Paradigm Shifts in Accounting Technology

Column: Successful Small Business Consulting

From the July 2011 Issue

How the Cloud Disrupts & Revolutionizes Small Business Processes

Regardless of how disruptive new innovations are, they are an inevitable characteristic of our evolving business environment, just as innovation is fundamental to human evolution. And it’s smart business to seize opportunities created by these new innovations.

Twenty-five years ago, it was a revolutionary idea for a small business owner to purchase a computer and software to manage their own bookkeeping records. New products in the 1980s provided freedom for clients and were adopted by millions of businesses.

But new technologies often come with some unintended drawbacks. For example, with the new “distributed” computing model, accountants started to lose control of the general ledger because they could no longer be the gatekeepers of entries to the general ledger. And as client-based accounting software has flourished, tax preparers continue to receive even bigger messes from clients than in the old shoe-box days.

This “bigger messes from clients” issue is a good example of how innovative, technological revolutions present us with useful and productive new tools, but at the same time, they disrupt our tried-and-true business processes, often in ways that seem to produce the opposite results they intend to produce. And these experiences lead many accountants to resist new technologies “until they work the bugs out.”

To add fuel to the fire, we all know that implementing new systems often causes painful organizational changes, forcing everyone to rethink and modify their processes. It means installing new systems, retraining staff, shutting down old systems, and “opting in” to the new ways of working.

In the past few years, a new world has emerged that forces us to rethink our standard ways of working. It’s no surprise that this new world centers on cloud computing and web-based software and services. Of course, some or perhaps many people resist these new innovations, seeing no need for changing systems and processes that “work just fine.” So let’s take a look at just what’s wrong with the old world, and why the new world is so compelling for accountants and small businesses.

Since the rise of personal computers, state-of-the-art technologies have been dominated by desktop, premise-based accounting packages, where clients and accountants purchased their own LANs, desktops and servers. You can see from Figure 1 how the special nature of the accountant/client relationship is not well-served by this architecture.

See Figure 1: The Old World

The key issue is that accountants and clients need to “collaborate” in order to work effectively together. The client has a business in which transactions occur, data is captured, management decisions are made, budgets are set and monitored, etc. But when the accountant needs access to these records in order to provide consulting services, issue financial statements and prepare tax returns, there is a problem.

In the old world, collaboration meant taking copies of the data, or traveling to the client site or remotely logging in to the client’s computers (thereby taking over one of the computers at the client site). All of these options are suboptimal at best, but for sure they are expensive, complex, inefficient and full of security risks.

Today, powerful web-based services have created entirely new ways of thinking about capturing financial data, managing workflow, storing documents, presenting invoices, paying bills, and even how products are ordered and delivered.

In this new world, cloud computing provides the perfect platform for both accountants and clients to “collaboratively” work on the same data at the same time from anywhere in the world. By centralizing the client’s data in the cloud, surrounded by robust security measures (both physical and network security), we can provide clients with the same features and capabilities they used to get from their premise-based systems, and in addition, clients can work collaboratively with their accountant and other consultants to manage their business information.

See Figure 2: The New World

Recently, several tipping points have combined to create a marketplace of robust applications and services that make this new world concept into real solutions we can buy and use. These “tipping points” include the following:

  • Internet Access – We have reached a point where high-speed Internet access is now ubiquitous in the developed world, and in most places we can access the Internet via a broadband cellular connection.
  • SaaS is Here – QuickBooks Online (now with over 250,000 users), NetSuite, Intacct, Bill.com, and a newcomer, Xero, have developed robust SaaS applications that can scale from the smallest to the largest businesses, providing complete accounting systems in the cloud.
  • Collaboration Technologies are Exploding – Facebook, Twitter, LinkedIn, Yammer, Google Apps, Office 365, all have matured and are now mainstream platforms on which people “collaborate.”
  • Online Banking – Nearly every bank in the world now provides online access for customers. Technologies like Yodlee and Intuit’s Digital Insights provide banking and other financial account “feeds” to SaaS applications on the Web.
  • Portals – File sharing portals like ShareFile, Box.net, Dropbox and others provide secure portals for file transfer and “publishing” of information such as financial statements, tax returns, and other sensitive data.
  • Mobile Devices – Cell phones are now a realistic delivery platform for all financial data and services. The operative phrase is, “There’s an app for that.”

In addition to these tipping points, or perhaps because of them, we’re seeing whole paradigm shifts in how small businesses can use technology to change the way they manage their business information. Here is a list of several every-day business processes for which new innovations have dramatically changed how businesses manage information.

See Paradigm chart

If your clients are just beginning to consider these new paradigms, it may not work to suddenly switch all of their business processes to the cloud at the same time. Instead, choose some key business processes such as online banking, online payroll, online bill payments, application hosting, online document management systems, and online backup systems to bring your clients and your firm closer to this new world.

As products and services in this new world mature, and as the Gen X and Y kids become business owners who select professional advisors who embrace these technologies, your success will no longer depend on your ability to learn better tricks for using old world accounting systems, but instead will depend on your agility in using a broad range of new and emerging tools in the new world.

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