Digital transformation has accelerated rapidly over the past 12 months and now, more than ever, we have technology at our fingertips in an unprecedented way. We’ve seen first hand how these tools and resources can save us time and money whilst providing data at the click of a button. But is that the full story?
Cloud accounting software is increasing in popularity, and as the first practitioner of the Xero platform in Northern Ireland we understand the benefits of cloud accounting more than most. However, that also makes us more acutely aware of the issues that can arise when these technologies are not used or implemented correctly.
Is it possible that some of those tools, when not used properly, can actually create damage rather than add value? The short answer is yes, particularly if you are inexperienced or rely entirely on the software to do the accountancy work for you.
In this week’s blog Kieran Phelan, Founder of Cloud 360 Accounting, explores why doing your own bookkeeping or solely depending on Xero or similar tools to dictate your company’s financial plan can negatively impact your business. He distils down the top three reasons on why you should avoid undertaking your own bookkeeping via these tools. Read on to discover Kieran’s advice on what you can and should do to mitigate against a potential digital disaster that will cost you not only time and effort, but money.
3 Reasons to Avoid Doing Your Own Bookkeeping on Xero
You’re not a bookkeeper and you WILL make mistakes
There really is a lot more to cloud accounting than just clicking buttons and using the in-built automation tools. When processing supplier bills and receipts, sales invoices, payment processing and bank feed data (to name just a few) you must know what you’re doing at each step and why you’re doing it.
Here at Cloud 360 Accounting, we are upfront and honest with clients and especially with new clients who come to work with us for our Xero expertise. If you’re not a qualified bookkeeper or you have no finance experience, then we don’t offer Xero training.
Training and using Xero or learning how to process data is relatively simple and straightforward. However, this is only one part of the overall picture. Teaching you how to decide if you can claim VAT or not, which code or category to use, what is an acceptable receipt and what isn’t – those are all bookkeeping skills.
Allowing the tech to dictate things for you is a recipe for disaster. If you claim expenses based on inaccurate entries or insufficient paperwork this can lead to extra tax and penalties from HMRC.
You should be focused on higher value tasks and NOT getting bogged down in financial admin
The temptation is that you decide to do your own bookkeeping to save a few pounds, especially when starting out. The usual statements reoccur such as, “Hey, how hard can it be anyway?”, “It won’t take long to do” or “Such and such *insert as appropriate – family member / friend of a friend / random LinkedIn connection* says everyone does it themselves.”
Ask yourself this question – did you start your business to become an unpaid bookkeeper or for something else? Chances are your passion does not lie in bookkeeping. The fact is that you should be spending your time on securing and retaining customers. You should be spending time mapping out and building your business systems and processes, so that you can easily delegate tasks and functions to others when you start to hire staff.
In terms of affordability, a good bookkeeper will pay for themselves. Once upon a time, we were asked by a new client to help them review their VAT returns which were being done on Excel spreadsheets. When we implemented our VAT return process to their business, we identified over £1,200 of VAT savings for the client. This doubled the return on their investment on our review. The client happily handed over their quarterly VAT returns to us so that they never pay more VAT than they need to ever again.
Inaccurate data is an iceberg to your Titanic
Let’s say you’ve decided to do your own bookkeeping and you feel like you’re getting along nicely. Every week you dedicate a couple of hours to processing everything on Xero. Bank reconciliations are fully cleared down. Job done. Until your accountant takes a look at your data, here’s how this horror story is likely to unfold…
You’ve claimed VAT on personal bills but only because, ‘computer said yes’. You didn’t know you had to change a setting somewhere to avoid that.
You’ve also coded lots of payments on your bank feed to the wrong codes, all because you were using a ‘bank rule’ on Xero – but you got it wrong at the start so now ALL the data is in the wrong place. Things have been duplicated because there are a few issues with the automatic bank feed technology and you don’t have a double-check process in place. You relied totally on the tech and somewhere during the year it has gone astray.
Your supplier balances are all wrong. You didn’t realise your statements should be cross-checked to make sure nothing is missing or data misallocated.
Your accountant tells you two things. Firstly, there will be a data correction job needed and this costs £X. Secondly, your business isn’t making a profit and it has actually lost money and you need to make changes fast to turn things around. This is one of the biggest reasons to appoint a cloud accounting expert to handle your business finance function. Gain peace of mind alongside up-to-date and accurate data from the get go.
Overall, you need to think about why you started your business and what your objectives are. Next, decide who you should be working with to help fulfil those objectives and who should be running the departments of your business – sales, marketing, operations and finance.
Focus on your strengths and invest in a cloud bookkeeping expert early on.
Don’t forget that the power of any decision is directly related to its speed of implementation. If you want to make decisions fast, you need information at your fingertips whilst being accurate and reliable.
Talk to us now if you’d like to work with us as your virtual finance team to place Xero at the heart of your business.