With more and more businesses in and around Droitwich transitioning to cloud based accounting packages, we look at the pros and cons of online accounting.
Cloud based accounting software is not a new thing, but the move to the likes of Xero, QuickBooks and Sage Business Accounting has vastly increased over recent years. This has been largely due to the introduction of HMRC’s Making Tax Digital (MTD) scheme. Under MTD, it is now a legal requirement for all VAT registered businesses to comply with MTD and in doing so they must use MTD compatible software, such as Xero et al, to file their VAT returns.
Whilst MTD has been a strong factor in businesses moving their accounting software online, there are other advantages to using cloud-based software.
Accessibility – by moving your accounts to the cloud, you are no longer tied to doing your bookkeeping and accounts work in the office (or wherever your desktop accounting package is saved). Cloud accounting provides ‘any time, any place’ accounting which can be done from your desktop, laptop, mobile or tablet.
Simultaneous users – one of the many drawbacks of desktop accounts packages is that only one person can use the software at any one time unless you purchase more licences for additional users. This can be frustrating if you only have the one licence and someone is entering your monthly receipts, but you also want to send invoices to customers. With cloud accounting you can have several users working on the software at the same time, making it a more efficient way of working.
Mobile accounting – most online accounting packages allow you to access your software from your mobile phone or tablet. Activities such as sending invoices, paying suppliers, checking the bank balance and reviewing the latest profit and loss statements can all be done through your phone or tablet, giving business owners real time information and a better handle on running their business.
Saves time – with your business bank accounting linked directly into your online accounting software, you can save a huge amount of time by not having to re-key all your sales and receipt information each week or month. Having initially set up your customers and suppliers, it’s very straightforward (and quick) to just double check all the transactions are being logged correctly and to reconcile the bank account with your software.
The TV and radio adverts, along with other marketing activities deployed by the large accounting software providers, project a seamless way of running your business and keeping your accounts up to date.
Unfortunately, effective bookkeeping and producing accounts requires a little more effort! Below we have set out some of the common issues we come across.
Ignoring the principles of double-entry - all online accounting packages still work on the system of double-entry bookkeeping. So every business transaction (whether an invoice or a receipt) will affect two different accounts or nominal codes in the software. Quite often users only post into one nominal code, which ultimately distorts the figures which are fed through into the profit and loss account and can lead to tax calculations being incorrect. We spend a lot of time going through online software to ensure that all transactions are recorded accurately to the correct nominal codes.
Logging everything as a general expense - business owners will quite often log everything to the ‘General Expenses or Sundries’ code and then wonder why their profit and loss account isn’t providing them with a detailed analysis of where their money has been spent! The general expenses code should only be used when the transaction isn’t covered by any other nominal code in the software. Much time is spent working our way back through all the expense items and recategorising them to the correct code.
Over claiming vehicle expenses - unless the business has purchased its own company vehicles, business owners or employees should claim for mileage that is incurred for business journeys only, i.e. they cannot claim for driving to and from the office/business premises. Nor can they claim for all their private vehicle’s fuel, servicing and repair bills. Again, we spend a lot of time going through the software and taking out any vehicle transactions that should not be claimed for.
Wrongly reconciling bank transactions - when looking down the online accounting software bank feed, it is very easy to accept the match suggested by the software. However it pays to check that the bank feed in question is pulling in the correct transaction logged on the software. This is essential where there are several transactions for different customers or suppliers for the same amount. Failure to do this can make credit control activities very difficult and so everything has to be re-tagged to the right transaction.
Many business owners are put off from outsourcing their bookkeeping activities because they perceive the likely costs will be too high. However, the monthly or quarterly cost for JRMA to take on board all of your bookkeeping work can be less than what it costs your compliance accountant to do an annual review and amend any incorrect transactions that you have inputted.
Plus, by getting JRMA to handle the bookkeeping aspects it will save you a considerable amount of time (and probably free up your evenings and weekends!). And you will have the peace of mind that everything has been logged correctly, to the correct nominal code, and then checked, so that information produced for your accounts and tax calculations will also be correct.
If you would prefer not to outsource your bookkeeping, we would strongly recommend that you undertake specific online accounting training which is relevant to the software package you are using. We can provide online accounts training and set up for you, as well as ongoing ad-hoc support as and when you need it.
If you run a business around Droitwich or Redditch and would like to find out how much your bookkeeping activities would cost to outsource to JRMA, please do get in touch.