Finding time to devote to accounting and financial matters isn’t always at the top of a startup’s list of priorities. Nonetheless submitting annual accounts is mandatory for any business and being on top of your finances will help your new business succeed so it’s something you want to get done quickly and efficiently.
Fortunately for new business owners, gone are the days of businesses having to use Excel to deal with all their accounting and finance needs.
Nowadays, bespoke cloud accounting software, like FreeAgent, Xero and Freshbooks, which automate many time-consuming accounting tasks, are widely available. This makes cloud accounting an invaluable tool for startups and small businesses, helping to save time and money.
Accounting and the Cloud
Research conducted in 2017 found that more than three quarters of entrepreneurs and small businesses in the UK are turning to cloud accounting solutions to increase business efficiency.
Similar in many ways to traditional accounting software, but often with a more simplified interface, the principle difference is that financial data is hosted on remote servers in the cloud instead of locally.
This means businesses that use cloud computing software are not tied to having to install, maintain and update programs on individual PCs. It also means the software is not constrained by the processing and memory limitations of individual desktop computers.
Cloud-based systems also enable team members from different departments, or who work remotely, to access the same software and data, making for more joined up and collaborative working with easy access and the ability to set different permissions for different users.
Functionality and Automation
Cloud accounting automates and streamlines accounting tasks. Some of the principle functions cloud accounting software provides include:
Automatically generates invoices and sends them out to suppliers and customers.
View business accounts, including profit and loss accounts, bank statements and aged accounts receivable.
Automatically match bank transactions to credits and debits on your ledger.
Generate P45s and P60s, make direct payments and manage deductions.
Third party app integration
Integrate with third-party ecommerce platforms, such as Shopify.
Access financial data from mobile devices wherever you have an internet connection.
Full reporting functionality that you can export into common file formats such as Excel compatible xls and csv files.
It’s a startling statistic that four in ten small businesses fail within their first five years. More efficient financial reporting and advice can be a key factor in the survival of a small business.
One principal advantage of using accounting software is that it’s easier to generate real-time reporting. A cloud accounting set-up provides a business with an accurate, up-to-date and customised overview of its finances.
With a truly real-time view of your startup’s finances, many of the common business pitfalls which can lead to a company failing, can be avoided.
Using cloud accounting systems, you will be able to see, at a glance, your revenue figures, expected cash position, outstanding invoices and current debts.
Keeping Financial Data Safe in the Cloud
It’s not just large businesses that are at risk from cyber attacks and having their financial data stolen. Increasingly, cybercriminals are targeting small businesses who are more vulnerable, due to having weak cybersecurity policies and systems in place to protect themselves.
Cloud accounting provides a very secure method of protecting sensitive and business critical financial information by storing business it remotely instead of locally.
Relying on the hard drive of a PC can put a business at risk from having critical financial information lost or stolen, both through cyber attacks and the physical theft of a laptop or PC.
By contrast, cloud accounting leaves no trace of financial information on any company computers. Data in the cloud is encrypted and can only be accessed with a password.
Sharing financial data is also less risky on the cloud, as multiple employees simply need to log on to the same system with their own unique passwords.
The Cost Effectiveness of Cloud Accounting
If you’re just starting a new venture or are a small business on a tight financial leash, every penny counts. With cloud accounting systems, IT staff are not required to update and maintain the platform. There are also fewer overhead expenses as no new software needs to be purchased.
Consequently, cloud accounting can be a cost-effective way for businesses with small budgets to take care of their accounting requirements.
Moving to digital systems means less paperwork for SMEs to fill out, as the automated processes do it for you, all in real time.
As well as not having the time to spend on lengthy accounting tasks, small businesses do not have the financial resources to invest in large-scale data centres. Moving to cloud accounting means you don’t have to purchase physical servers, thereby saving money and helping you manage cost flow cost-effectively.
Finally, because cloud accounting solutions are modular, you only pay for the functions and features you need, meaning you only pay for what you need and can easily scale up with more complex functionality as and when you need to.
You don’t have to wait until a new tax year to move to the cloud, as the data stored on manual systems or spreadsheets, can be imported directly to cloud systems.
Having the right tool for the job is essential for every business. By streamlining accounting processes, keeping vital data safe and making tasks more accessible and flexible for everyone, accounting software is one tool no small business should be without.
This guide has been written for ByteStart by Andy Hyland, a certified Xero Accountant and the owner and director of AK Tax, an accountancy and tax advisory firm based in Medway, Kent. You can connect with him on Twitter, Facebook and LinkedIn.
Last updated - 11th June, 2018