What you need to know about cloud accounting for small businesses

With 2.3m Quickbooks users in the US and more than 1m Xero subscribers  in the UK, cloud accounting is now firmly in the mainstream.

Gone are the days of having a dedicated computer in the corner of the accounts office so that businesses could manage their books. Or of completing a spreadsheet and spending a whole day putting your receipts in date order before you delivered them to your accountant. Now, even small businesses can access the kind of accounting intelligence which used to need a whole department to create it.

Why I am a fan of the cloud

Quite apart from telling you about your business in real time, cloud-based accounting systems give business owners a more user-friendly experience than looking through an old-school balance sheet or profit and loss. Visuals and dashboards make the data instantly accessible and create handy snap shots and triggers to take action.

Of course, being a management accountant I’m a big believer in using numbers to drive a business’s performance, but you can only do that if you have access to them and know how to interpret them.

Digital accounting packages give business owners more information than ever about the financial health of their business, and the support of an expert can turn that information into intelligence on which you can base decisions.

Smart online accounting packages show information in real time, with automatic bank feeds now available for many of the major banks. They also provide a way for the business owner and their advisor to view the same information simultaneously while in separate locations.

The imperative for adopting digital accounting

If you haven’t heard of Making Tax Digital (MTD), where have you been?! The Government’s flagship change to the way HMRC collects tax has been planned for many years, and, as with many large government IT projects, deferred a few times too.

It’s the accounting equivalent of GDPR, affecting a vast number of businesses and forcing behaviour change in plenty of them.

We now know that VAT-registered businesses turning over above £85,000 – the VAT threshold – will have to submit quarterly financial information to HMRC digitally from April 2019.

If your business is VAT-registered voluntarily, you will have to submit quarterly information from 2020, so you don’t get not a lot more time.

The benefits of MTD

If you’re already using an online accountancy package you’re probably already submitting business information to HMRC online. So using cloud accounting is helping you get ready for MTD.

I don’t believe it’s a bad thing to have to update all of your financial information – expenditure and income – every three months instead of the every 12 months that some businesses might be used to. You will have a much more accurate understanding of the financial health of your business by completing this record-keeping on a quarterly basis, which will allow you more opportunities to make changes if they’re needed.

Unfortunately, there are many accountancy practices not yet operating digitally. In sticking with paper-based systems they aren’t helping their clients get ready for the inevitable and predictable impact of MTD. And that’s quite apart from the loss of vital insight into how their clients’ businesses are operating and whether there are any risks showing up in the numbers.

Augmenting with apps

Another major benefit of cloud accounting systems is their adaptability. Hundreds of apps are available which work with the system to help give you more intelligence about your business. If the cloud accounting system is the hub, apps are the spokes which support the turning of the wheels of your business.

By using other apps you can have the functionality of the type of multi-million-pound accounting system which only Blue Chip businesses used to be able to afford.

The functionality provided by these apps can add significant value to your business by streamlining processes, putting you more in control of your business, saving you time and meaning you are better informed.

In my opinion the top three apps are:

  • TripCatcher – an app for logging mileage. For just £1.50/month an average VAT registered business can save £300/year per user.
  • ReceiptBank – uses artificial intelligence to automate logging your expenses by simply taking a photo of your receipts and removes the need to store paper copies. Tens of thousands of small businesses globally use this app
  • Chaser – an automated invoice-chasing app. With £225bn in late payments owed to UK small businesses, it’s no wonder 336 hours/year is how long an average small business spends chasing late payments

Accounting systems

The internet has enabled the creation of a different world of IT systems. Outside the US, Xero is the market-leading online accounting package. In the US it’s Intuit’s Quickbooks, and there are many others, such as FreeAgent, Kashflow and Zoho, with Sage finally getting its act together and releasing Sage One.

Each of the platforms is different, although all offer the same core services. The golden rule is that using any cloud-based accounting package will be better than sticking with paper and a spreadsheet.

For sole traders

If you run your business as a sole trader you would still benefit from using an online accounting system, although you won’t need as much of the functionality as a limited company would, so make sure you aren’t paying for something you don’t need – Xero has lower cost variants that will give you what you need.

If you need simple book-keeping and are under the VAT threshold (£85,000) then ReceiptBank has a service – 1Tap Receipts – which also might suit your business.

Try before you buy

Which package is best for your business comes down to personal preference – or which one your accountant supports.

If you need to make a choice, all of the systems offer free online demos and some offer free trials.

I am a Xero Partner and prefer it to the others as I find it the most visually user-friendly. Even though I’m comfortable with tables full of numbers, I do also appreciate seeing things visually (I am a doodler and also love to draw.)

I find you can have really useful conversations with clients about their business when looking at some of the visual reports that Xero produces which would be much harder to do – and take much longer – if I had to explain things line by line from a balance sheet.

As the UK market leader, Xero also has the largest app interface – more than 700 time-saving apps are currently in its marketplace, many of them free or very low-cost – all designed to make your business more efficient.

If you think about the opportunity cost of any task you do – that’s the impact of what you could have been doing if you weren’t doing that bit of admin – then paying £25/month for an app like Chaser (which chases overdue invoices) seems like a pretty good investment.

What will it cost?

Online accounting will cost you between £10 and £25 a month on top of your accountancy fees.

However, cloud accounting packages are far more intuitive and give you a multi-dimensional view of your business. Lots of sophisticated reporting is available to you at the touch of a button. Things like forecasting, planning, reporting, who owes you the most money and which client takes longest to pay – all really useful intelligence about your business.

Being able to view this information in real time at the same time as your accountant – even if you aren’t at the same location – is a real advantage. And there’s no need to back up or download information from the system, it’s all done automatically.

So why do I still need an accountant?

The main reason to have an accountant is for their advice. Online accounting software means that, more than ever, your accountant should know your business and be able to advise on key aspects.

And of course, if you’re running a limited company, you still need an accountant to prepare your limited company accounts and VAT returns.

A good accountant will have an eye on your numbers regularly, not just ahead of a quarterly or annual meeting, and will proactively flag any issues, which means you can deal with things in a much shorter timeframe.

You’re missing the point if you’re looking at your accountancy fees as a cost. What you’re buying isn’t compliance, its knowledge and insight.

A point to note, though, is that all of the systems have a partner scheme which rates accountancy practices, whether that’s bronze, silver and gold or another rating system.

You might think that a Xero Gold partner is a mark of quality. It’s not. It’s awarded based on volume – the number of clients they have on the system. So larger, more traditional accountancy practices have bought up smaller ones in order to get more clients on the system and achieve the top status.

It’s easy to be fooled into thinking that a Gold Partner will be using all of the functionality of a system, but that’s not necessarily the case. When considering your accountancy firm, look for one focused on adding value, not just with an accreditation from the software they sell.

How do I choose the right cloud accounting package for my business?

So much of this decision will come down to personal preference about the system. Like you would when buying a car, take a test drive.

Ask others what packages they use, what they like and what they don’t like about the systems. If you know businesses similar to yours, find out what they use and whether it suits their needs.

As with all business decisions, do your due diligence ahead of making the purchase.


The accounting eco-system

When small business owners think about accounts, many are thinking about an end result, a product of all their efforts over a year. But accounting is so much more than the output. Done right, and with the support of some of the brilliant software available, it can turn real-time information into intelligence on which to base business decisions.

I think about accounting as an eco-system supporting your business. It’s an end-to-end process which aligns with the flow of your business, but the information you get out is only as good as the information which goes into the system.


Information about sales is the obvious input when thinking about your business’s financial performance, but there are many others too.

The key with this type of information is to automate as much as possible, because that frees up time and energy for you to focus on things which add value to, or generate revenue for, your business.

Other critical inputs include:

  • Expenses
  • Mileage
  • Your bank feed

Once you have a cloud-based accounting system, using platforms like ReceiptBank, Expensify and TripCatcher makes plugging that information in much faster. Many of the apps use machine learning to automate populating the information you need, so just a quick check of the results to validate they are correct is all that’s needed.

Gone are the days of turning up at your accountant’s office with bags of receipts and a spreadsheet. It’s quicker and easier to take a photograph of each receipt and let an app do what it was designed for, than to complete a spreadsheet line by line and have your accountant double-check it.

With inputs, it’s about getting the information accurately and quickly into the system so it can be used as part of the whole picture. You may decide expenses are an area to target to help increase your bottom line, but you need the information into your accounting system first in order to be able to analyse it.

Slicker processing

The next step in the information flow for your business is what helps you get money in faster and with less effort.

There is a wide range of apps and bolt-ons to cloud accounting services which can automate you getting paid faster.

With 23% of UK businesses citing late payment for goods or services as a major reason for insolvency, this is a critical part of the process, but also shouldn’t take up too much of your time.

For taking payments there’s:

  • Go Cardless – makes setting up direct debits easy and takes a small commission from each payment, just 1% for small businesses, capped at £2/transaction
  • Stripe – a way to take card payments which allows your clients to use their debit or credit card for instant payment
  • iZettle – if you need a card terminal, this clever platform uses a card reader and your tablet or smart phone to take payments. The system will also create invoices
  • Shopify – if you need an ecommerce website, this platform allows you to build it

And for getting money in to maintain that all-important cash-flow, Chaser and Debtor Daddy are apps which automatically chase late payments so you don’t have to. Debtor Daddy even has a team making phone calls on clients’ behalf, saving you what can sometimes feel like an awkward conversation and preserving your relationship with clients.

Critical outputs

Having spent time and energy getting your inputs right, you need to analyse the outputs from your online accounting system.

Here’s where some of the apps and software can also add real value. I use Futurli (formerly Crunchboards), a system which links to your Xero or other cloud accounting platform, and produces configurable dashboards of critical insight into your business. There are other versions – Fathom and Spotlight being the main two.

This is where the real magic happens for me, because in analysing your numbers we can look at a wide range of scenarios ahead of when they might happen, work through all the possible impacts, and leave you better prepared to make the right decision quickly when the time comes.

It’s like having a regular health check on your business which means you not only know it better, but you have an understanding of what might happen in a range of scenarios.

Combining the expert eye of a management accountant with the intelligence provided by dashboards configured for your business is the gold standard of accounting. You can use live data to plot, for example, cashflow in the next quarter, or profit margins based on current performance.

It’s possible to bolt on project management, payroll or CRM software and pull from these systems to augment what you see if that’s important for your business.

And then you can talk about the so what and what if scenarios based on a range of possible outcomes, giving you not only valuable insight, but priceless thinking time ahead of any critical decisions you might need to make.

Are you getting 80% of your turnover from 20% of your clients, for example? What are the risks and opportunities with your current client base? What happens to your cashflow when the system knows and factors in that that your biggest client always pays 12 days late?

Helping clients to answer those kinds of questions is what gets me out of bed in a morning. It’s the value an expert combined with the latest technology can add to your business strategy. And it might be the smartest move you’ve made for your business this year.

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