By Lucy Cohen, Co-founder of Mazuma
Seriously. Step away from the cloud software. You don’t need it.
Cloud accounting is big business. Software company Xero reported that the total lifetime value of their subscribers is $3.2 Billion as at 31st March 2018. That’s up a massive 45% from the previous year. And Intuit, the company behind Quickbooks reported revenues of $5.177 Billion in 2017.
To be fair, the products that they offer are great at what they do. You can definitely put your information into these bits of software and then see your data in real time. There’s a pretty graph or a pie chart to see. If you “snap and send” £50 of fuel receipts you’ll see a little graphic showing you that you have spent £50 on fuel. You’ve probably seen the snazzy TV adverts assuring you that you can easily deal with Making Tax Digital, reminding you that you should get on with your life rather than faffing around with your accounts and tax.
We 100% agree with them. As a small business owner or self-employed person, dealing with your books is the last thing that you should be worrying about. And it is a big worry – no one wants to get it wrong and risk an HMRC investigation or a penalty. And there’s the rub. Without an accountant around, you could easily get it wrong.
That £50 of fuel receipts you just snapped and sent into the cloud. Are you sure it’s all tax deductible? What about that lunch you took a client to. Can you claim for that?
Just like desktop software Sage before them, these solutions give the impression that a bit of software can replace an accountant and save you money. That somehow by having your data in “real time”, you’ll be better able to run your business.
Let’s take a second to deal with the myth of real time data. As a small business, how important is it really? Especially if that data might be wrong? Larger companies use real time data for stock systems and dynamic pricing – financial information is almost always reported over a specified time period (monthly, quarterly etc). That’s because in order to calculate the financial information that a company needs in order to make decisions, it must follow the rules that Companies House and HMRC expect you to adhere to. You have to use the recognised accounting principles – and “real time” isn’t one of them!
What is actually better than real time information is regularly prepared management accounts. Sure, they’re not as pretty as an animated graph. They don’t hold quite the same gimmicky charm. But they are way more useful to you, especially if you have an accountant preparing them who can estimate your tax bill and file your Making Tax Digital reports on your behalf.
Time and again we meet clients who have been using cloud accounting software and thought they wouldn’t have a tax bill because they didn’t have a profit, only to engage with an accountant to file their year end accounts and tax (cloud software can’t currently do that) and discover that they do have a tax bill – and it’s due now!
Cloud accounting software can be a really useful tool in the right hands. And we are huge advocates of having an invoicing system that allows you to send an invoice straight away from within an app or website. But for most people, the added burden of constant data input alongside the uncertainty that your real time figures are actually of any use to you, makes cloud accounting software more of a hindrance than a help. Do you truly know how to do a proper bank reconciliation after all?
Our advice is to have an accountant at your disposal at all times. Let them deal with the numbers while you get on with your business. A good accountant will keep on top of all the important stuff for you. There’s a reason that we train for so long to do what we do!