What is the Difference Between Online Accounting and Traditional?

Welcome to the 21st Century. Gone are the days of mountains of paper and stuffy high-street offices. Today, looking after your accounts is easier than ever, with everything being safely stored in what is commonly referred to as ‘the cloud.’

Before you ask, no – this isn’t a real cloud, so you don’t have to worry about your company’s financial records falling out of the sky.

Don’t worry if you’re a bit confused; we’ll break it all down for you and outline the key differences between the old way and the new. First things first…

What is online accounting?

All businesses need to keep financial records. There are all sorts of ways you might do this, but online accounting refers to using software which hosted online in the cloud, rather than downloaded to a single device with a single user licence.

Data held in the cloud is hosted on a number of servers in multiple locations, meaning it’s mostly protected from things like power outages, hardware and software malfunctions, theft, loss, and physical damage from some kind of disaster (like a fire or flood).

So, in short, online accounting is entirely remote-based, and this makes it ultra secure because everything’s backed up.

Can’t I just use a spreadsheet?

Yep, you’re absolutely allowed to use a spreadsheet to keep financial records. They’re even allowed if you need to keep digital records to comply with Making Tax Digital rules, but just bear in mind that you’ll need bridging software to share this information with HMRC.

How does the cost compare?

Now that you have an idea of what cloud accounting actually is, let’s consider the overall cost of it in comparison with traditional accounting solutions and services.

Traditional accounting

If you work with an accountant, you aren’t normally expected to go out and purchase their software of choice, as they handle everything themselves. While this of course means you save a bit of money (accounting software isn’t cheap), it also means you have limited access to your records.

If you happen to be an accountant yourself, you’ll obviously need the correct hardware (like a computer of some kind) to run your accounting software. Not only can this be expensive (both to purchase and insure), but it also has to be maintained by someone with IT expertise.

Then there’s the software itself to consider, which isn’t cheap and also has to be kept up to date. What’s more, if your business grows, you will usually need to purchase additional software licences to cover more users.

Online accounting

The software is normally cloud-based, so rather than downloading and installing software to your PC, and buying updates every year, you go online to access it.

Most online accounting software is available as a monthly subscription rather than a lump sum payment. Which helps ease the financial burden on your cash flow.

You don’t need to buy any kind of specialised hardware in order to use online accounting software. The software, along with all of your data, is held offsite in the ever-nebulous cloud (where nothing can hurt it).

Is online accounting software more accessible?

You send your records to your accountant. They do… something… with it. You have the raw data, but you’ll be relying on them to send you any reports they might compile from it. Hopefully they’re the sharing type.

If you’re an accountant, you’re relying on your client to send their records. Then if there’s something missing, you have to contact them, and try to explain what you need. It’s all a bit time consuming.

On the flipside, anyone, anywhere, with a secure login and access to the internet can use online accounting software and access the data it holds. This means things like financial admin can be done at home in your underpants. Or even while travelling. Preferably not in your underpants.

How can accountants and clients work together?
Accounts need raw data from their clients so they can do things like prepare accounts and tax returns. Inventing this data is very much frowned upon, so there needs to be a way to get it to them safely. It usually involves uploading attachments to multiple emails, and having a small emotional crisis each time you hit the attachment size limit. Or sending things by post.

Data is unlikely to be shared in real time (if at all) so discussions or calls can get a bit frustrating with all the “no I sent that last week” back and forth.

Online accounting software means every change made is universal and applies to all devices. There’s no need to transfer files manually. Data can be accessed by everyone, simultaneously, in real time.

Safety and security for financial records

All your precious data could be lost if the device on which it’s held is somehow misplaced (we’ve all been there), stolen, or damaged. There’s also the risk of your data being hacked if your device does end up in the wrong hands.

Really, though, a device is only as secure as its last security update, and many people opt to ignore anti-virus notifications when they do pop up, seeing them as nothing more than an annoyance.

The bottom line is, if your data is currently stored on a single device, it might not be as safe as you’d like.

With online accounting, everything is stored safely in the cloud, on multiple servers in multiple locations. It makes it much more challenging for would-be fraudsters.

Is your head spinning a bit? Congratulations, you’re human. Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.