Over the last decade, there has been a revolution in accounting software due to the development and adoption of cloud-based tools with unparalleled automation capabilities. Specifically, in the UK, the use of cloud accounting software has also increased due to the rollout of the government-mandated Making Tax Digital (MTD), forcing companies and individuals to maintain their financial records digitally.
It is crucial that CFOs pick the right accounting software not just to meet the needs of their businesses today but also future-proof their growth ambitions. Getting this wrong can negatively impact companies by creating disruption to recording everyday transactions, company filings, audits, management information, and KPIs.
I. Cloud vs. Desktop
Despite the wider use of cloud accounting software, there are still many desktop-based packages on the market. Cloud accounting software has numerous benefits over desktop. These include accessing up-to-date financial information from anywhere, providing users have access to a device (laptop, tablet, and mobile, etc.) that has internet capabilities. This easy access is speeding up finance workflows, with users being able to complete many tasks (i.e., raise invoices and reconcile bank transactions) while on the move with mobile devices.
Cloud accounting software also makes collaboration easy, with multiple users being able to view the same set of financial data at once. This is particularly useful as remote working has become the new normal, meaning that it is becoming increasingly rare for finance teams to get together in person.
Another benefit cloud accounting software has over its desktop counterparts is that individuals always use the latest version without the need to purchase expensive upgrades that need to be installed and can result in business disruption.
II. Bank feeds
Using accounting software which imports bank feeds can be a significant productivity boost for CFOs and their teams. Entering bank transactions manually or manipulating and importing downloaded CSV files into accounting software is time-consuming and creates the risk of human error. This can lead to inaccurate management information being produced, which can impair the ability of CFOs to make commercial and strategic decisions. Even if mistakes are spotted at month-end, manually correcting them creates additional work and pressure during a particularly time-sensitive period.
Incorporating accounting software that directly imports bank feeds reduces the risk of errors and is more efficient by speeding up accounts production. This allows finance teams to spend time on more value-adding tasks such as data analysis and setting and measuring KPIs.
Open Banking feeds, introduced in 2021 off the back of regulatory changes, are the gold standard in bank feeds as they are the most secure way for businesses to pull in their banking data to accounting software directly. However, they are only available for CMA9 banks, the nine largest banks in the UK. Alternatively, many other banks provide direct integrations, which have a similar level of security. If official direct bank feeds are not available from certain providers, it is possible to use third-party tools to pull in transactions. However, in these circumstances, CFOs should be cautious of associated security risks from doing so.
III. Next-level automation
Wherever possible, automation features of accounting software should be leveraged to enhance the productivity of finance departments by producing accurate data speedily.
Many process-led accounting tasks can now be undertaken automatically by core accounting software, rather than individuals completing them manually. Common examples include fixed asset postings and recurring monthly journals.
Software providers, such as Quickbooks and Xero, allow CFOs to effortlessly maintain fixed asset registers, with the ability to log assets, set their depreciation policy, and then set up recurring journals to post until assets are fully written off. Additionally, examples of recurring monthly journals which can be automated include releasing prepayments for annual contracts so they are smoothed out over their respective periods. This can save significant time and stress at month-end. Manual prepayments adjustments and reconciliation schedules are time-consuming, and differences often occur from manual entries due to users being fat fingered and incorrectly entering values in accounting software.
Automation features related to bank reconciliations can save significant time on a day-to-day basis and reduce the likelihood of duplicate payments to suppliers. Bank reconciliations can be significantly sped up by setting up rules to automatically post transactions with specific keywords to the relevant category, with the appropriate VAT rate applied. Examples include bank transactions with the words “Transport for London,” “Uber,” and “taxi” being taken automatically to the travel category, with no VAT being applied. Another time-saving benefit is bank lines being automatically matched to invoices by recognising their supplier name and same value.
IV. Third-party apps
Many leading cloud accounting providers integrate with third-party software tools through their own marketplaces. These tools further enhance automation and fill in features core vendors don’t already offer. The selection of vendors on these marketplaces integrate with core accounting software securely and easily via their API, making it possible for data to transfer seamlessly across the two different packages.
This also gives CFOs the ability to build their own app stacks bespoke to the needs and nuances of their businesses. For example, this could be based on their sector or whether their company sells physical goods or SAAS.
Leading categories in these app marketplaces include inventory management (Unleashed), cash flow forecasting (Futrli, Fluidly,), payment tools (Stripe, GoCardless, and Square), and expense and receipt management (Payhawk).
Expense and receipt management apps add an extra layer of automation, using OCR technology to extract data from invoices and receipts. Most documents are processed in just a few seconds. This benefits both finance teams and general company employees. Employees can use prepaid debit cards to make business purchases without being out of pocket and only have to make minimal interventions to ensure that their data has been accurately recorded on expense reports. Finance teams can also leverage advantages from receiving timely and accurate expense report data, which can then be easily transferred into accounting software without needing to reimburse staff.
V. MTD Capability
The government-mandated MTD initiative, which requires businesses to keep digital accounting records and submit their tax filings online to HMRC, was first rolled out from April 2019 for VAT registered businesses above the VAT threshold (£85,000).
All VAT-registered businesses will have to comply with MTD from April 2022, with MTD for corporation tax set to be introduced from 2026.
While there are workarounds, such as bridging software that connects spreadsheet data to HMRC’s portal, this can create more work for CFOs and simply delays the inevitable switch to MTD software.
A complete list of MTD compatible software vendors is detailed on the Gov.uk website.
VI. Consolidation capabilities
Growing businesses are likely to incorporate and purchase additional companies for various reasons related to corporate structuring, hiving off specific activities (i.e., R&D), and entering new international markets.
This creates the need to consolidate financial information at a group level to understand business performance fully.
CFOs leading companies who fall into this category should consider utilising accounting software that can consolidate this data across all companies. Surprisingly many groups still consolidate manually in Excel at month-end. This is hugely inefficient and time-consuming. Additionally, this makes it easy to generate mistakes related to currency conversion and intercompany transfers.
Using core accounting software that can consolidate at group level minimises the chance of errors due to automated reporting, alongside applying consistent accounting treatment for how specific categories of transactions (i.e., unreleased gains/losses) are recognised across all companies.
While a number of large leading accounting providers (Netsuite, Oracle, and Sage) allow for consolidation directly into their software, many cloud vendors aimed at the smaller end of the market (i.e., Xero and Quickbooks) do not allow for intercompany consolidations. In these instances, it is possible to use third-party add ons, such as Spotlight Reporting and Fathom, which pull data from core cloud software to create group consolidations.
The development of core accounting software and add-on apps are allowing CFOs to receive close to real time data, powered by automation. CFOs should take the time to understand day to day financial processes to pick software which can mimic as many of these processes so that wherever possible data does not have to be manually adjusted for in core software or spreadsheets.
Being able to access accurate and timely financial data will allow them to be agile and make strategic recommendations to increase the revenues and profitability of their companies.
Many tools are intuitive and easy enough to use with only minimal training but CFOs may wish to include key internal stakeholders who are involved in day to day financial tasks (such as running payables) to also take on board their input.