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Author: Samuel Hong
For years, many New Zealand businesses have run on a monthly rhythm. Records are updated, a file goes to the accountant, and a few weeks later someone explains what happened. Cloud accounting breaks that rhythm. When the books live online, the numbers on screen are the numbers as they stand today, and that changes the conversations a business can have about its money.
What cloud accounting changes in practice
With traditional desktop accounting software, data is saved in dedicated storage. Accessing it remotely requires the specific software to be installed locally, and connecting to the storage involves a complicated procedure. Alongside these access hurdles, backups are easily neglected, and software updates mean manually installing a new version.
Cloud accounting runs through a web browser instead, and online accounting systems such as Xero need no installation or maintenance. Bank feeds bring transactions in automatically, which removes much of the manual data entry. The business, its team and its accountant all work in the same live set of books, so there is no question about which version is current. Providers also look after updates, security and off-site backups, which is a real relief for a small business without its own IT support.
There is a tax angle too. New Zealand’s Accounting Income Method (AIM) calculates provisional tax during the year from accounting income, adjusted for tax purposes, using AIM-capable software from an Inland Revenue-approved provider such as Xero. AIM is generally available to businesses with annual gross income of $5 million or less in the previous tax year, subject to eligibility requirements, although approved pathways exist for some larger businesses. It may suit businesses with seasonal or uneven income because payments reflect current-year results.
Cloud accounting does not just make the bookkeeping faster. It changes how often a business can afford to look at its numbers.
Three ways it shows up
The benefits are easiest to see in how our team works with clients who have moved from desktop software to Xero.
- Real-time monitoring. Our accounting professionals can see financial records as they are updated, rather than waiting for a file to arrive. Problems such as a miscoded transaction or an unreconciled account can be picked up while they are small.
- Faster advisory response. With live access to current ledgers, queries from clients can be answered promptly and accurately, because the answer comes from today’s figures rather than last month’s copy.
- Reporting on demand. Real-time financial visibility makes the monthly management reports and budgets far quicker to produce. For businesses applying for grant funding or planning growth initiatives, that means being able to put current numbers in front of a funder or a board without a scramble.
A business transformed
The shift is clearest in a before and after. Picture a business running on desktop software. Records are updated in batches, and the accountant works from a copy sent across. A question mid-month waits for the next file. The management report and budget needed for a funding application are assembled by hand, from figures that are already out of date by the time they are read.
After the move to Xero, the picture changes. Bank transactions flow in daily, and our team can see the ledgers as they are updated. Questions are answered more quickly, from live data. Management reports and budgets are produced when they are needed, and funding conversations start from current figures. The owner stops asking what happened last month and starts asking what to do about this one.
How to choose the right accounting software
Start with asking what the business needs the software to do, not with a feature list. Invoicing, payroll, inventory, project tracking and multiple currencies carry different weight for different businesses.
Most small businesses should expect automated bank feeds, invoicing and bill tracking, secure access for several users, real-time reporting and automatic updates as the baseline.
Beyond that, a few questions help narrow the field:
- Is the software recognised by Inland Revenue, including for the Accounting Income Method?
- Does it connect to the other tools the business already uses, such as point-of-sale, payroll or inventory systems? Xero, for example, cites more than a thousand integrated apps.
- Does the plan include the reporting depth the business needs? Xero Analytics, for instance, is included on the Ignite and Grow plans, while Analytics Plus comes with Comprehensive and Ultimate plans.
It is also worth asking which platform your accountant or bookkeeper works in daily. Real-time collaboration is only useful if the people advising you are comfortable in the same system.
The support businesses need when making the move
The technical switch can be quick, and Xero describes setup as something that can be done within a business day. However, the actual timeline and any difficulties encountered depend heavily on the tidiness and complexity of the existing data. The groundwork around it is what decides whether the move pays off.
That groundwork usually starts with tidying the existing data before it is transferred: reviewing the chart of accounts, clearing old items from debtors and creditors, and agreeing a clean cut-over date, ideally at a month-end or GST period-end. Bank feeds then need connecting and reconciling, and users need training on the new system, with some running in parallel for a short period to check the numbers agree. Ongoing support is also important, because the first few months are when questions come up.
A new system built on messy records and unclear processes will simply deliver the same problems faster, which is why we treat the migration as a business review as well as a technical task.
Thinking about moving to the cloud?
If your business is still running on desktop software, or you are not sure Xero or another platform is the right fit, get in touch with our team. We can talk through what you need, what the move involves, and how to get your numbers working for you in real time.
