One warning, though – do not implement anything without first understand how it integrates and what it integrates with. It is generally best to consider your whole technology stack that touches finances before using new and efficient tools.