Economies Of Scale: Why Online Accounting Adds Up For Small Businesses

Online Accounting

It’s a simple enough equation that makes for a very compelling proposition for small business owners: By making accounts software easy for anyone to use and delivering it via the cloud, even the smallest microbusiness can exercise a much greater level of financial control than was ever previously possible.

Instead of operating in the dark, small businesses that use online accounting software to keep track of accounts with daily or weekly finance checks are far less likely to plummet into the red. By increasing financial visibility, they could also capitalise on hidden reserves if they find they have more cash in the business than expected.

The cloud aspect of the software in particular works strongly in the small business’ favour. Just like web mail, social media or retail sites, cloud accounting software is far easier to use than traditional accounts software. As such, it doesn’t require extensive training to use or carry a hefty upfront cost.

Rather than manually noting down accounts information in notebooks or spread sheets and then doing the books with the accountant at the end of the year, online accounting software presents a welcome opportunity for firms to cut down on time-consuming bookkeeping processes. Additionally, users simultaneously gain greater visibility of their incomings, outgoings and overall financial outlook on an on-going basis.

Add the ability to automatically download bank statement data via automatic bank feeds and users of cloud-based software don’t need to spend hours adding transaction data manually to benefit from a real-time view of their accounts.

As well as taking back financial control and keeping up-to-date with their invoicing, a move to online accounting can positively affect the relationship small business owners and managers have with their accountants and enable them to benefit from more strategic tax and other financial advice.

With their financial data held securely in the cloud, the business owner can invite their accountant to view it at any time – even when they are on the road via their smartphones and tablets. Rather than limiting contact to end-of-year face-to-face meetings and phone calls, the annual race against-the-clock instead becomes a more fruitful monthly or quarterly health-check.

With more time to act – and more data to act upon – the accountant will be better able to advise the business on how it could improve performance. This may include, for instance, working out that the company can afford to recruit the new member of staff it needs or invest in a new piece of equipment.

A further key advantage of the cloud aspect of online accounting systems is that it also gives rise to opportunities from a mobility standpoint. Just as many employees in large enterprises are now using mobile apps to access business-critical systems and work away from the office, small business owners and directors can now use smartphones or tablets as a kind of ‘pocket office.’

Crucially, the fact that the technology is integrated into their mobile technologies can afford them the same working flexibility now enjoyed by larger enterprises.

Whether the user is a gardener, a photographer, a dry-cleaner or the next-big-thing in fashion, the ability to invoice as soon as a job is complete can serve to radically reduce debtor days and improve cash flow. Equally, in instances where billing occurs on a regular basis, it’s possible to automate the process so that the invoice automatically goes out on a set date and time, eliminating the chance it will be late or forgotten about altogether.

In all, while the bookkeeping aspect of online accounting software enables even the smallest businesses to stay up-to-date with their accounts, the business-driven tools and financial connectivity inherent in the technology should also help them to bring down debtor days, stay on top of cash flow and make better business decisions.

Ultimately, it’s a prime example of how, as a business model, software-as-a-service can work as well or even better for small businesses as it does for their counterparts in enterprise.

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Gary Turner

Gary Turner is Managing Director of Xero. Gary is a 20-year veteran of the UK’s accounting software industry, joining Xero from Microsoft where he was Product Group Director for Microsoft Dynamics. He has sat on the IT Faculty Technical Committee of the Institute of Chartered Accountants of England and Wales since 2005.