Information about Online Accounting
Pros & Cons of Online Accounting
Online accounting has evolved a great deal in the past couple of years. According to a recent review, online systems now match or surpass desktop systems in many ways. If you're considering the switch to online accounting, here is a quick overview of the pros and cons.
1) Low up-front cost. Unlike traditional client-server systems (which typically cost $25K-$50K just to get started), online accounting requires no up-front investment in hardware, software or maintenance contracts. Instead, companies pay a monthly fee (i.e. the "rent vs. own" school of thought).
2) Quick set-up. Since there's no hardware/software to install, companies can start using the system immediately.
3) Greater security. Despite initial fears about the internet, most people now realize that online systems provide the best protection. The service providers- Intuit, Intacct, NetSuite, etc.- all use world-class data security technologies (far greater than most companies' in-house systems). Best of all, your data is automatically backed up and stored off-site (which is a lot better than carrying it around in the trunk of your car).
4) Anywhere access. Because it's web-based, online accounting allows business owners to access their accounting records from any location (home, office, road, wherever).
1) Less customization. Generally speaking, online systems do not have as many features as traditional accounting packages (which have been around a lot longer). For larger companies who require customized capabilities (advanced reporting, complex inventory, etc.), online accounting may not be the best choice.
2) Switching costs. For companies that are heavily invested in an on-premise enterprise accounting system ( Great Plains, MAS 90/200, etc.), the benefits of switching may not justify the costs of learning a new system for a while.
All in all, online accounting seems best suited for small to mid-sized companies. Whether your company manufactures RFID tags or is a real estate agency, online accounting is perfect for business who are a) ready to upgrade to a new system, b) don't want to make a large investment in hardware/software, and c) have relatively straightforward accounting (i.e. minimal customization). In particular, online accounting seems like an ideal fit for companies with multiple locations (franchisees, etc.), business owners who travel a lot, and entrepreneurial companies who want to outsource their accounting and/or work with an outside CFO.
Outsourcing Your Accounting
There's a lot of hoopla these days about Business Process Outsourcing (or BPO). In case you haven't heard, this is a new kind of outsourcing that doesn't involve sending jobs to India. Instead, the idea is that any company (large or small) can save time and money by outsourcing non-core functions like HR, IT or accounting to outside firms. The basic idea is that, thanks to the internet, you can now hire a company to do these jobs better than you can yourself, enabling you to focus on other areas of your business (sales, product development, etc.). Sounds like a great idea in theory. The question is: does it work in real life?
The primary challenge with any type of outsourcing is figuring out how to hand off the non-essential functions (i.e. the ones that don't add any value to your company) while maintaining control over the important ones (namely, oversight and decision-making). This is particularly true when it comes to accounting, which is not as easy to outsource as stand-alone functions like HR or IT. If you are considering outsourcing, here are four factors that will help you decide whether your company is a good candidate for this strategy.
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Ideal Customers for Outsourced Accounting
Based on our experience, ideal customers for outsourcing have the following five characteristics:
1) Straightforward accounting. If your company's accounting processes are relatively straightforward, then outsourcing is a viable strategy. If your accounting is complex and intertwined with your business (for example, companies that sell financial services), then you should probably handle it yourself.
2) Companies who are at an "in between" stage. The best candidates for outsourcing are growing companies who are at what we call an in-between stage: big enough to need full-strength accounting, yet too small to build their own accounting department or hire a full-time CFO. Intead, what they really need is CFO-type expertise, but on a limited (i.e. part-time) basis.
3) Interested in online accounting. Most outsourcing arrangements use online accounting systems (QuickBooks Online, Intacct, NetSuite), which allow customers and their accountants to have joint access to the company's records. Long story short, the best candidates for online accounting are small to medium-sized companies who are ready to upgrade to a new accounting system but don't want to make a large investment in hardware/software. (For more info., see this post: The Pros and Cons of Online Accounting).
4) Owner(s) want to manage the forest (not the trees). This may be the most important characteristic of all. Strategically, outsourcing is often chosen by business owners who want to maintain oversight of the company's finances but do not want to manage all the day-to-day stuff. Therefore, they are willing to hire an outside firm to help handle the company's accounting operations (in essence, a trusted vendor). Their role then becomes working closely with the vendor and staying involved with key decision-making (i.e. forest, not trees).
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