Should I use cloud bookkeeping software?

cloud bookkeeping software

I must say, I am just going to express my personal opinion here. And, it is going to be completely different to what everybody else is saying, which is: “You don’t need a cloud bookkeeping software to keep your records in order.”

I will explain.

About four years ago, when we all – business owners and accountants alike – were anxiously anticipating a roll out of the Making Tax Digital reform, smart companies like Xero, QuickBooks, FreeAgent, KashFlow and alike saw it as in incredible business opportunity to acquire new customers. They started “drilling” into our brains that we won’t be able to do without them in a new era of tax digitalisation. And, though I am not going to argue about their undeniable usefulness for larger businesses, which have resources to pay a professional to manage their business records, by this point I feel like I want to shout from the rooftops: “Oh yes you can do without them!” And, if you are a solopreneur managing your business on your own, you could even do better without them.

As an accounting professional, I had to immerse myself into learning the above-mentioned tools to be in a position to help my clients with their digital records. It’s been three years since HMRC requested that all VAT registered businesses with a turnover over £85,000 file their VAT returns using MTD-compatible software, and I would like to share what I have learnt during these years while working with small business owners who decided to upgrade to cloud bookkeeping:

  • Most business owners realise that using the software is not as simple as promised. There is a lot to learn and there is a lot to mess up!
  • Once you have messed up, you have to put up with spending precious time on the phone with customer services or reading online forums, trying to sort out the error or to figure out how to do some specific operation.
  • What many of my solopreneur clients come to realise is that, for the software to be helpful and time-efficient, you have to actually be a trained bookkeeper to know how to keep accounting records correctly while using it. And, though those who build the software try to make it as user-friendly as possible, a certain degree of accounting knowledge is assumed but not mentioned in the marketing messages.
  • Sure, you can “do your taxes” yourself, as the adverts say, but will it be correct? My experience has shown that, on many occasions, no, it won’t be. Wrong VAT codes will be applied, wrong payments will be included in VAT returns, not all available VAT will be claimed, some tax on sales will be omitted and, as a result, tax will be underpaid or overpaid.
  • DIY submissions can unnecessarily draw the attention of the tax authorities.
  • You might pay more in accountancy fees because accountants may actually take longer in the end to analyse your records and put them back to order than before you started using cloud bookkeeping.

Of course, no one wants to feel like a technological dinosaur. We all want to be up-to-date with modern IT tools. But we have to avoid letting ourselves be hypnotised by marketing messages and alluring discounts and instead we want to make choices that make sense to our particular business model rather than follow what is trending.

If you are a solopreneur, my advice would be to keep your records on Excel. Excel has the following advantages over cloud bookkeeping:

  • You don’t need to be a professional bookkeeper to understand how to use it.
  • You have full control and visibility of your records.
  • You don’t need to understand double-entry rules or even know the difference between capital and revenue expenditure.
  • You don’t need to know the names of variable VAT codes; you just need to know the correct percentage.
  • VAT returns prepared in Excel can easily be submitted to HMRC and be MTD-compliant by using a simple and inexpensive bridging solution (bridging software communicates with HMRC, and allows data from your spreadsheets to be transferred to HMRC).

If the main feature attracting you to a cloud bookkeeping software is its ability create professional looking invoices at a press of a button, then I would say that you can find alternative online tools which would give you just that, with invoice status tracking, without any undue complexities and for less money, and some of them are even free.

I would, however, advise you to get an appropriate cloud bookkeeping system in the following circumstances:

  • You sell goods and have to keep an eye on your stock movements.
  • You pay a professional to look after your books on a regular basis.
  • Your business has many moving parts and you want to have access to variable monthly or quarterly management reports which you know how to interpret.

I hope this post will help some of you make the right decision with regards to buying (or not) that cloud-based bookkeeping software subscription that you have been thinking about for a while.

If you want further advice on the topic of this article, you are welcome to get in touch. We can help you decide what’s best for your business and help you set up your records in the most efficient way – be it cloud bookkeeping like QuickBooks, or Excel.