Cloud-based accounting solutions have seen a rapid rise in recent years due to advances in technology and a more tech-savvy generation running today’s businesses. This has generated a wave of different providers and different configurations. Whether this is something that should be implemented in your organization takes some consideration and planning. This article will cover our thoughts and approaches.
What is It?
Cloud-based accounting software is a service where all bookkeeping and day-to-day accounting functions can be accessed and managed through an online account. Common service providers include Quickbooks Online, Xero, and Wave Accounting.
How does it work?
At a high level, the online software can connect to bank and credit card business accounts, pull-in transactions (or these transactions can be uploaded), and allow you to categorize them based on a chart of accounts you can set up. Accounts can be easily added and removed, history is stored online on robust servers, and manual journal entries can be inputted. Other features, such as bank reconciliations, GST application, and bulk transaction coding are also often available, speeding up the bookkeeping process.
What are the benefits?
Cloud-based solutions have numerous benefits for your organization:
-Automatic feed from the bank along with bulk coding, GST, and bank reconciliation features, allowing bookkeeping to be done efficiently and less prone to errors if the user understands the tools they are using.
-Cloud-based storage means that data has a very low chance of being lost, can be accessed anywhere by logging in, and is subject to high security measures making them safe and secure to use.
-External accountants can be granted access to the system easily, allowing accountants to pull necessary reports, review transactions for issues, and correct errors on the fly without having to obtain the local backup file or go to the client location.
-Historic data will be stored and accessible forever, with ease to look up information or obtain historic details that accountants or tax authorities may require.
-Multiple users can easily access the system, preventing any requirement for an in-house server if multiple users require access.
What are the Downfalls?
Despite the numerous benefits, cloud-based solutions may not be for everyone and may add more work and cost than necessary:
-There is additional learning and time required to implement the software. Converting your current data and importing it to the cloud can be costly, depending on the nature and extent of the data.
-The system is prone is user error, just like any bookkeeping software. Although there are numerous learning resources put out by the service providers, but if they are not carefully followed costly mistakes can be made.
-Cloud-based systems are vulnerable to hacks, just like any online platform. Although the risk is fairly low, your account could be compromised if your password is leaked or e-mail account is hacked.
Should you consider cloud-based accounting?
At Kapasi, we recommend organizations that make numerous transactions (25+ a month), and where the user has a strong understanding of computers and online software, consider implementing a cloud-based solution.
Businesses and organizations making fewer transactions and that have simple accounting requirements, such as incorporated contractors and professionals, may not find the benefits worth the time to implement and upkeep. For these simple organizations, we find that a client who maintains updated and accurate spreadsheets will often save time (and therefore cost) compared to someone using a cloud-based solution because of reconciliation and other clean-up errors in the software.
That said, those clients that spend the time to learn the software and make sure reconciliations and a proper chart of accounts are set up, will often save time, cost, and make their lives easier.
What platform is recommended?
At our Calgary-based accounting firm, we recommend either Quickbooks Online, Xero, or Wave Accounting to our clients. Through our testing of multiple platforms, these would be our top recommendations. Each platform does have its pros and cons, but there is no one option that outshines the other two. Therefore, what you choose really comes down to you and your needs. Talk to us about our recommendations and conversion process if you are thinking of implementing a cloud-based solution.