It’s a great boon. It improves decision-making. It makes life easier. So how does it cause problems?
What it is
An integrated set of books that will produce good quality management reports to help you run your business, and to help your accountant get your books done on time and more cost effectively. The days of writing in books, or Excel spreadsheets, are rapidly coming to a close. So what’s not to like?
What it isn’t
It doesn’t give you the underlying knowledge of bookkeeping. Even if you go on a Sage or QuickBooks course, it teaches you how to run the program, and what common things happen day to day. But it doesn’t tell you what things mean, so it is easy enough to misallocate things.
And crucially, it can feel a bit misleading. It’s great to get a bank feed, download all your transactions so you don’t have to enter them, and the computer, after a while, knows pretty much where things should go. It’s called matching in one system, and reconciling in another. The term reconciling is misleading. It isin fact matching – it is not reconciling your bank account. The bank feed may not be complete or may duplicate items.
What you have to do
You have to – absolutely have to – compare your records to the bank statements and do a formal reconciliation so that you know everything is included. Otherwise your VAT may be wrong, your accounts will be wrong, and you may make poor choices.
For example, if you make mistakes through not understanding the underlying logic, you can post things which should be an expense to the balance sheet, lulling yourself into a false sense of security that you have made far more profits than you really have. It still balances. It’s just nonsense.
We’ve seen computerised accounts set up by accountants where they post three quarters of the wages to the profit and loss account as an expense, and one quarter to the balance sheet. When we find this months later, it takes a bit of unpicking and explaining it so that it doesn’t happen again. We are happy to do this, because we want our clients’ books to be right and for them to make better decisions. It saves us both in the long run.
So, buyer beware. Whilst it does what it says on the tin, you do need to put some time into understanding what it all means. You should anyway – it’s your business after all.
Cloud accounting – make the move now
We are all moving to the cloud, sooner or later. Which means by 2018. Trust us on this. HMRC’s consultation on Making Tax Digital says so. Consultation means -they tell us things, we do them. This also means that there will be a report – not a full set of accounts or tax return – every quarter digitally to HMRC.
Which means cloud accounting or a workaround with additional cost and time. Start planning the move now. Don’t wait until 2018 when you adopt a new system and start to make nonsense returns to HMRC. Start soon. Learn it before you start reporting to HMRC.
We are doing this with our clients every month. We should have them all moved within a year. We’re getting quite good at this now – whether moving from a desktop solution like QuickBooks or Sage to QuickBooks online or Xero, or moving between the cloud accounting packages, or even from Excel to the cloud – we’ve done them all. We can help you too.
The good news is that it is easier to correct mistakes, and easier to train the software to put things in the right place afterwards. It’s also quicker and cheaper to do the bookkeeping, most of which you can do as you go if you want to, and it makes the year end easier and even more cost-effective, and with better reporting and so better decision-making opportunities. So whilst we may complain that HMRC are driving this agenda, we think it’s a good agenda for you.