Chapter 5

Choosing the Right Tool for the Job

In This Chapter

Understanding what the cloud is all about

Sizing up the main players

Putting software through its paces with some curly questions

Implementing a new accounting system with minimum pain, maximum gain

Ensuring your precious accounting data is safe

At some point when you’re learning how to drive, you’re going to have to choose a car. In the same way, when you’re figuring out how to do your books, sooner or later you’re going to have to decide what software you’re going to use.

In this chapter, I explain the distinction between regular desktop-based accounting software where you store data on your local computer, desktop-based accounting software where you store data in the cloud, and browser-based accounting software where you work entirely online.

I explain the pros and cons of working in the cloud, and how being able to work online and access accounts remotely offers a whole new way of working. I also provide an overview of all mainstream accounting software available in Australia and New Zealand. As a bookkeeper, you may be asked by clients what software to recommend, and it pays to be aware of the choices that exist.

Last, I explain how to make sure you choose software that matches the job in hand, how to get your accounting system up and running, and how to look after your accounting data.

Deciding Whether to Head for the Clouds

Some enthusiasts say that the arrival of cloud accounting is causing a revolution in the bookkeeping industry. To me, the word ‘revolution’ comes across as a bit strong, but I agree that the industry is changing fast, and that part of the reason for this change is certainly the cloud.

So what’s the big deal about the cloud and cloud accounting? Put simply, the cloud means a remote computer or network of computers where you can save and view data, and which you access via the internet. (Nothing at all to do with trumpet-bearing cherubs.) Cloud accounting means that your accounts no longer live on a desktop computer or server in your office, but that instead you store your accounts in the cloud, and you work on your accounts in the cloud.

Note that I make a distinction in this chapter between the three broad categories of accounting software:

• Browser-based software, where you do all your accounting via the internet using a regular browser such as Internet Explorer, Firefox or Safari. MYOB Essentials, QuickBooks Online and Xero are examples of browser-based cloud accounting.
• Desktop-based accounting software where you store your accounting data on your computer. MYOB AccountRight Classic and Reckon Accounts are two examples.
• Desktop-based accounting software where you store data in the cloud. MYOB AccountRight Live is an example, where you install the software application on your computer, but store your accounting data in the cloud.

Although I talk about the specific disadvantages and advantages of cloud accounting in this chapter, do bear in mind that cloud technology is only one factor when choosing what software is going to work well for a business. Depth of features, local support and ease of use are all other very important considerations.

Why cloud accounting is such a big deal

You may be wondering why people are so hyped about bookkeeping in the cloud. After all, storing one’s confidential financial information in some remote (and unknown) location via the internet may seem a rather risky strategy. Not so. Here are just some of the reasons people are making the change:

• You can access your data from wherever and whenever. No matter whether you’re sailing your new yacht (if only), on the road selling to customers or stuck on a train, working in the cloud means that you can always access your accounts, wherever you are (so long as you have an internet connection, of course).
• You can save heaps of time. Bank feeds combined with bank rules mean that you can reduce time spent doing data entry. (Note: Bank feeds and bank rules are the norm for most cloud accounting software, but not all. In addition, although cloud-accounting software such as Xero sets a precedent for the elegant use of bank feeds and bank rules, most desktop-based accounting software is catching up quickly and now offers these features.) I talk more about bank feeds in Chapters 7, 8 and 10.
• Your data is more secure. Most cloud software providers invest far more into their data security than any business will on their own.
• Working with your accountant is much easier. Instead of having to make a copy of your company file and sending this to your accountant each time you want your accountant to check your accounts, you simply set up a separate user ID for your accountant so that they can log in and view your data at any time.
• You have fewer upgrade hassles. With browser-based software, upgrades happen automatically and more frequently.
• More than one person can work on your accounts at one time. Most browser-based software allows more than one person to work simultaneously on your accounts at one time. In other words, a sales agent can be raising an invoice while they’re out in the field at the same time as the bookkeeper is processing pay transactions, and at the same time as the manager is viewing reports. While this feature isn’t unique to cloud accounting, the multi-user version of most desktop-based products are almost always more expensive than single-user versions.
• Upfront costs are lower. Instead of paying outright to purchase a bit of software, you pay a monthly or annual subscription. (Another term for cloud software is software as a service or SAAS for short.)

Sounds sweet as a nut? For sure. However, I can still think of a few reasons you may choose to keep your head out of the clouds. Read on …

Why cloud accounting doesn’t always fit the bill

When clients or friends ask me whether they should shift their accounts to the cloud, I generally say ‘yes’. Yes, unless any one of following three things applies:

• Slow or unreliable internet access: If your connection to the internet is slow or drops out frequently, storing your accounts in the clouds is going to do nothing but cause grief.
• A need for speed: What’s fast and what’s not can be somewhat subjective, but if you have more than 30 or so transactions per day, you may find that browser-based software becomes a tortoise-like experience. (You’ll notice speed problems particularly when editing transactions or viewing reports.) Of course, just how much speed you lose by working in the cloud depends on the software you choose (some software is much faster than others).
• Specific requirements for advanced features: At the time of writing, more advanced features such as comprehensive payroll, sophisticated inventory management or foreign currency are either very limited or unavailable in browser-based software, or are only available as add-on products. I’m not saying that you can’t get any of these features if you shift to the cloud — you can — but before switching to the cloud, you need to test the extent of any advanced features thoroughly.

Accessing your accounts when the internet goes down

One very real concern regarding cloud accounting is what happens if the internet goes down. With most cloud accounting products, the cold truth of the matter is that if you can’t access the internet, you can’t view or work on your accounts. Worse still, most cloud accounting products don’t allow you to copy your accounts onto your own machine.

Does not being able to access accounts because the internet is down sound drastic? Yes and no. On the one hand, if you don’t have reliable internet access, this precarious access to your own accounts is going to be a deal-breaker — cloud accounting simply isn’t going to work for you. On the other hand, I don’t believe the occasional glitch is a problem.

I live outside the city and we get blackouts once every couple of months or so, and these blackouts tend to last an hour or two. In practice, I haven’t found lack of access to my accounts during these times to be a problem. Indeed, most of my business activities (not just doing my books) are dependent on email access and the internet, and I find that in the event of a blackout, doing my books is usually the least of my priorities.

MYOB have come up with a good solution to this problem with their AccountRight Live product. With AccountRight Live, while you work in the cloud most of the time, you can opt to maintain a synchronised copy of your data on your local machine. This means that if the internet does go down, you can still access your accounts. I talk more about this feature later in this chapter (see ‘Muscling up with MYOB’).

Rounding up the Main Players

Three players dominate the accounting software market in both Australia and New Zealand: MYOB, Reckon (formerly known as QuickBooks) and Xero. All three products are excellent, respected worldwide and offer good local support. (Also one to watch is QuickBooks Online, a relative newcomer at the time of writing, but likely to be a big player.)

I readily own up to having a vested interest in both MYOB and QuickBooks. A true glutton for punishment, I’m the author of MYOB Software For Dummies and QuickBooks For Dummies. However, I also own up to using Xero to run the accounts for my holiday house business. On a reassuring note, I try to be free of bias when talking about accounting software, and I hope that I succeed.

The market gets much more fragmented for accounting software catering to medium-sized or larger businesses, and includes products such as Attaché, Jiwa, MYOB EXO, Microsoft Dynamics, NetSuite, Sage and SAP. I don’t spend time describing these products in this chapter, because I reckon that if the job of choosing accounting software is falling on your shoulders as a bookkeeper, you’re probably working for a smaller-sized business. That’s why I focus on MYOB, QuickBooks Online, Reckon and Xero in the next few pages.

Muscling up with MYOB

Although MYOB has dominated the Australian and New Zealand accounting software markets for at least a decade, this supremacy has weakened in the last few years, partly due to the arrival of Xero. Nonetheless, MYOB is still the market leader and offers an impressive range of products. For small- to medium-sized businesses, MYOB offers three quite different solutions:

• Browser-based software: MYOB Essentials is MYOB’s online browser-based accounting solution and includes invoicing, expense management, payroll, BAS reporting and a few other things besides.
• Desktop-based software that you can either install on your desktop or store ‘live’ in the cloud (available as a subscription only): AccountRight Live (available for PCs only) comes in three flavours (Basics, Standard and Plus). One clever element of AccountRight Live is that you can store this company file on your local machine as well as in the cloud. If you choose to work in this way, the cloud copy of your data updates your local copy with any new transactions every 30 seconds or so, meaning you always have an up-to-date copy of your data in both locations.
• Desktop-based software where you store data on your own computer, not in the cloud. At the slightly higher end of things, AccountRight Premier (for PCs only) offers multi-user capability and advanced inventory. AccountEdge is MYOB’s Mac solution and comes in three flavours (Basic, Pro and Network).

Arguably, AccountRight Live straddles the worlds of browser-based accounting and desktop accounting in a very creative way. You get the benefits of cloud accounting, including easy access from any location or device, the ability to have multiple users and constant backup of your data. However, you also get many of the benefits of desktop accounting, including the fast data entry of transactions, the ability to create archival copies of your data and access to your accounts if the internet goes down.

With AccountRight Live, the copy that lives locally is a read-only one, so you can’t get a situation where someone accidentally works on the cloud copy of a file while another person works on a local copy. If a business decides, for whatever reason, that they don’t want their data to live in the cloud anymore, they can switch back from the cloud to a local copy.

Playing it straight with Reckon and QuickBooks

A quick history lesson: QuickBooks (the world’s most popular accounting software) is owned by Intuit. For many years, Intuit gave an Australian company called Reckon the licence to adapt QuickBooks and sell this software to the Australian and New Zealand markets. In 2013, Intuit terminated this agreement, but Reckon kept hold of the rights to sell and service their product, so long as they didn’t call it QuickBooks anymore. At the same time, Intuit released QuickBooks Online into the Australian market.

So what we have now is three entirely different products:

• QuickBooks Online: QuickBooks Online (distributed by Intuit) is an online browser-based accounting solution that includes invoicing, expense management, basic payroll, BAS (or GST) reporting and a few other things besides. At the time of writing, QuickBooks Online has been launched in Australia, but not New Zealand.
• Reckon Accounts: Reckon Accounts is the Australian and NZ version of QuickBooks as it was in 2013. The only difference is a new name, a new colour scheme, and a few new features. Reckon Accounts is desktop-based software that you install on your PC and comes in three flavours (EasyStart, Accounting and AccountsPlus). Bank feeds and transaction rules have yet to make it into this software.
• Reckon One: Reckon One is Reckon’s new online browser-based solution. Reckon One’s point of difference is pricing (the core product is super cheap) and the way you can mix and match different features, only paying for what you use.

At the time of writing, both QuickBooks Online and Reckon One are very new in the Australian marketplace, and so I can’t say much about either one. However, the US version of QuickBooks Online has been around for many years, and is a very popular, stable product.

Having fun with Xero

Xero is a relative upstart in the accounting software market, but is growing very rapidly. Xero is a browser-based accounting solution; the general look and feel of this product is modern, super-smart and super-cool.

Xero’s core offering includes sales, bills and a simple payroll, with automatic superannuation reporting and multi-currency as optional extras. The monthly payment plans vary depending on how many transactions you make each month, but range from $25 to $90 per month. Xero is also available for accountants, with additional reporting and tax tools.

Although Xero’s core product is pretty limited, particularly in regards to inventory, literally hundreds of add-on products are available that integrate with Xero. Just bear in mind that these products all involve additional monthly fees, and that some of these products are better than others, so you will have do your own research.

I like the upbeat feeling of Xero (see Figure 5-1), and the way Xero has pioneered certain features and given the big guys in town a run for their money. I also like the fact that whatever Xero does, it tends to do well, which is more than could be said for some of the early cloud offerings from MYOB and Reckon. I enthusiastically recommend Xero to many start-up businesses and smaller business.

My main beef with Xero is that it can be a tad slow, particularly if you’re reviewing a whole heap of transactions, running different reports, or fixing up a bunch of mistakes. Xero can also be relatively expensive when compared to other options, particularly if you end up subscribing to an add-on product as well as a core product.

Matching Software to the Job in Hand

When choosing what software is going to work best, remember to work through what features you really need, and tick them off one by one. When you’re putting accounting software through its paces, don’t focus too much on all the standard stuff such as entering transactions, reconciling the bank accounts or generating a Profit & Loss report. Instead, fix your beady eye on all the flash points most likely to give you (or the business that you’re working for) grief.

Starting up a new business

Just getting started? Then the software you choose needs to be affordable, simple to understand and flexible.

If you have access to a decent internet connection, I suggest you go with a cloud-based solution. This way, you get the flexibility and mobility of the cloud, along with the speed and ease offered by bank feeds and bank rules. AccountRight Live, MYOB Essentials, Reckon One, QuickBooks Online and Xero are all possible contenders.

If Apple Macs are your thing, your options are a little more limited, but MYOB Essentials, QuickBooks Online and Xero are all possible options. You may be best to chat to your accountant and see what they recommend.

Getting ready to grow

If your business is growing, the list of possible bookkeeping dance partners gets even longer. However, here are a few pointers to look out for:

• Payroll: The moment you have employees, you’ll want to have payroll features. Just be aware that pricing plans for accounting software really vary when it comes to payroll — some plans include payroll in the core product, others charge significantly more per month.
• Find out about support: Can you get local support and training? How many consultants nationwide support this product? If you live in the bush, find out what the local support consists of, and which product is supported best in your region.
• Customer relationships: Do you want to track prospects and customer activity and automate communications based on customer buying patterns? Then look for customer relationship management (CRM) features. Focus on the ability to connect with other software applications, management reporting, remote access for salespeople in the field and email-based marketing.

Making stuff and buying stuff

Inventory is one of those features that separates the wheat from the chaff. Check out the following:

• Complex inventory: If you’re a manufacturer, wholesaler or retailer, concentrate on the trickiest aspects of managing inventory in your business. Focus on backorder management, bills of material management, matrix pricing features, multiple warehouses, negative stock features and re-order reports.
• Foreign currency: Do you import or export in foreign currency? Even if a product purports to include foreign currency features, test and try before you buy. Look for the ability to calculate gain or loss on foreign exchange transactions, check out the reporting features and make sure the product can manage multiple currencies and multiple bank accounts.
• Job costing: If your business does many jobs, and each one is unique, then sophisticated job costing features are probably the name of the game. But beware: Job costing is a real weakness with many products. If you need to cost labour into product manufacture, generate salesperson reports or report on jobs that span financial years, double-check the software can do these tasks.

If you can, you’re usually best to look for a single product that can meet all your bookkeeping and inventory management needs, rather than buying or subscribing to two different products. In my opinion, ‘seamless integration’ is akin to a ‘perfect marriage’ — flawless communication and synergy is hard to achieve.

Catering for bigger business or non-profits

With bigger business, speed comes into play as a much bigger issue. If you’re recording more than 20 or 30 transactions per day, you want to look for a solution that can crank along, super-fast.

At the time of writing, my feeling is that none of the browser-based solutions run quite fast enough, nor offer a large enough range of reports. I’d probably still stick with the desktop-based MYOB AccountRight Premier or Reckon Accounts Plus. (MYOB AccountRight Live Plus would also be an option if you don’t need multi-currency.)

In regards to non-profit organisations, two of the dominant issues are cost centre reporting and budgeting. If you want to be able to store your data in the cloud, MYOB AccountRight Live Plus is probably your best bet, so long as you have fast internet access and reasonably new computers. Xero is a possible contender, but the limited job features and reporting could be an issue. Alternatively, if you’re okay with a desktop solution, Reckon Accounts Plus is another good option, and offers even better reporting features if you need to report for cost centres within cost centres.

Setting Up Accounting Software

The process of getting accounting software up and running can be pretty daunting. So it pays to have a plan of action and get organised.

In the next couple of pages I outline a step-by-step strategy for transforming your accounting software into a dream partner that does what it’s told, is reliable and punctual, and never snores at night.

Preparing for battle

I’ve done literally hundreds of accounting software set-ups over the years, taking anything from 30 minutes for a simple service business to several days for a complex manufacturing business with 25 employees.

If you’re implementing accounting software into a simple service business, preparing to go live isn’t a big deal. You can simply install software at any time, pick a start date (which can be either a date that’s past or a date that’s some weeks ahead), and get going.

If you’re implementing accounting software into a more complex business, with customer accounts, inventory or payroll, then the planning process becomes more important. I like to set a date that’s some distance in the future and plan towards that, doing things like organising customer and supplier lists and the chart of accounts well in advance. Here’s a step-by-step guide to help you prepare in advance:

1. Decide on a start date.

   Here’s something I learned the hard way: The very best time of year to start off with accounting software is the beginning of the financial year (1 July for most Aussie businesses, and 1 April for most Kiwi businesses). Even if you’re a few months after this date by the time you’re reading this book, you’re probably still best to buy accounting software now, and to go back and enter your accounts from the first day of your financial year onwards.

   Why? If you start on the first day of a new financial year, the transition from your old accounting system to your new one is a cinch, because your accountant always finalises your tax at the end of each year. You also avoid the situation where you have one set of books for part of the year and another set of books for the rest of the year, making it hard for you or your accountant to piece the whole story together.

2. Install your accounting software (if required).

   Over to you. This nerdy stuff varies depending what software you use. Of course, if you’re using browser-based software, you don’t need to install a thing. Simply sign up and hand over your credit card details.

3. Work your way through the start-up interview.

   Most accounting software offers some kind of start-up interview, with pretty simple questions such as the business name, phone numbers, legal structure and so on. Follow your nose and do your best.

   Take special care to enter the correct start date and year-end date when going through the interview. For some accounting software, this information can’t be changed once set.

4. Customise your chart of accounts.

   I always recommend tweaking the chart of accounts, adding accounts, changing account names or deleting accounts that you don’t need. I explain all about this process in Chapter 2.

5. Create listings for customers, suppliers and items.

   If you already have lists sitting elsewhere on your computer (for example, maybe you have a detailed customer listing sitting in Excel), I suggest you try to import this information rather than typing it all again from scratch.

6. Customise templates for invoices, customer statements and purchase orders.

   Most accounting software allows you to customise your business forms to generate personalised invoices, customer statements and so on. You may also need to customise pay advices, remittance advices and receipts.

7. Think about how you intend to record everyday transactions, such as payments, deposits, sales and payments.

   Unless you’re already experienced with accounting software, make life easier for yourself by hiring a consultant to help get you started. Although training fees can be expensive, your money will be well spent.

Firing live on D-Day

Okay, so I’m assuming that you’ve already set up things like customer lists, accounts lists and templates (if not, refer to the preceding section). You’ve arrived at ‘D-Day’: The date where the new accounting system is due to go live.

What happens next? Work through the following:

1. Enter opening balances for customers and suppliers.

   If you plan to use your accounting software for invoicing and you have customers who owed money as of your start date, you need to set up opening balances for each one. The same deal applies if you want your accounting software to keep track of supplier bills — specify how much was owed to each supplier at your start date.

   Of course, if your business is new and you’ve yet to make a sale or a purchase, you don’t have to worry about this step.

2. If you have employees, set up payroll.

   If you’re going to use payroll, you’re best to do so from the very beginning of the payroll year (July in Australia, April in New Zealand). Setting up payroll can be hideously technical and time consuming, so if you’re running short of time, get some help from a consultant. (Chapter 9 covers payroll in depth.)

3. If you have inventory, set up stock on hand.

   If you want the accounting software to keep tabs on stock levels, you need to enter opening counts and cost prices for each stock item. Chapter 12 focuses more on this delightful topic.

4. Start entering transactions!

   Every business is different, but I tend to start with customer invoicing (if there’s no sales, there’s no dosh) and customer payments, and then I move on to payroll transactions. After that, I move on to record purchases and supplier payments.

When you’re getting started, don’t feel you have to get everything up and running at once. Depending on the business, sometimes doing things incrementally makes sense. For example, I may start by setting up sales and inventory. Later I implement payroll and, later still, I train my clients in electronic payments and automatic remittances. I can’t give a hard-and-fast rule as to what to do first, but do be careful not to bite off more than you can chew.

Mopping up when the dust has settled

After a few weeks of entering transactions, you’re ready for the finishing touches:

1. Reconcile your bank account.

   As soon as you have a couple of weeks’ worth of transactions, figure out how to reconcile the business bank account (and credit card accounts also, if relevant). Not sure how? Then mosey on over to Chapter 10.

2. Put formal end-of-month or end-of-quarter procedures into place.

   All this effort isn’t worth a brass razoo unless you put procedures in place that help you double-check your work. Chapter 14 is all about health-check routines that keep your accounts in top shape.

3. Enter opening balances for all asset, liability and equity accounts.

   If you’re starting a new business, you don’t have to worry about opening balances. However, if you’re setting up a new bookkeeping system for a business that’s already been running for a while, you need to enter opening balances.

   You can’t enter opening balances until the accountant has finished last year’s accounts, so you may be waiting several weeks, if not months, before this info is available. In the meantime, enter the balances that you know are correct, such as your bank balance, debtors, creditors and GST. The other balances can be added later.

4. Review the state of play.

   After a few months have passed, review the state of play. Is the accounting system working as well as it could? Do you get all the reports you need? If not, go back to the consultant who helped you set up the software, or contact the support services for the accounting software, and ask for help to ensure the system is as good as it possibly can be.

Protecting Your Accounting Data

As time trickles by, you end up with an enormous amount of critical business information stored in your company accounts. Part of your job as a bookkeeper is to ensure that this information is secure. Consider the following:

• If you’re working in the cloud, all of your accounting data is backed up automatically. Companies such as MYOB or Xero take data management super seriously, and ensure that any customer data is mirrored in multiple locations around the world. However, you still need to decide whether you want to copy some of this data so that you can access it when offline or if you ever de-subscribe. See the next section in this chapter for more details.
• If you work on a desktop-based system and store your data on a local machine or on your business server, you need to have a backup system in place. See ‘Devising a backup strategy’, later in this chapter, for more details.

Backing up data from the cloud

I mention earlier that when you work in the cloud, your accounting data is automatically backed up in multiple locations. However, I can think of three key situations in which you may want to have a copy of your data:

• If you know you’re going to be offline: If you work on a browser-based system such as MYOB Essentials or Xero, it’s not possible to make a complete backup of your accounts and then open this backup when you’re offline (for example, if you’re on a long flight or going somewhere without internet access). However, if you know ahead of time that you’re going to be out of range, you can export data from Xero into an Excel or PDF file. This means that you can still look up information such as customer details or customer sales history.
• If you want to keep a record of your accounts at a particular point in time: A point-in-time backup provides a copy of your accounts at a specific point in time, and is particularly useful if you plan to make major changes in your accounting data. For example, a point-in-time backup is handy at the end of financial year as a final record of your transactions, or if you plan to make a big change in your file and you’re worried something could go wrong (maybe you plan to import new customers, suppliers or items). Unfortunately, I’m not aware of any browser-based systems that allow for point-in-time backups. At the time of writing, the only cloud-based system that allows for creating this kind of backup is AccountRight Live.
• If you close your business or decide to shift to another system: The other time backing up cloud-based data becomes an issue is if you decide to unsubscribe from a browser-based service. With MYOB Essentials or Xero, for example, once you unsubscribe you can’t view your data. In this situation, your best solution is usually just to export the data from as many reports as possible and save this data in Excel. Or, in the event of an audit, remember that these companies are obliged to retain your data for seven years and if you need to see your data at any point during this time, you can temporarily renew your subscription.

Devising a backup strategy

If you store your accounting software on your laptop, home computer or office server, your accounting data is probably the single most important file to back up in your business. Why? Because all your financial information ends up sitting in one single file, building up and up throughout the financial year until it contains a massive amount of information.

(In case you’re wondering, a backup is when you make an extra copy of the stuff on your computer and then store the copy elsewhere, preferably well away from your computer. The idea is that should something dreadful happen to your computer, such as a fire, theft or data corruption, your vital accounting information isn’t lost.)

If you want to do your job well as a bookkeeper, you must aim to:

• Back up your accounting data every time you work, using a removable backup device such as a flash drive, CD or removable hard drive. Alternatively, make a copy of your accounting data online, in the cloud, using a service such as Dropbox or OneDrive.
• Ensure that someone takes these backups off-site, away from the office, so that if the office burns down or the computers are stolen, the accounting data is not lost.

Although you, as bookkeeper, are probably most focused on backing up accounting data, remember that a business needs to have a backup solution for all data, including documents, emails and photographs. When deciding how to back up your accounting data, consider what other backup systems are already in place — or need to be put into place — for other business data.