Category: Bookkeeping

Over the last 50 years, we have seen radical changes in the way we record and maintain our accounts and books. The ‘evolutionary stages’ have included traditional hard copies, recorded data tapes, floppy discs, hard drives, CDs, DVDs and USB sticks. We’re now about to enter yet another era of data management, which is bound to have consequences for the way we store and update our accounts: Cloud Computing.

In layman’s terms, cloud computing allows you to store and retrieve files, as well as run computer programs, straight from the internet. This means that data or information that would have previously been created and saved to a computer’s hard drive (or to a removable data storage device like a CD or USB stick) is now created and saved on the internet or is automatically uploaded straight to the internet. In other words, any device that is connected to the internet (and which has the necessary access permissions) can also access, amend or upload this information to a centralised cloud account.

New software accounting packages, like Prelude Accounts, have been designed to take advantage of the benefits of cloud computing for their users. So what precisely are these benefits?

1) Your Information Is Safe Part 1: Everything is automatically backed up and off-site

As little as 20 years ago, if your work computer was stolen or seriously damaged in any way, you would have irretrievably lost all the information that was stored on it. The more organised among you may have backed up your information and taken the backup copy off-site, but that was then a time-consuming process that many people would put off until it was too late.

With cloud computing, your information is not physically stored on your property, but on multiple, secure servers that relate to the particular software program that you are using. This means that your information is perpetually stored and backed-up, meaning that you will never lose your information ever again (bar some form of near-apocalyptic event to befall the whole internet).

2) Your Information Is Safe Part 2: Everything is encrypted and password protected

While the notion that all your information is stored in an ephemeral manner on the internet, and stored in different locations, may alarm some, it really shouldn’t. All of the best online cloud computing programs have secure accounts with encryption and password options.

Not just anyone can access your information; it can only be accessed using approved user accounts (i.e. username and password protected) and (in some cases) only using approved devices or even from approved locations. No computer system on Earth is 100% secure, but cloud computing allows for clearer traceability of who has accessed or amended your information than comparative traditional methods.

Indeed, if you think of recent scandals of sensitive information being retrieved from stolen computers or lost USB sticks, cloud computing is by far the more secure option.

3) Accessing your information has never been easier or more universal

Whereas traditionally you could only review your books or accounts by actually looking at a balance sheet in a physical ledger or by reviewing a spreadsheet on a desktop computer with the necessary accounting package, cloud computing gives you far greater options as to how and when you can review your bookkeeping.

For one thing, cloud computing means that you do not have to install a software package onto your computer(s) or device(s) – most online programs run within your web browser (e.g. Internet Explorer, Firefox, Google Chrome). Therefore all you need is a robust internet connection, a suitable computer or mobile device and the necessary access permissions to get in.

This means that wherever you have an internet connection, you can get to your accounts or books.

4) You can update your books in ‘real time’

Given that you can access your accounts anywhere (assuming you have an internet connection), you can now amend your accounts at any time.

Why wait until you get back into the office to record a payment or to post an invoice? You can now do so on the move, meaning that you can do so while the matter is fresh on your mind and it also results in less bookkeeping work piling up in the background.

Of course, by taking this approach, it will ensure that your books are consistently up-to-date, which saves a lot of stress come the end of the tax year.

5) The best online accounting packages streamline other accountancy processes

The best online accounting packages make the most of being connected to the internet, and help to streamline the accounting processes to save you time when running your business as well as saving you the stress of any additional work.

For example, Prelude Accounts allows the user to generate a customer invoice which is automatically logged on the online ledgers and which is also sent out as an e-mail to the intended recipient. Three separate processes have become one.

6) It has never been easier for accountants and their clients to share information and reports

Both accountant and client can have simultaneous access to the books and accounts being maintained via online cloud accounting software.

This enables and empowers an accountant to review their clients’ books for housekeeping purposes, picking up on irregularities or wrong entries as and when they occur.

For the client, they can easily share or query any aspect of their books with the accountant quickly online.

7) It has never been easier to produce reports for HMRC and other statutory authorities

By using online accounting software on a day-to-day basis, and by having an accountant to regularly review the books online, the end of year tax deadline needn’t be the dreaded event that it once was. A mixture of self-discipline, online streamlining of processes and ‘real time’ accounts (all made possible through online accounting software) takes the sting and the pain out of maintaining your company’s financial records.

For every business or enterprise, financial accounting and bookkeeping are vital functions to measure its viability and to calculate the tax it will owe to the relevant government or authority.

These days, most business people will use computer software to manage the books, and while some will to try and use generic spreadsheet software such as Excel to do so, most professionals will buy dedicated accounting packages that are specifically tailored for the purpose.

Accounting software is therefore a vital tool for running the modern business, and can also be a major outgoing if you are a large organisation with a sizeable finance department that requires multiple software licences.

So, given that accounting software is an important and potentially costly part of maintaining your company or organisation, by what criteria should you select the accounting software package that is right for your business?

Here are 14 questions that you should ask to help you identify good accounting software:

1) Can you try the software before committing to it or is there a free trial period available?

It is important that you are able to try out the software before you fully commit to purchase it.

Whether it be a day of demonstration and training from a Sales Rep or (preferably) a free trial period with the software, you must ensure that the software is to your liking and that you get on with it before you make that final purchase. Otherwise, you will be lumbered with a potentially costly outgoing that no-one in your organisation will benefit from, and you will soon have to start the whole purchasing process over again.

2) Does the free trial version have all the functionality of the final purchase version?

If you follow the advice above, does the trial or demo version that you have access to prior to final purchase have all the features and functionality of the final package?

If not, you may not be getting an accurate picture of what you will end up with. Also, can the trial version actually be used on a day-to-day basis as your accounting software? For example, will it store all the necessary customer contact details? And, if so, will they be retained once you decide to upgrade to the software package proper?

Always be hesitant in signing up for trial software that is not fully representative of the final package.

3) Is the accounting software easy to use and is it pertinent and tailored to your sector or business?

This question can be fully answered by undertaking a trial period with the software, and it is arguably one of the main key criteria that should influence your final purchasing decision.

In short, you must find the software easy to use and fit for your particular purpose. Can you intuitively do everything that you need to do on the software? If not, and the package is creating more work and stress than you had previously when maintaining your accounts, that software package may not be for you

In addition, all the information stored on the accounting software package should be readily retrievable in a digestible format. The better software packages now tend to present information via a main central dashboard that is easy to navigate and to manipulate to get the financial data you need at any one given time.

Also, you must honestly assess whether the software package is suitable for your business or sector. If you are a manufacturer of a complicated range of products, you may want to ensure that the software can allocate costs and supplier details for all the parts that you regularly order. You may also want to investigate the possibility of additional software plugins that can help you monitor stock levels and other details from the main dashboard.

4) Does it have too many features that you will never use?

At the other end of the spectrum, you may find that the accounting software package that you are trialling is full of features and functions that you will never use as part of your business.

This is not to belittle these features (I am sure they are very useful to particular people and industries), but if you are considering a high-end, sophisticated accounting software package for a relatively simple business, it is probably not the package for you.

5) Are you being charged too much for these features which you never use?

Not only are additional features that you will never use redundant in the truest sense, they will also probably cost you money.

The more complex the accounting software is, the more likely it is that it is going to be expensive.

Again, this is not to necessarily denigrate the programming or the package itself, but you could find yourself buying into very expensive piece of software that you will hardly make the most of. You would not buy a Formula One car as a vehicle in which you would do your weekly shop, and so it is with accounting software.

Only buy the accounting software that provides just what you require, and within a realistic budget that will reflect your true use of it.

6) Is the package aimed at the accountant or the client?

Obviously, the right answer to this question is dependent of whether you are a fully-fledged accountant or just bookkeeping on behalf of a business or organisation.

If you are an accountant, you will probably require a more sophisticated piece of software that will allow you to manage and maintain the accounts of your clients, whereas a bookkeeper might require a comparatively simple software interface with which to log the day to day expenditure and income of the business in question.

Therefore, two different sets of criteria apply for your purchase depending on who you are and what you intend to use the software for. A good choice of accounting software for an accountant could be a disastrous choice for a business owner who does his own bookkeeping.

However, whatever final package both parties settle on, it is important that both are compatible with each other, as we will explore below.

7) Is it to be locally installed on a hard drive or server?

If the software is to be stored locally on a business’ computer hard drive or server, a whole series of questions will have to be satisfied as to whether you are getting the right package.

How will the information on the accounting software package be backed up? Who will have access to the accounting software and does the host machine always have to be left on so multiple users can access the accounts? What security measures have you put in place to protect the information that is to be stored via the software, and will the software be upgraded over time to reflect changes to computers’ operating systems and hardware requirements?

We will be tackling these questions in more detail below and in future blog articles, but the decision to host the software on a computer hard drive or server on your own premises can be a costly one that would require additional logistics.

In my opinion, the better software packages are being hosted online via ‘cloud computing’, which I will explain further below.

8) Are you buying the right version of the software to share files with your accountant/ your client?

Each computer software product goes through several iterations or release updates over the course of its commercial life, as manufacturers fix bugs, improve functionality and adapt the software to changing computer hardware specifications.

Accounting software is no different, and it is important that you choose a version of the software that is not too old, as this can lead to compatibility issues with third parties going forward. In particular, if you share your accounts with an accountant (or if you are an accountant who wishes to share accounts with a client), you should determine whether the software owned by both parties is compatible with each other.

It is advisable that both client and accountant talk to each other prior to purchase of new accounting software to avoid such problems, but the client has to be mindful that it might be in the financial interest of the accountant to advocate one particular piece of software over another (see Point 12 below).

9) What is the ongoing support offered at the point of purchase? Is LVC (Latest Version Cover) included?

Because software evolves along the lines described above over its commercial life, it is vital that you determine whether upgrades to the software require any further financial cost to yourself.

It is the decision of the software manufacturer whether an upgrade is a modification to an existing version of software or, if the change is significant enough, is classed as a new product in its own right. In either scenario, the purchaser must see whether such upgrades are covered in the initial purchase cost, as otherwise you could find yourself paying for modifications and upgrades on an ongoing basis, adding to your outgoings.

To avoid the accusation of ‘hidden charges’, the better software manufacturers will make such arrangements explicit prior to purchase, with some offering LVC (‘Latest Version Cover’), which could form part of an ongoing service contract that will probably save the purchaser substantial amounts of money in the longer term.

10) Is the software ‘portable’ and can your accounts be exported?

In a similar vein to the question of whether software packages are compatible with each other, another important feature of any good accounting software package is whether you can export all the information stored on it into a format that can be uploaded by a completely different package.

This is important, as you want to retain the ability to change your accounting software package at a later date. Otherwise, you are a captive audience to that particular software package and are beholden to any changes to either the software or its price structure that might not be to your liking.

Virtually all good accounting software packages offer this feature, but it is an essential feature of any such purchase.

11) If you are an accountant, can the software be branded with your company’s details?

Some accounting software packages enable accountants to add their own branding to them, which is a subtle but effective marketing tool if the accountant is selling on the software or the service to their clients.

12) Are you being sold or pressurised into buying one particular accounting software package?

Some accountants are offered financial inducements by accounting software manufactures for referrals or for direct selling of theie products.

As it happens, the accounting software package in question might be appropriate for the client in question, but given the recommendation is being made due the accountant’s own financial self-interest, it is important that the client thoroughly goes through all the criteria listed in this article to ensure that the package being pushed is appropriate for their business and day-to-day use.

13) Is the software appropriate for your current computer’s operating system and hardware capabilities?

The accounting software you are thinking of buying might be ideal for your needs, but can it be run on your current computer? This is especially true if you are looking to install the software on the computer itself.

The necessary computer specifications (such as available memory and required processor speed) required should be clearly advertised on the packaging, the marketing material or the documentation associated with the software, and then you can make an informed choice of whether or not you can run the software on your machine.

Alternatively, you may choose to upgrade your computer systems to run the new software if you think it is necessary (especially if you have computers than are seven years old or more), but of course this is yet another additional cost that has to be budgeted for when buying your new software package.

Yet another option is to choose an internet hosted solution, which bypasses the vast majority of hardware and operating system considerations outlined in this article.

14) Is the software backed up on ‘the Cloud’?

Cloud computing is an increasingly popular and efficient way of running software and backing up important data.

In layman’s terms, cloud computing involves running software straight from the internet, and saving your information online in a secure format that is backed up, off-site.

We will be exploring the benefits of online accounting fully in a future article, but it is important to ensure that whatever software you buy or subscribe to has online capabilities and functions, as this is the obvious direction in which all major accounting software will evolve.

I have been involved with accountancy now for nearly 20 years, and one of the most startling changes I have seen in that time is how the role of bookkeeping has changed.

When I started my career, it was commonplace to find accountancy firms with many bookkeepers on their staff, offering their clients bookkeeping as a key (and profitable) service. Now, bookkeeping is apparently in decline, with many clients electing to do their books themselves.

What has brought this about? One factor is the growth in the use of IT in both the home and in the office. Most people, even some senior citizens, are now competent in using the basic home computing packages (such as Microsoft Office) and this means that they are able to input and manipulate an electronic spreadsheet that will do the necessary, basic calculations on their (or their accountant’s) behalf. ‘Doing the books’ has never been less stressful or less complicated than it is today, and this is encouraging people to record and manage their affairs directly, removing what they see as an unnecessary additional cost: a bookkeeper.

Aside from the tools now readily available to most, I think there has also been a cultural change in the UK with many people being more ‘business savvy’ than they were 20 or 30 years ago. These days, many people have more than one job, and this exposes employees to lots of different business environments, practices and skills, some of which might include those of a financial nature.

Also, for better or for worse, Britain is much more business-minded in its mainstream culture. Contestants on reality TV programmes already seem to have a grip on the marketing and PR skills needed to succeed in the public eye, while shows such as Dragons’ Den offer a free crash-course on business and product development. Against this backdrop, it’s no wonder that people feel equipped to manage their own financial affairs to a greater or lesser extent.

Does this mean that bookkeeping is dying out, if not already extinct? Well, in a professional sense, it is; services do not survive if people are no longer willing to buy them. But bookkeeping, the skill and the discipline, is not. If you think about it, there hasn’t been a point in history where there have been more bookkeepers. It might be pushing it to say “we’re all bookkeepers now” but it’s a statement that’s not far off.

What does this mean for an accountant or an accountancy firm? Well, for one thing, it means that they will not be hiring any more bookkeepers in the near future. There’s no point having capacity for a service no-one wants from you. This is not entirely disastrous; as profitable as bookkeeping may have been at one point, it was always a ‘low end’ product. By not having to offer bookkeeping, as a service or product, the modern-day accountant or accountancy firm has more time and capacity to offer far more profitable technical products and services, especially to all those people who now manage their books on their own.

Also, the ‘do-it-yourself’ bookkeeper will always require occasional guidance or assistance from a trained financial professional. Just because you can now undertake an activity yourself, it doesn’t necessarily mean that you are either highly competent or professional in it. Whether it be due to keystroke errors or a misunderstanding of the underlying principles, problems do arise with other people’s books, whether they’re using something like Microsoft Excel or not.

One consequence of all this is that the modern accountant or accountancy firm has to be ‘tech savvy’; aside from managing to navigate a financial spreadsheet, you have to ensure that you can operate and use an electronic one as well.

Here at CC Associates, we’ve taken everything a step further. We encourage our clients to use Diamond Discovery’s Prelude Accounts software, empowering them to manage their own books while also benefiting from the numerous benefits such a package has to offer. This way, we can help standardise the way our clients’ accounts are kept and maintained, while also having a role (although an indirect one) in the bookkeeping process.

Bookkeeping as we knew it may very well be dying out, but the practice will not and, as I have argued, has become more widespread in just terms of the number of people who actually do it (as opposed to those who are professional bookkeepers). This is not something to bemoan, as it is good for accountants’ clients as well as for accountants themselves; we’re now liberated to focus on more profitable work and to take on more clients. It’s a ‘win-win’ situation for all concerned, bar those who exclusively market themselves as bookkeepers.

Bookkeeping… the word alone can send shivers down the spine of the hard-pressed businessperson. However, it is a necessity, a vital function of a legitimate business. But what exactly is bookkeeping and why do you need to do it?

Bookkeeping, in its modern form, was first recorded in 1494 by a Cistercian monk called Lucia Pacioli. The purpose of bookkeeping was to ensure that all the financial transactions of an organisation are clearly and legitimately accounted for.

The name derives from the fact that such records were kept and maintained in handwritten books, although today such records are usually maintained electronically on computers. In a business context and in its basic form, bookkeeping is the recording of financial transactions. These transactions take the form of sales, purchases, receipts and payments by or to an individual or organisation.

Bookkeeping is not totally synonymous with accountancy; they are two different disciplines. However, accountancy does require the bookkeeping function to be undertaken, and this is why people often conflate the two. This is also why people who are not accountants can legitimately maintain their own books if they choose to.

Based on the records compiled by a bookkeeper, an accountant will create reports from recorded financial transactions that are required by government agencies and other bodies, and will formally file those accounts by the appropriate deadline. In the UK, the government body that oversees the filing of these reports is HMRC (Her Majesty’s Revenue & Customs).

Any process that records financial transactions is considered to be bookkeeping, but there are different widely-recognised methods of doing so. Single-entry bookkeeping is the simplest form of recording financial records, a linear account of expenditure and income. Double-entry bookkeeping is a more sophisticated form of record management, which treats expenditure and income as two separate columns, from which a bookkeeper or an accountant can see what financial profits and liabilities an organisation or an individual has from the discrepancy between the two columns.

Who is a ‘bookkeeper’?

A bookkeeper is a person who maintains the day-to-day financial records of an organisation or an individual. Traditionally, bookkeepers were often employed by accountancy firms to work on behalf of their clients, and bookkeepers could (and still can) be hired as individuals away from accountancy firms.

With the widespread adoption of IT technologies in the home and in the workplace, however, it is now possible for many people to maintain their own books on their own computers. Some choose to do so within a spreadsheet such as Microsoft Excel, although this can ultimately be cumbersome.

As an IT professional with an accountancy background, I developed Prelude Accounts which streamlines the bookkeeping process even further, allowing books to be automatically maintained and updated when a user generates an invoice for a customer.

Why do I need to maintain my books?

All people who are engaged in financial transactions of a commercial nature need to maintain their books. It doesn’t matter whether you are a handyman working as a sole trader or a vast multinational, a clear detailed log of your financial history needs to be maintained.

Why is this? In the most basic and fundamental sense, bookkeeping allows a business or an individual to see whether their venture is profitable or not. If you are spending more money that you or your organisation is earning, you will be making a loss on your professional activities. If that is the case, one has to honestly assess whether the business in question is viable and calculate how much more loss your business can tolerate without being declared insolvent.

On a more positive note, bookkeeping can also demonstrate how successful a business is to its owner; if your business is making a huge profit, you may want to reinvest that money into the business or even elsewhere.

There is, however, a more pressing, essential need to maintain your books, for they are ultimately used to calculate how much tax you owe to the government of the country you live in. An accountant will help you do this if you do not choose to self-assess your tax obligation, but to submit your accounts you will need records and without detailed records you are stuck. Failure to pay the tax you owe is punishable by law and, in extreme circumstances, can result in prison sentences.

“Help! I’m now worried about my bookkeeping…”

Don’t panic; bookkeeping and accountancy is a vital function for a modern economy, and there are plenty of professionals out there who can offer advice and training on how to maintain your books.

When starting a business, make an appointment with a reputable accountant in your area and they will talk you through the bookkeeping process. Some may offer bookkeeping services for you, but the most cost-effective and quickest way of maintaining your books will be by doing it yourself using an online accounts package.

As long as you take a disciplined approach, bookkeeping will cease to be a necessary chore but will become a vital tool with which you can assess the health of your business.

Running your own business ischallenging and often time consuming. It would probably be fair to say that the most frustrating and non-profitable activity that all business people have to engage with is the management of their accounts. Incomings and outgoings all have to be accounted for across the board, not only to manage the business correctly but also to have a clear set of accounts for possible inspection of your books by HMRC.

Most people who go into business do so in the trade that they are skilled in, and just because you are a great plumber or software engineer doesn’t necessarily mean that you will also be great with accounts. If this was the case, there would be far fewer accountants in the world! There are many ways the self-employed or a small business can improve the management of their books on a day to day basis without having to rely on their accountants in the usual mad panic towards the end of the tax year.

So what can the average person do to manage their accounts more efficiently, saving time in the process?

Here are four top tips that can help you:

1. Keep all your paperwork in order

This might to seem self-evident, but it is surprising how easily you can lose track of paperwork when your own business gets going. It’s easy to put aside the essential backroom maintenance of your own business when you are so busy servicing the needs and demands of your clients.

From the outset, establish a filing system that will be easy to maintain, even if it is only a couple of box files. All incoming invoices from suppliers go into one box, all bank statements into another, all copies of your own invoices to clients into yet another, and so on.

It doesn’t have to be overly complex, but you must have a clear designated place for your paperwork so you can quickly retrieve it when necessary. You will be surprised how some basic procedural discipline will stand you in good stead in the longer run.

All of this is especially true in the electronic age. Do you receive most of your invoices electronically? If so, you will have to make the decision of whether you will be printing off hard copies for your records or whether you will be filing these records electronically.

If you do try and opt for the paperless office approach, make sure that you back up your electronic files either on The Cloud (online data hosting) or on a separate computer or memory stick. Also think about how your electronic filing system will work; are you going to have a naming system for your electronic files so they can be easily retrievable by search? And which electronic documents go into which electronic files? Just because you’re paperless doesn’t mean that you can forgo the necessary rigours of document control.

2. Set aside time to manage your accounts daily

Again, this might seem the obvious thing to do but so few of us actually do it. Partly this is down to the psychological tedium of managing one’s accounts. Another reason is that it is non-profitable activity that gets in the way of the ‘real work’. Others think they’ll put it off, and ‘deal with it’ when necessary.

If you run your own business, however, there is no escape from the reality that you have to manage your accounts one way or another. And while putting it off is one strategy, it is one that will guarantee an even greater sense of dread and panic when the time comes to confront and update your books.

The simple fact of the matter is that if you managed your accounts on a daily basis, the whole problem becomes a non-issue. Depending on the size of your business and turnover, one should be able to manage one’s accounts by setting aside half an hour a day to do them (and even then it should not take you this long). You will soon find that keeping on top of your accounts on a daily basis dissipates the workload of bookkeeping and that your accounts will soon be in good order.

An approach of ‘a little and often’ is the best way to avoid stressful scenarios with your own books. To maintain the discipline to sustain this approach, put in your diary a daily appointment with yourself to do your books, and treat the appointment with the seriousness and rigour that you would with one of your own clients.

3. Employ a bookkeeper

If these two suggestions are really beyond you, and you cannot face the prospect of managing your own accounts, you can employ a bookkeeper to manage them for you.

Obviously, this will be an additional cost to your business and you will have to calculate whether you can afford it. Also, depending on how much you pay yourself, you may want to compare the cost of you doing your own books at a pro rata rate with that of employing someone part-time to do them for you.

However, rigour and daily discipline should mean that you can forgo this cost, especially as there are so many new tools on the market that can help you keep your records.

4. Use an online accounts package

The internet is a wonderful thing, not least the aspect of cloud computing. In layman’s terms, cloud computing means that the computer programs or software that used to be hosted on your own computer on your desk are now run straight from the internet. In turn, this means that you can access and use these programmes wherever you are, as long as you have a connection to the internet.

The world of accountancy is moving with the times, and I developed Prelude Accounts to meet the needs of the modern business person. Programs such as Prelude Accounts simplify and semi-automate the bookkeeping process, ensuring your books are updated when you generate an invoice, and that invoices can be e-mailed straight from the program to your clients.

You can use Prelude Accounts at anytime and anywhere you have an internet connection, so you don’t have to wait to get back to the office to generate that invoice or record that payment you have received. In other words, you can manage your accounts in ‘real time’, thereby diluting your own workload further, saving you valuable time in running your own business.