For centuries, the financial function in business was a completely manual operation and carried out by bookkeepers and clerks. A revolution began with the invention of double-entry bookkeeping and advanced with iterations of spreadsheet software. An emerging breed of online vendors illustrates how bookkeeping and accounting, as practiced in conventional organizations, can be organized as an online service. Services engage bookkeepers and accountants in low-cost Eastern Europe while feeding clients a picture of stability, performance, and compliance. A digitized shared ledger ensures the timely creation of an engineering report and the credit and debit entries into the bookkeeping practice based on rules and credentials, while providing extensive and accurate auditable evidence. A personal and personalized service is provided to match existing clients with appropriate resources.
Benefits of Online Accounting and Bookkeeping Services
(a) Better mobility – Up-to-date data can easily be accessed by those who need them – this includes key accounting figures, bank and credit card reconciliations, and invoices. With these in place, businesses are empowered to experience mobility in the sense that they can easily monitor projects or opportunities at hand in real-time. (b) More confident decisions – One added benefit for business owners is that cloud accounting software is designed not only to allow access between a user’s internet-enabled devices but also to give them a 360-degree view of the finances of the business. This newfound visibility makes it more convenient to make crucial, confident decisions anytime.
(c) Save more time – By making tedious tasks such as filling up spreadsheets and inputting data a thing of the past, businesses are ultimately able to save more time. The cherry on top? This extra time allows the staff to undertake more productivity-driving work, adding value as they go.
Imagine being able to gain a clear understanding of the financial health of a certain business, no matter where you are – you might be lounging at home, working in your office or, dare we say, sunbathing at a fancy beach somewhere – all while having access to important data and real-time information. With the rise of digital accounting, this dream-come-true scenario is not too far-fetched. Made possible by highly sophisticated cloud accounting solutions today, business owners are now able to step up beyond debits and credits to tap into the expanding role accountants and bookkeepers play in their business – keeping a watchful eye on daily operations while supporting your overall strategic vision. With your business’ real-time financial data at your hands, you can easily get back to real business – the part which celebrates your astute leadership. Let’s look at some of the benefits digital accounting has brought to the table.
Challenges in Traditional Accounting and Bookkeeping Methods
While discussing their individual experiences with the service, business owners and entrepreneurs expressed in a number of ways the challenges they had in dealing with online accounting. Important among those is the emotional reaction that most users demonstrate. They appear to be willing to use the service, many registered to one or more of them, yet they exhibit hesitance in engaging with the service at all, let alone migrating their accounting operations from traditional systems to the online platforms. This customer reticence is reflected in the aggregate numbers, considered still small by the law firms surveyed, and it stands to threaten the potential of the field, as its companies are more likely to fail if the market is indeed limited, thus resulting in lost opportunity to them and their would-be customers. This study investigates the reasons underlying those hesitation and suggests how they might be mitigated so that companies in this domain can more successfully capture the prospective market.
Among the benefits of online accounting, as we discussed in the introductory section, are its potential to streamline bookkeeping and cut costs for small companies, allowing business owners to concentrate on developing and managing their companies. At the same time, companies that provide these services can benefit as well, directly by reaching an expanding market and indirectly by providing other services. Despite the potential in the services being provided, that they are capable of meeting the needs of at least an important niche, and that many users are satisfied or even excited about the offerings made by these websites, online accounting has not taken off as much as it soon could either in the United States or in other high-income countries.
The Evolution of Online Accounting and Bookkeeping Services
The digital explosion started where everybody requested broadband access to the internet, and this paved the way for accounting systems to build one of its deliveries over the web. During this web-based accounting system era, the functionalities were limited. In the author’s opinion, there were only two significant releases of accounting software: NetSuite and QuickBooks.
This era was the start of the “Colossal Software Empire.” With the rise of the personal computer, businesses chose a few powerful small systems over large centralized systems. Financial software was designed to run on these small systems. Many companies also wrote custom software to manage their accounting books. Most of the company-owned accounting systems were used instead of buying them.
The first era was the “Physical Accounting Services.” In this era, there were no specific businesses that focused solely on accounting – each business had accounting as a part of it. Accountants worked on a company’s accounting books only once a year. They worked on the monthly reports only for specific requests, and often bookkeeping was considered a mundane and boring area of work. As productivity was low, the cost of service was higher, and small-sized businesses had to mostly manage their books by themselves. Report generation required manually entering transactions from several files to find out the financial health of their business. Then, tax agencies came up with annual tax returns to be filed by each business. As a result of the growth of year-end accounting, users increased. Eventually, this led to the next era.
Advancements in Technology
Second, users and companies have grown in their understanding of the cloud. While the word was tossed around, widespread adoption and appreciation of cloud services took time. Indeed, recent publications indicate that 15% of CPA firms haven’t used the cloud in any way and thus are not in a place to understand the benefits of purchasing bookkeeping or accounting services from a nonlocal provider using or focusing on cloud technology. But executives, scans, and CFOs of all industries, practice leaders, advocates for purposeful adoption of advances to contribute to the full potential of automation and predictions of change happening over the coming decades. Further anecdotal evidence from my discussions with students and firms suggests these two services are beefing up their tools and technological expertise, transitioning efforts previously directed towards assurance-related services, particularly data and analytics, towards developing and discussing bookkeeping solutions.
As with most professional services, accounting has moved from manual to computer and now cloud or online systems. There have been four major shifts toward cloud-based accounting solutions. The first was the development of cloud-based computing. With faster, more stable connections, users were able to store and share files without having to maintain their own storage locally. Real-time co-authoring has become commonplace. This technology has also allowed for real-time updating and views of accounting data. Remote employees and workers can all access the same, most current version from wherever they are. This sharing allowed for the growth of data storage facilities (cloud services), which in turn have allowed for various new extensions and functionalities related to big data and e-commerce. These services, in turn, extended functionality for bookkeeping services. Cryptocurrency software has spurred big data in finance and has likely also extended the application and popularity, in particular, of bookkeeping services.
Shift in Consumer Behavior
The shift in consumer behavior towards online spending and digital marketplaces opens up a wealth of new data and insights to innovators with novel business models. Ultimately, most businesses rely on the consumers they serve. The ability to analyze and understand shifts in consumer behavior, motivations, and spending will result in a significant competitive advantage. What has become clear is that digital platforms have become not just marketplaces, but also performance marketing platforms delivering a set of services to third parties as a byproduct of their primary function. While ACBC continues to be the driver of digital disruption, in many ways digital transformation is focused on serving online businesses’ need to deliver their services based on the shifting preferences and demands of the consumers they serve. By effectively harnessing digital disruption, as Amazon has done, it has become possible to serve third parties with services around the primary function of the business. All of the knowledge Amazon has gained through its primary business serves to benefit third parties. In this report, we will focus on a similar disruption, this time happening in the domain of ACBC, that has come about thanks to the rapid digitization of the SMB banking sector in the U.S. ACBC is the cornerstone of any business. Every business operates under its own complex set of rules and regulations. The demand for more frequent and real-time accounting has put a strain on anyone who must put together that ACBC, meaning bookkeeping processes have to be maintained more accurately and transparently, with real-time or near real-time visibility.
Key Features of Online Accounting and Bookkeeping Services
The connection to and interaction with the accounting software takes place only through the web browser. There is typically no API or other integrational methods to other financial or non-financial applications. Only a few online accounting and bookkeeping services offer mobile applications for iOS and Android. The invoice payment feature is also scarce. There is usually either no integration with a third-party merchant or a third-party merchant is only available against a fee. As a result, many services need to be completed by the user manually, for instance by using the tool’s export feature, and have the bank process the payment without inadequate data, or by using an online bank details to make an individual invoice payment. Data import functionality makes a transition from another service easier because the user does not need to recreate the entire accounting system.
Online accounting and bookkeeping services are a type of XaaS, or “Anything as a Service,” offered to small business owners who want to entrust these tasks to a third party. Some of the online accounting and bookkeeping services display certain common features. One of them is the requirement for a valid email address. This makes an email-based registration the most common method to create an account. A valid email address is essential to authenticate the user and is therefore mandatory upon registration. It is typically used as the initial authentication factor, together with an automatically-generated password or a combination of the customer’s secret PIN and a mobile extra password sent by SMS. There is also usually only one account per email address. The email address or the account can also be used as a username. The password strength can also be a security feature of online accounting and bookkeeping services. Users are advised to pick a strong and secure password up to a good, secure password policy.
Cloud-Based Platforms
This means that, besides traditional computer access through a monitor, the respective platform can also be accessed by smartphones. Not only can someone access the accounting system itself, but can also do so using the specific applications relating to those systems. No longer can an excuse be provided that invoices could not be paid because these were not accessible to the contractor; or that these have not been accounted because access to the bank records was not available. And, having access to such data, accountants can provide real-time information about the company’s financial status, including tax liabilities and the need to make estimated tax payments. Ultimately, these cloud platforms shift the management of accounting data to a real-time basis and decrease accountancy services to reconciliations with bank statements – after the data have been posted by regular bank feeds.
A simple definition of a “cloud” is the connection of computers through communication channels such as the Internet, storing data, and running software applications off-site rather than on the user’s computer. While the concept may at first appear to be very nebulous, embraced by nebulous technology ventures which practically live “in the cloud,” the concept has a variety of concrete implications. These include a computer network of online services that permit users to store personal and business information, data applications platforms. It also refers to moving key business apps such as accounting to the cloud, without you needing to leave the office. This shift enables accessibility to their users and integration with other applications.
Automation and Integration
Given that payroll accounting is one of the most time-consuming tasks and the biggest source of errors, it seems nearly a miracle that US companies can handle all of this today at an all-in cost of under USD 100 per month, including tax calculation and electronic filing of all relevant reports at year-end. When I started my career 17 years ago, the direct cost for this upfront was on average EUR 70,000. Only about 20 percent related to the actual electronic computation. The majority of the tax consultancy fee was based on checking every number/salary item in detail. Since the system was neither integrated nor automated, the data in both systems had to be reconciled manually. Half of the time spent went into sorting through and booking internal transaction data.
Another revolution in online accounting is the increased integration between different software. Since the organic growth of these software packages was based on one particular facet of the business, for instance, billing or time tracking, with the right combination of software, all of the financial data can now be automatically captured in accounting as well, allowing not only that it takes computer power from the customer’s perspective to operate, but essentially it leverages the brain of the accounting software which is made up of some of the largest accounting firms in the world serving tens of thousands of firms. These packages now scale their learnings across hundreds of thousands of businesses, which means that as in much of the internet era, the biggest beneficiary is the customer and competition.
Real-Time Reporting and Analytics
Many merchants are already using some analytical tool to better understand their business. Just offering basic accounting vs. real accounting means the merchant is using another stand-alone tool. For example, Tradogram is a small business owner and has access to an affordable, online purchasing system. He is already using Excel rows and columns, Dropbox to store his purchase orders, and some basic analytics on products he is looking for. Tradogram would love for his e-procurement system to limit his purchasing power and show him basic analytics without ever having to transfer data. Imagine the time savings. In 2017, Intuit launched a data integrator to link your other data cloud-based apps so it pushes the data to be accounted.
Another feature that many accounting platforms are offering is real-time accounting. This means the accountant or bookkeeper does the books on a daily basis, no more waiting for the data from merchants. Because the mundane tasks are already taken care of with automation, the CPA has time to do other more important activities like advisory services and work-life balance. Small business owners can not only be tax compliant year-round but also use real-time accounting reports to see the financial health of their business on an ongoing basis. They no longer see their accountant as the person who just does tax but instead they see added value due to real-time reporting and analytics. A great feature of the QuickBooks Online platform is they display the majority of their clients’ login accountant fees at no additional cost. This is because they want to encourage the self-service environment to their merchants so the client and the accountant can easily collaborate together.
Enhanced Security Measures
Further, these enhanced data security measures have the potential to improve audit capability for all parties involved. These security measures, at least theoretically, address the concern of maintaining audit trails for electronic records. The audit or attest function can effectively be spread out and those with financial responsibility inside “can view contingent data without interruption to actual operations.” Further, once the controversial matter of proper audit rules for electronic records becomes more well-defined, online accounting and bookkeeping providers could potentially develop additional audit measures as data security improves. On the other hand, for every potential data security measure that is put into place, there is a potential loss of security due to employee error or client dissatisfaction as a result of being driven farther from the underlying data than would otherwise be the case. It is as yet unclear what the net effect will be as database technology evolves and job opportunities will similarly evolve.
Enhanced Security Measures. As a result of the implementation of software-as-a-service collaboration, an online accounting and bookkeeping provider utilizing state-of-the-art data security measures will generally be able to offer more extensive security measures than a small business owner would otherwise be able to afford or manage. The provider will put into place a variety of different security measures, including SSL encryption for client data, secure Firewall Services and “State-of-the-art server management and monitoring”: Military Grade Physical Security, Multiple Fiber from Multiple Providers and Physical Redundancy in Network Providers. In addition, a company will also ensure that its data is backed up in multiple locations to provide another level of data redundancy and security, including “Multiple Level of Security: Alarm System and Biometrics for access 24x7x365…Everything is monitored and protected using the best IT security systems and technologies.”
The Future of Online Accounting and Bookkeeping Services
Reaching the milestone to obtain timely, reliable, and consistent financial information appears to be fundamental in surpassing other information and reputational constraints, powering a self-reinforcing loop identified by Santarelli et al., in which ‘good borrowers’ come to ‘good borrowers’. In this world, a lender sets an interest rate on loans based on its whole clientele, not simply the borrowing firm’s financial condition. This skews resources to low-productivity projects and has a negative overall welfare consequence. Santarelli et al. contend that more-constrained borrowers finance relatively more tangible assets in order to satisfy creditor demands. With fewer intangible assets, there is both a tangible collateral constraint and an inability to appease the lender with more fluid and transparent information to mitigate volatility.
Digitizing an organization’s financial data and facilitating timely access to it supports more than just one type of end result. The wholesale adoption of digitized accounting services can invigorate a different segment of financial services altogether: lending. A simple reason for this is equally well understood by Santarelli et al., who explain that if financial information is readily available, lenders may over time be able to transcend geographical constraints by capturing non-local information and monitoring their borrowers cost-effectively. It is safe to say that online accounting and bookkeeping services are turning a page in the annals of modern financial services. We see that the outcome of having employed online accounting and bookkeeping services can influence the development and expansion of the online accounting and bookkeeping providers themselves.
Potential Disruptions and Innovations
Another positive side of digital record-keeping is in facilitating the operation of government bureaus (including tax authorities) as well as those of economic advisors, banks, and other creditors, insurers, guarantors, lease providers, and other agents and stakeholders. Especially important is potential cooperation between online accounting and bookkeeping services with banks and other creditors. Today, a digital financial picture is able to advance the evaluation of marketing requests by the bank, facilitating the operation of modern digital banks as well as other lenders. From the point of view of small customers, comprehensive online financial statements are easier to compile and prepare than paper charts. Including paper activities in charts leads to a whole set of costs, while digital filing saves the day.
The most evident effect of digitization has been on declining costs of processing transactions, record-keeping, and communicating information. With respect to the present topic, digitization has the potential to lower costs of keeping accounts and statements of finance and record-keeping of financial activities. These benefits might be the most significant when records are maintained by small and medium enterprises (SMEs) or individuals who are unprepared for a sub-segment of business process outsourcing, online accounting and bookkeeping services, and who have no other alternatives for these services. For these businesses, digital record-keeping is an innovation in terms of affordability. Moreover, digitizing finances and access to comprehensive online data might provide big possibilities for scientific and technological innovation, especially in the financial management of small businesses. This is achieved by more transparent market conditions and efforts of amateur firms to use individualized and frequently applied principles to provide “accurate” internationalization services on a reasonable scale for even the smallest businesses.
Impact on the Accounting and Bookkeeping Industry
Difficulty analyzing financial data is also one of the main problems in large enterprises, such as in the case of small and medium-sized enterprises. Hence, as noted, the complexity of accounting processes rises with the situation of the entity, strictly dependent on the external structure and information system. The ANEP and VAT declaration deadlines need to be taken into account in smoothed periods.
There are significant advantages to online accounting and bookkeeping services, which, although new, have been used by a number of people and can replace relational databases by virtue of their cloud-based multiple data stores. In most cases, their use has been to the benefit of small and medium-sized entities. Small and medium-sized entities mostly believe their accounting journal is time-consuming (55.6%). This is confirmed by the fact that approximately 31% of them will make great savings when using cloud accounting (62% when the salary of the company’s president is included). Large enterprises see less interest in the function of accounting journaling (38.2%). As with financial accounting, VAT and ANEP declarations are also time-consuming and can be greatly improved through the use of web applications that have direct connections to the web management.
Information technology has also provided new ways of delivering services, including whitelabeling for accounting firms less keen to support multiple applications and mobile specialists looking to make an impact. In broad terms, these latter can be referred to as hybrid practitioners, since they spend time front of house with clients and leverage online accounting and bookkeeping services at the back-office to meet client requirements.
In terms of the accounting and bookkeeping industry or profession, greater use of online accounting and bookkeeping services appears to be helpful in reducing the time spent on data manipulation. This makes it possible for practitioners to analyze client records for trends, advise on more than just compliance terms, and leave the more confrontational issues to the software by providing evidence-based criticism. However, it also brings added emphasis to the need to be able to incorporate and blend both cost and non-financial information from cloud accounting.
