Cloud accounting software can completely change the efficiency of accounting, simplify financial management, and provide real-time views of key figures.
But with so many platforms on the market, how do you know which one is right for you?
This article will walk you through the main benefits of switching to cloud accounting and provide recommendations for your platform.
What is Cloud Accounting?
Small business owners benefit from accounting software because it can help them keep track of accounts receivable and accounts payable, clearly understand their profitability, and prepare for tax season.
In the field of accounting software, small businesses can use out-of-the-box software without much customization. As the business grows, its accounting needs become more complex, often requiring a custom enterprise resource planning (ERP) system.
There are many different types of accounting software available for small businesses, with different features and price tags.
Generally speaking, the type of industry and the number of employees are two factors that can help small business owners start choosing the right accounting software.
For example, freelancers don’t need the same accounting software features as restaurant owners.
Recording your small business income and expenses to track your historical financial performance is nothing new.
Double-entry accounting has existed for centuries, and accounting software has existed for decades, enabling finance teams to record and track funds entering and leaving the enterprise.
So how does Cloud Accounting improve this? Let’s take a look at the main differences:
Traditional accounting software
Before the cloud, most accounting software was desktop-based. In other words, the actual application is installed and run from the hard drive of your office desktop computer.
This has many disadvantages, including limited access to data, the need to constantly update the software, and the ongoing cost of backing up all this financial information.
Cloud Accounting Software
Cloud Accounting (or online accounting) has all the same functions as desktop accounting, but moves the entire process to the cloud and expands it.
No desktop application-you log in to an online solution that is always up-to-date, and all data is stored securely on a cloud server
Most cloud platforms also have an open API, which basically means that third-party software can connect to your system, bringing you more value as a business owner.
Benefits of Cloud Accounting
Moving accounting from the desktop to the cloud is a huge leap in financial management, and many of the shortcomings and cost impacts of traditional accounting have been excluded.
But how exactly does cloud accounting benefit your business?
The following are the key areas where cloud accounting systems add real and tangible value.
Keep your business running through Cloud Accounting
Since the closure of COVID19 in March, tens of thousands of small businesses in the United States have been permanently closed.
Now that the weather is getting colder and people are staying indoors more and more, we may continue to see more viruses spread across the country.
Regardless of whether this will lead to a re-closure, small businesses will certainly continue to suffer. If you own a small business that loses customers and sales in 2021, you need all the help to survive.
Cloud Accounting is certainly not a panacea, but if you use it religiously, you should feel more in control of your finances and be able to make better decisions. As you work hard to cope with your current income and expenses situation, you can make smarter plans for your future.
Broadly speaking, we divide these accounting products into two categories:
- Products best suited for small businesses
- Poducts best suited for sole proprietorships and the self-employed.
The first category of sites includes Editors’ Choice Award winners Intuit QuickBooks Online, Sage 50cloud Accounting, Wave, Xero, and Zoho Books.
The second group includes Editors’ Choice winners FreshBooks, GoDaddy Bookkeeping, QuickBooks SelfEmployed, Sunrise, and Wave.
Your People, Your Stuff
One of the great things about using the SME accounting website is to reduce repetitive data entry.
For example, to create a customer record, you do not have to search the postal code again after entering a space. If you need to refer to customers in a transaction, it will see it on the list.
The same goes for sellers, articles or services, and employees.
There is no need to fill messy card files and spreadsheets.
Once you have completed customer records and start creating invoices, statements, and billing applications, you can generally access history activities themselves.
For some sites, such as Zoho books, view a map of individuals or company locations and create their own fields.
If you have an employee paid differently, you can use one that provides an internal salary solution or another company.
Since it is necessary to provide payroll history, payroll configuration can take time and effort (the support staff of the website helps it). Even if it is fresh in the recruitment of employees, there are many covers.
This site requires accurate details about your payment tax requirements, provided advantages and payment cycles.
Many SME accounting sites offer personal assistance in this task and clarify it clearly before making its first salary.
We can make a minimum configuration and jump to the creation of invoices, invoice payments, and payment acceptance records.
All services contained here can add customers, suppliers, and products during the process of completing transactions (such as you grow and add to your contacts and inventory databases must do so).
You must decide if you build your records or timeout when you are in the sale or purchase form.
Most small business accounting sites offer the option of importing existing lists in formats such as CSV and XLS.
They provide mapping tools to ensure that everything is displayed correctly. For some sites, this process is more effective than others.
Moving Money and Products
Accountants like to use phrases such as accounts receivable and accounts payable to describe the main elements of accounting recording and tracking income and expenses or tracking sales and purchases. The small business accounting website is designed to attract people who do not use the same type of language as professional accountants and avoid using such terms.
The website allows you to easily create any transactions that a small business might need.
The most common are bills and invoices, which are supported by all the services we review.
Sites such as Xero and Zoho Books go further, allowing you to generate more advanced forms such as purchase orders, sales receipts, credit notes, and reports. They provide these forms online with templates similar to paper forms.
All you have to do is fill in the blanks and choose from a list of variables such as customers and products.
For example, after completing an invoice, you have several options. You can save it as a draft or final version and then print or email it. If you choose the latter and have a relationship with a payment processor, your invoice may include a stub indicating how the customer will return the payment via a credit card or bank withdrawal.
You can create a PDF version of the invoice, copy it, post a payment, and set it to repeat regularly.
All the forms on these sites work similarly.
These sites also pay special attention to your business expenses, not the invoices you enter and pay, but other purchases you make.
This is an area of your finances. If you don’t control it, you can easily get out of control. Therefore, the small business accounting website will tell you about them, break them down into expense types, and use totals and color charts to compare them to your income.
If you are traveling and have a lot of related expenses on the road, you can use your smartphone to take a photo of the receipt.
Some websites simply attach these receipts to manually entered rate forms. Others, like Intuit QuickBooks Online, actually read the receipt and transfer some of your data (such as date, vendor, and amount) to an expense form using OCR technology.
As I mentioned earlier, one of your setup tasks is to create records that contain information about the products and services that you sell so that you can use them in your transactions.
They vary in complexity, so you need to understand these differences before visiting one site or another. Some, like Kashoo, simply allow you to keep descriptive records.
Others, like Intuit QuickBooks Online, go further.
When you create a record, they will ask you the quantity of each product in your inventory and when to remind you to reorder. They then track inventory levels, which can provide insight into sales patterns and prevent you from running out of inventory.
Banking and Transactions
Although most of your daily accounting work may involve paying bills, sending invoices, and recording payments, you also need to pay close attention to your bank and credit card activities.
If you have connected your financial account to your accounting site, this is easy to do.
On the one hand, your balance will usually appear on the dashboard (home page).
You can also view the online ledger for each account, which contains transactions that have been settled in your bank and imported into your accounting solution (and transactions that you manually entered)
Once these transactions appear in the ledger, you can do many things with them. On the one hand, they need to be categorized (office expenses, payroll taxes, travel, and meal expenses are some examples) so that you know where your money comes from and where it goes.
Each site will guess how to classify at least some transactions. If they are wrong, you can change them and add your own.
Thorough classification will lead to more accurate tax reports and returns.
You can also match related transactions, such as invoices entered into the system and corresponding payments received. Similarly, some websites make educated guesses here.
You can divide transactions that you want to assign to multiple categories into multiple categories, take notes, and reconcile your account with your bank and credit card statements.
Read It in a Report
The report is your reward for keeping up with your daily work and completing work correctly.
Every small business accounting website comes with templates for multiple types of detailed results.
You choose one, customize it with the provided filters and display options, and let the site download your own company data to it. Once the report is defined, it only takes a few seconds to generate it. There are two main types of reports.
Most of these are types that any small business owner can customize, generate, and understand. They will tell you who owes you money, which of your products and services are selling well, whether you are making money, which fees and services have not been settled, which customers are buying more, and how much you owe.
Take sales tax as an example.
However, other reports are not so easy to understand.
These are considered standard financial reports, and if you want to obtain a loan from a bank or attract investors, you will need these types of documents.
They have names such as balance sheet, cash flow statement, trial balance, and income statement.
Small business accounting websites can generate these, but you need accounting professionals to analyze them and tell you in a specific way what they mean to your business.
These sites simplify the accounting process, but you will definitely encounter problems sometimes.
There are many forms of support. Some provide context-sensitive help and searchable article databases along the way. All of these provide a combination of chat, email, and phone support.
intuition goes a step further. Its QuickBooks Live service adds accounting support to QuickBooks Online Plus. You can communicate with your dedicated accountant via one-way video chat (they can’t see you) or email.
This person and his team work with you to customize your settings and monitor your transactions for accurate input and classification for tax purposes.
They will check the accounts and check out at the end of the month to avoid errors and can ask questions during normal working hours.
They will generate the report you need so that you are ready to pay taxes or deliver it to your accountant. Sunrise and Wave provide rate-based accounting services similar to QuickBooks Live.
When should your company use Cloud Accounting?
To take full advantage of cloud accounting, it is worth taking advantage of the additional digital connections and real-time data capabilities provided by the cloud.
If your business wants quick access to detailed financial details, management information and key performance indicator (KPI) indicators, the enhanced real-time data capabilities of Cloud Accounting make it an ideal choice.
The key areas where cloud accounting can be used include:
Online payment of the value-added tax or the tax on goods and services
Paying taxes through the cloud accounting platform has become faster and easier. Your transaction will be recorded and can then be quickly exported to the appropriate tax return template and sent to revenue digitally.
Use automation to reduce workload
The cloud accounting ecosystem enables automatic accounting, automatic cash collection, and automatic bank reconciliation, all of which fundamentally reduce your team’s management workload.
Obtain MTD compliance
To digitize taxation (MTD), the UK government switched to digital tax accounts, requiring mandatory digital record keeping and tax returns. With the help of the cloud platform, you are ready to be digitized and can send returns in the required iXBRL format.
Gain more insight from your financial data
With instant access to real-time reporting and financial intelligence, you and your management team have the key data, insights, and numbers you need to make sound, informed decisions.
If you want your company to take advantage of remote or flexible work, Cloud Accounting allows your management team and your finance department to access all key numbers from wherever they can access the Internet.
Some Cloud Accounting terms
If you are still familiar with the terminology of cloud accounting, here is our breakdown of some commonly used terms.
Application Programming Interface. Put simply, a “gateway” that allows different pieces of software to connect. In the case of cloud accounting, an API is necessary to connect third-party software.
Apps are third-party software solutions that integrate with your cloud accounting platform, fulfilling a variety of business purposes such as automating payments, producing cash flow forecasts, or helping you manage your inventory.
The collective term is used to describe the suite of strategically selected apps your business uses.
A bank feed is the direct integration of your internet banking with your cloud accounting platform, allowing you to access all your banking data.
Real-time reporting and business intelligence are provided by dashboard and reporting apps.
The online computer server where your financial data is stored. This will be off-site, securely hosted by an external, specialist company, rather than being physically located on your business premises.
The process of chasing up your unpaid invoices (a task that can be automated by certain apps).
Digital transformation is the process of moving your company over to a digital model, usually with the cloud at the heart of your systems.
Cash flow forecasting projects your current financial data forward in time, to predict your cash position in the future, aiding business decision-making.
In the UK, HM Revenue & Customs (HMRC) is running the Making Tax Digital (MTD) initiative to make digital tax accounts mandatory for all VAT-registered businesses. With a cloud accounting platform in place, you can record, track and pay your VAT and tax in the digital space and stay MTD-compliant.
Using the open API in your cloud accounting platform to connect (or “integrate”) apps with your accounts.
Key performance indicators (KPIs) are the main metrics you use to measure the performance of your business and will be displayed in your accounting dashboard or business intelligence software.
Cloud accounting can be accessed from your phone, tablet, or laptop, giving you access to your key numbers wherever you are.
The cloud equivalent of a desktop application or software.
Data that represents the current finances of the company, as opposed to historic actuals that show the past financial position.
Bank reconciliation is the administrative process of matching your bank transactions against your customer invoices and supplier bills. With a cloud platform, much of this reconciliation process can be automated and time saved.
Software as a Service (SaaS) is the name for supplying your computing services via the internet, in an on-demand fashion.
The interactive elements of your cloud accounting software, enable you to access the various features and tools.
XBRL / iXBRL
XBRL (from “eXtensible Business Reporting Language”) is a global framework for exchanging business information, and the format used by your accounting platform for digital tax returns and records. iXBRL stands for “inline XBRL” and is a similar file format, used for several types of corporate filings around the world.
Year-end is the end of your company’s accounting year when you’ll need to submit statutory accounts and returns from your cloud platform.