Cloud accounting is a hot topic right now, and with good reason. Just as online banking revolutionised the way in which we undertake our banking operations (starting in the mid-90s and becoming accepted as mainstream perhaps 10 years later, despite lots of scaremongering around security) cloud accounting is doing the same.
It’s estimated that fewer than 20% of businesses currently use a cloud accounting system, but already studies are showing that those that do are more likely to achieve better results (see the 2013 MYOB Business Monitor for one example of such a study). Here are five reasons why I think cloud accounting can not only help you run a better business but potentially save your business in what is still a difficult economy for many sectors.
1. Access to more accurate information
If you are using a cloud accounting solution with daily bank feeds, you can reconcile your bank accounts daily within a few clicks. Many business owners are making this a daily routine, often at the start of the day. This way, you are right on top of how much money is in the bank, how much you are owed from your customers and how much you need to pay out to your suppliers.
With a modicum of training from your accountant or bookkeeper, you can run simple reports to see your profit and cash position whenever you choose. (More and more businesses are outsourcing this to their accountants or bookkeepers at very economical rates, knowing that they will have better quality information on which they can make better business decisions.)
A friend of mine in New Zealand, John Dazley, has written a short book for small business owners called Know Your Numbers. John makes the point that unless you understand what’s going on in your business financials, it’s very difficult to make decisions to grow your business. But once you are on top of your numbers, you are well positioned.
Unfortunately, many businesses fail because they run out of time, partly because they rely on dated and often inaccurate numbers. Business owners who know what’s happening earlier may be able to quickly adjust and stay afloat.
2. Better collaboration with your accountant
The cloud opens up new opportunities for you to work with your accountant in more valuable ways. Traditionally, the accountant has been thought of as being reactive, of being a necessary evil whose primary interaction with the client was working with historical numbers. With cloud accounting, that all changes.
For example, our business has created a cloud-based software application called PANALITIX, which integrates with MYOB AccountRight along with other cloud accounting solutions. Accountants can set their clients up in PANALITIX, and the application will sync daily with their clients’ cloud accounting solutions.
Every morning, the accountant is presented with a real time dashboard alerting them to anything that appears to be out of kilter. The system can then provide the accountant with recommendations to pass on to their client to address any arising issues. The benefit to you as a business owner is that your accountant can keep an eye on what’s going on in your business and then alert you when they have any concerns — in real time, before it’s too late for you to do anything about it.
3. More time in your hand
While saving time is good, it’s what you do with that time that is critically important. The more time you can take out of the administrative functions of your business, the more you have at your disposal to focus on growing revenue and profitability.
The MYOB study referenced above supports this point by indicating that businesses using cloud computing were more likely to increase customer retention, customer acquisition, product development and marketing activities than those without the cloud. Other research supports this, suggesting that businesses that increase marketing in difficult economic times tend to emerge in a far better state than those that cut marketing or keep it the same.
The best way for you to ensure your business is a survivor (or better yet, a thriver!) is to spend more of your time focused on those activities that will positively impact it. We are hearing from accountants that when their clients move to cloud accounting solutions, the clients are saving significant amounts of time. Use that time wisely — set a plan, and allocate time previously used to for administrative functions (such as keying in data or entering receipts) to take your business up a notch.
4. A shorter cash cycle
Every business has what’s known as a cash cycle. Put simply, it goes like this:
- You create a product
- You sell the product
- At some stage, the customer pays you for the product
- You pay your suppliers, employees and (often last of all!) yourself.
Let’s imagine you sell your product, but it takes you a month to raise and invoice and another month for your customer to pay you. In this situation, your cash cycle will be pushed out by 60 days. Many business owners fail to understand the difference between profit and cash flow. It could be that their sales are higher than their costs, meaning they show a profit on paper but their cash flow management is what kills them.
Let’s revisit the same example and provide you with a cloud accounting system. This time, you can raise the invoice on the spot, wherever you are, using your mobile device. Using a mobile solution such as MYOB PayDirect, you can charge your customer’s credit card immediately. You’ve now got your cash in the bank a full two months quicker than before. And that can be a business lifesaver.
5. A peace of mind with security
As strange as it may sound, the likelihood is that your business’s information is much safer in the cloud than it is sitting on a server under your desk. The cloud providers have to place security as their number one priority in terms of risk management. You can rest assured that their data centres are extremely secure, that backups are executed daily and automatically, and that if a disaster befalls your business (such as fire, flood or theft) all of your financial information will still be sitting in the cloud available for you to access from any device.
So, every business owner should have a strategy to implement a cloud accounting solution. If you don’t have one yet, talk with your accountant to get some independent advice on which system is right for you.