The Cloud Part 2: SaaS and Cloud Accounting

In the previous article I explained the cloud phenomenon and discussed most of the usual reasons for and against using it. The Cloud is a relatively new name for something that has been around for the last decade or more. However in recent years this has become mainstream, with new sub-types and acronyms like IaaS and SaaS. The latter is what I will discuss further in this article – Software as a Service, also known as ‘on-demand software’.

It has become increasing possible and even common for business not to buy and install their own software to run programs. Many software (program or application) providers now make their product available in the cloud, usually with access via a web browser. In some cases this will look like the desktop version or it may be a totally new or different product.

The advantages of SaaS (in addition to those of just using the cloud) are:

·      No up-front software investment – payment is usually by ongoing subscription

·      Updates (security and other improvements) can be done instantaneously, behind the scenes and simultaneously for all users – which also allows and encourages further innovation and development

·      Help and support can be better integrated and even offered on a ‘live’ basis

·      Products can be easily accessed from multiple devices and locations (subscriptions are generally on the basis of logins, not sites or computers)

Disadvantages include:

·      Loss (or perceived loss) of control – your programs as well as data, are being outsourced

·      Ownership or access will only continue while the subscription is maintained

·      Internet connection is required – not necessarily all the time as offline access is sometimes possible

·      Products may not be available for certain disciplines or industries which are particularly prone to non-standard systems or variables

The disadvantages may be more perceived than real as many businesses do not manage their IT systems, data, updates and even physical security to the levels recommended or offered by their software suppliers. In addition the risks can be significantly reduced by thorough due diligence and using reputable providers.

Cloud solutions are available in many disciplines such as sales and marketing (CRM), retail, point of sale and accounting. The more standardised systems and process are, the more likely there is to be a product – and the more competitive the market will be. Accounting in the cloud has really taken off in recent years as is ideally suited to this (once the appropriate risk strategies and mitigations are in place). New providers have emerged and have now become major contenders in the overall accounting marketplace – these include companies like Netsuite, Saasu and Xero who now compete directly with more established players like MYOB and Quicken.

Each has it’s own advantages and suitability to particular businesses or industries and as with any software purchase or subscription) the business needs to do it’s own research and due diligence.

In summary Cloud Computing can be, and is, an evolution (if not revolution) and growth opportunity for small and medium businesses in particular.  After all, the sky’s the limit!

The Cloud: Part 1 What is it and why go there?

The Cloud is the latest ‘must have’ technology around today. There are a lot of arguments both for and against, each of which is perfectly valid but with varying degrees of relevance to any particular circumstances.  You may be aware of the conversation or debate but if you’re not, or have been too busy with your own business to take much notice, then please read on.

First of all what is it? The Cloud really just means that your data (and increasingly programs or software) is hosted elsewhere, not on your own computers or servers. The term ‘Cloud’ is actually a bit misleading as nothing is up in the air or in cyberspace – the data is all being stored, or hosted, on remote servers which are usually very large and powerful servers often located in vast data warehouses. These can be anywhere in the world (but for most users these will commonly be in the USA – for the moment at least).

Many of us have been using cloud applications or storage for some time without being overtly aware – or before the term was coined. Hotmail and Yahoo have been around since the mid 90’s, followed by Gmail and a multitude of Google products – all are hosted in the Cloud. Online banking is another frequently used service as well as others you can’t help but be aware (if not a user) of such as Facebook and Twitter.

The advantages of hosting your data remotely, in the Cloud, include:

• Cost effective – payment is normally by ongoing subscription but there is no upfront investment in IT infrastructure.
• Applications (rather than just data storage) will always be up to date and using the latest versions. Patches and updates/upgrades are automatic.
• Backups are done seamlessly ‘behind the scenes’ – and the Cloud hosts will normally have backup servers and IT support teams on site.
• Data and applications can be shared amongst multiple users without having to swap files and worry about version control or conflicts (who has the most up to date copy?). This sharing is done in ‘real-time’ which is a big saving in efficiency and productivity.
• Access is 24/7 – although this would probably also apply to your own servers!
• Security – there are generally very high levels of data encryption and security levels (both physical and digital) used.

On the other hand there are downsides and risks that need to be addressed and either accepted or mitigated:

• Remote storage – as your data is not stored on site, or often even in the same country, several factors must be considered:
• If hosted in another legal jurisdiction a different set of rules may apply (e.g. under the Patriot Act the US government may access any data in the interest of ‘national security’).
• The internet may be regulated which may affect access to your own information
• Loss of control – you need to rely on the Cloud provider’s policies on security, privacy, accessibility and reliability. Can you live with the possibility (however remote) of someone else seeing your sensitive data or of not being able to access it on demand, or at all!?
• Total reliance on the internet, which means you are also vulnerable with regards to your Internet Service Provider (ISP) and modem etc.

It is more likely that small and medium businesses (or SME’s) have the most to gain from using the Cloud but as with adopting any system or technology you need to do your own research or due diligence. The risks need to be weighed up against the advantages and either accepted or reduced or eliminated.

The what and why of financial management

There are many statistics thrown around as to the failure rates of small and medium enterprises (SME’s) but whatever the actual percentage or number, entrepreneurs and business owners don’t expect to become a statistic.  Failure is what happens to other people – who don’t have a solid business plan and good ongoing financial management.

Financial management is recording the business performance (i.e. bookkeeping) and doing something with that data. Every business in Australia does this but the ‘something’ ranges widely and has a huge effect on the success and longevity of that business.

I have broken down into a number of broad categories the various levels of financial management – at least one of which will apply to every legitimate business in Australia.

Tax and compliance

The basic legal minimum of financial management is the requirement to maintain adequate financial records in order to prepare and support a tax return (whether income or company tax, BAS or FBT return). Depending on the type and size of business there may be compliance requirements for other reasons (e.g. Work Cover, State Revenue, ASIC or APRA). This minimum can range from giving a shoebox of receipts to your accountant up to a complete and consistent accounting system.

For some small businesses this may be sufficient. However it means your accounting system is for other parties and you are gaining little for yourself. How does your business productivity and efficiency stack up against previous performance, expectations or other similar businesses? If your plans and goals are to improve and grow the business how will you go about it?

Management Reporting

This is an extension to the above with the focus being more on the business operations and performance rather than just reporting on results. It is as much (or more) for internal management as for third parties such as investors or banks who may only need or want to see selected information that is suitable for their purposes. Management reporting with insightful commentary and analysis is an essential tool for a dynamic and successful business (or one that wants to be).

The frequency of reporting should allow you to see current and up-to-date information so you can change and react to conditions as early as possible while being practical and fitting in with operation of the business. This can range from weekly (or even daily) in the case of sales (or other selected areas such as payroll) to monthly (or quarterly at most) in reporting on the business as a whole.

Forecasting

Taking financial management to the next level, good reports and records can be extrapolated into the future, taking into account expected growth and other foreseen changes.  This will show a picture or roadmap of where the business is headed and the process will also encompass how to get there – this should show what and when additional resources are needed (such as capital, assets or staff) or indeed when or even whether the business can achieve it’s goals.

Business Plan

A good plan is not just done when a business is set-up and then filed in a drawer. It should be a living document to be regularly revisited and revised to reflect changing conditions, goals and performance. Even if things don’t change significantly, going through the planning process may prompt you to address issues (or even new opportunities) that you may not have otherwise done.

There is a multitude of templates and information available on business planning. All are useful but the main questions your plan should address are:

·      Who? This is a description of your business

·      What? What do you do or want to do?

·      Why? Why are you in this market and why would you be successful? What is your niche or unique selling proposition (USP) and how do you stack up against the competition?

·      How? How are you going to run your business and market your product or service?

·      How much? Are the financials consistent with the words of the plan? Is the bottom line an acceptable and supportable outcome? If not the rest of the plan may be redundant?  [I actually often suggest doing draft financials first to see if you’re even in the ballpark]

A by-product of good regular ongoing financial management is that your annual tax return will become more of a formality – which will save your tax accountant time and save your business money! You can do it all yourself  (it’s not rocket science!) or outsource to a professional (what is the best use of your limited time?).

Do you want your accounting to work for you (not just the ATO)? Do you want to maximise your chance of not becoming a business failure statistic?

So what level of financial management is best for your business? The more the better is not always the case – as with most things what counts is quality, not quantity.