The Future of Accounting is up in the Cloud

At we find updated accounts to be the biggest cause of a delay between an application arriving in our inbox and becoming a listed lending opportunity on the Marketplace. Something that would save everyone a lot of time and inform decision making is cloud accounting – live accounting software available to all. It would enable lenders to make a decision to lend based on the must up-to-date accounts. We found this excellent blog on that explains the concept and advantages perfectly:

A leading US commentator on technology for accountancy practices recently commented that “if you choose not to embrace the cloud you are retiring in five years”. Scary stuff, which is not just the preserve of our transatlantic colleagues. In December, no lesser figure than Sage Group’s Chief Executive felt the need to comment at their 2012 results announcement; “I wish we had been there earlier in North America. We’re coming to the market for cloud-based solutions in time in Europe.”

So why is cloud accounting for small firms now garnering such bold predictions and senior focus?

What has changed

In the UK, cloud accounting usage has been doubling each year since the emergence of packages such as KashFlow in the middle of the ‘noughties’, when a small base of a few hundred users became a few thousand and then a few tens of thousands. What has changed in the last few months is that cloud solutions are now the default entry-level product for even the largest vendors, Sage and Intuit. This means that over the next eighteen months a huge wave of new firms in the UK, quite possibly hundreds of thousands, will be adopting this technology. Sound difficult to believe? Remember that around half a million new companies will incorporate this year and hundreds of thousands of sole traders will also commence trading.

Why is cloud so profoundly different?

In my experience, the reasons cloud accountancy will transform the way that small firms manage their finances are poorly understood by many accountants. Five years ago, when there were just a few thousand evangelical early adopters, discussions around the merits of cloud versus desktop were very technical in nature (“where does the data sit?”), and phrased in terms that were opaque and frankly irrelevant to the average small business user. The key benefit of cloud accounting that is so often ignored or underplayed is better collaboration.

Cloud moves to the mainstream

It was around 2011, just as Sage and Intuit were getting in on the act, that we began to see the true advantages of cloud really begin to emerge. It was not from inside the software (there’s only so far that entering transactions and running reports can be differentiated, regardless of where the data sits), but rather that cloud accounting enables far better collaboration with external partners. This is the truly revolutionary idea.

Let’s consider some examples:

With cloud software it’s far easier to synchronise bank account data straight into your accounts (bank reconciliations are remarkably fast when you’re working from the same source data). Xero are notable for the focus they put on this feature, but we’ve also recently seen FreeAgent and QuickBooks Online deploying authorised data feeds from bank partners.
Another benefit is that accountants can collaborate online with clients in real-time and on the same live data, meaning that small businesses can receive simple, jargon-free functionality with their accountants discreetly doing the ‘heavy lifting’ like charts of accounts; one solution provider, Crunch Accounting, is entirely built around this collaborative principle with its own team of remote accountants.
There’s even a service called Receipt Bank that allows firms to take a picture of a paper receipt with a smartphone, then for it to be automatically transmitted into the cloud and remotely entered into their accounting software (no more ‘shoebox accounts’ from that client!).
So we’re in a period where a new type of accounting is saving small firms and their accountants from pain with data entry, reconciliation and error-checking, freeing them up to spend more time on more profitable tasks. This can only be a good thing but is just the beginning.

A world of possibilities

It’s in 2013 and beyond that we’ll really see why even companies of the scale of Sage Group Plc are going all in on this new cloud model. Cloud will no longer just be about making life easier, but also giving firms significant competitive advantage by helping with their key business issues. Hard to believe? Already firms that use the cloud to manage their finances are twice as likely to be fast growing as those that don’t.

Let’s take two of the top challenges faced by small firms – getting finance and getting paid – and the way that cloud accounting addresses them:

Getting Finance – It’s no secret that banks struggle to finance fast-growing small businesses, which are often so hungry for working capital that they resort to using personal credit cards to fund expansion. This is due in no small part to the challenges lenders have in getting the quality and quantity of information they need to extend appropriate finance. These challenges lead them to put in place procedures and terms simply too onerous for the typical small firm to bear. As an example, less than 10% of firms that could use invoice finance products currently do so, even though this sort of working capital finance product could improve the cashflow position of many more firms. In the near future, small but growing firms will find it much faster and simpler to work with lenders, and to get the growth finance they need. In a recent conference visit to London the founder of Xero even commented, “Who knows, we might have to become a bank?” which really underlines just how different this new world might be. Providing business finance advice and getting finance quotes is a subject close to our hearts at Funding Options, and we’re very excited about the potential of the cloud.
Getting Paid – Late payment and bad debt is another critical issue for small firms, with existing best practice credit management tools often too remote and complex to be adopted in large numbers. Cloud accounting will finally drive mass-market adoption of electronic invoicing and payment among small firms, eliminating many exceptions, and making it far easier to manage and finance trade flows. One electronic invoicing provider, Tradeshift, is now recruiting over 2,000 firms a week onto its platform around the world. Equally, my own firm has a solution called LedgerLive that gives small firms the credit control capabilities previously only available to larger firms by synchronising cloud accounting software with credit reference agency data.

Implications for accountants

For accountants currently working within SME businesses, I personally believe that we haven’t quite reached the point where most firms will see a compelling reason to switch to the cloud (although there are many instances where they will), but I do think that by the start of 2014 many accountants in business will face hard choices as to whether they’re hampering their firm’s competitive advantage by not bringing these new capabilities to bear. At the very least, 2013 should be the year when these accountants should explore the rapidly emerging challenges and opportunities.

For accountants in practice, it’s much more simple. Embracing the cloud right now is a pre-requisite for sustainable growth. If you want to attract new start-up firms to your practice, you need to recognise that even the global giants of small business accounting are now trying to sell their cloud solutions to your potential client. If you want to attract fast-growing established firms, remember that these potential clients will already be twice as likely to use cloud accounting software as their slower-growing peers, and won’t deal with you unless you talk their language.

The emergence of cloud accounting solutions will transform the way that small firms manage their finances just as radically as the emergence of desktop accounting software did two decades ago. Though this creates challenges for accountants both in business and in practice, it’s also tremendously exciting, as more than ever finance professionals will be right at the centre of solving the key issues faced by small firms.

Originally published on, 12 May 2013

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