Cloud accounting offers a major shift in how numbers can help business owners run a better business, and Australia and New Zealand are leading the way.
Recent figures released by Digital First show that there are around 155 million small- to medium-sized businesses in the world, and of those, some two million are using cloud accounting solutions — a penetration of just 1.29 percent.
Yet in this part of the world, it is a very different picture, with over 600,000 of our region’s 2.5 million SMEs having already embraced the cloud for their accounting function, representing penetration of almost a quarter.
What this confirms is that Australia and New Zealand are setting the pace in the accounting technology space, which is nice, but how does this help the business owner?
In 2013, the Australian Management Capability Index released the results of a survey where they concluded that the number one issue for small business owners was understanding and interpreting their numbers.
It’s important to read that carefully. They did not say the number one issue was having the numbers, but understanding and interpreting them.
This goes hand in hand with my own observations of small business over almost three decades that there are three common areas where business owners struggle:
- There is next to no planning done in many SMEs.
- There is next to no accountability in many SMEs — things just don’t get done.
There is very poor understanding of the business’s numbers and what they mean in terms of making meaningful management decisions.
So what’s the answer? I believe there are three things to consider:
1. Move to a cloud accounting solution
Firstly, I strongly advocate that if you have not done so already, you should migrate your accounting system onto the cloud.
A system such as MYOB AccountRight or MYOB Essentials, depending on your business requirements, can help you enormously in terms of having information at your fingertips, any time, any place.
Please don’t make this decision in isolation. Talk with your accountant or bookkeeper about the best solution for you. They work with hundreds of clients and should be across all of the available systems and be able to give you an impartial recommendation.
In practical terms, what this means is that your data will be ‘in the cloud’, rather than on your server, and, combined with the power of bank feeds, you and your financial team can access one source of truth at any time without the need for you to exchange a physical data file.
2. Reconcile your data at least weekly
Having live data feeds is not enough, although it does get you halfway there.
It is important to log on to your system regularly to code and reconcile all of your transactions. If you are not comfortable doing this yourself, have your accountant or bookkeeper do it for you. I recommend at least weekly but some businesses do this daily.
This is important because the closer to real time you have numbers that accurately reflect your business’s performance, the better management information you have — and the better management decisions you can make.
Let me give you an example. Let’s imagine you need to purchase a new piece of machinery for your business. The item costs $10,000. You take a quick look at your business bank account and see that there is $25,000 in the bank, so you go ahead and buy the item.
There are all sorts of things wrong with this knee-jerk decision:
- You might be better off leasing the machinery or acquiring it via hire purchase, rather than paying cash.
- If the bank is not reconciled, it’s possible that there are payments that have already made but that have not cleared the bank — and when they are presented at the bank, you might now not have sufficient funds to honour the payments.
- Have you taken account of any upcoming tax liabilities that need to be paid?
- Do you need to pay a major supplier to ensure delivery of materials and now you can’t do that?
- When are the wages due? Is this going to give you a short-term cash crunch?
All of these issues (and more) could be avoided by having your bookkeeper or accountant review your cloud accounting file, make sure everything is reconciled, take a look at what’s coming up and giving you an informed decision as to whether or not you could or should buy the machinery out of working capital.
The beauty of a cloud system in this example is that if you ask your accountant or bookkeeper for advice, they can log on from their end really quickly and see the exact same data file that you are working on in-house. Again, the more accurate and timely the data, the better the business decisions you can make.
3. Work with your accountant on an ongoing basis to stay on top of your numbers
The days of the once-a-year trip to the accountant should be long gone.
Technology is evolving at a rapid rate to help business owners. By viewing a client dashboard, the accountant can see at a glance any of their clients whose numbers have slipped outside of pre-set targets and then contact the client to help or send business advisory content to the client automatically that will help you get back on track. This sort of real time advice is only available when you move your accounting system into the cloud and is another compelling reason to make that shift if you have not done so already.
The cloud is here to stay. If you want to get ahead, embrace the technology so that you have real time data to make real time decisions that will give your business the edge.