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Cloud accounting: the new frontier

Switching to software in the cloud has numerous benefits for both CPA and client
September 12, 2022

By John H. Higgins, CPA, CITP

The concept of cloud-based accounting first came into the accounting market space in the late 1990s. Now it is in full swing, having reached critical mass in terms of the number of businesses deploying the model, as well as the number of software solutions available. This article is designed to help you understand the unique attributes and features of the cloud accounting model and how you can leverage it to improve the quality and efficiency of accounting and financial reporting services.

The most important featured of the cloud accounting model as it relates to CPAs is that it replaces the traditional model whereby the client has their own internal accounting system and periodically the outside accountant procures a copy of the general ledger and/or trail balance files and enters the data into their system, through either an import process or direct keyboard entry, to record the appropriate journal entries and prepare the financial statements.

The cloud accounting model transforms that process by using a single accounting system that both the client and the CPA access directly to do their work. In some cases, the CPA provides the software solution as part of a bundle of value-priced, outsourced accounting services. The client accesses the system via their bowers from any device. This relieves the client of the burden of dealing with both the server and software technology, as well as data backup and disaster recovery protection related to the financial system. An alternative model is where the client subscribes to the cloud-based accounting software directly with the software publisher and then provides the CPA with a login to access the system and complete their work to adjust and prepare the financial reporters remotely. In either case, it is a much more efficient and convenient model for both parties.

The benefits

Whether you provide accounting services or work as a controller of CFO in an organization, the cloud accounting model offers a substantial number of benefits.

  • Anytime, anywhere, any device access: This provides an unprecedented level of flexibility in how, when and where the business of accounting gets done. With a true browser-based accounting software, technology at the device level is virtually eliminated.
  • State-of-the-art software design technology: By its very nature, cloud accounting software is new technology that incorporates the latest developments in software design. This includes features like direct integration with other cloud-based applications: online payments systems, online banking, online expense management, integrated Key Performance Indicator (KPI) dashboards and much more.
  • Outsourced IT infrastructure, service and support: The value of eliminating this responsibility in your organization, as it relates to the financial system, is substantial. This allows your organization to focus more effort on applying the technology into your workflows as opposed to deploying the technology.
  • Data backup and disaster recovery protection: Let’s call this the piece of mind dividend. Cloud accounting service providers work diligently to make sure that your data is backed up consistently and with redundancy. The protections against a disaster that the data center model provides is unprecedented and light-years ahead of the traditional on-premise server model.
  • Data security: Many people are concerned that cloud accounting providers are vulnerable to cyber-attacks, which is not the case. The concern can be alleviated by education. When you learn about the depth of defense controls that are deployed to protect against both physical and cyber threats, you will most likely conclude that these systems are far more secure than the traditional on-premise model provides.
  • Scalability: A less obvious benefit of cloud computing is the subscription licensing model. Instead of making a substantial investment in the initial deployment of an on-premise server infrastructure and software licensing, the cloud model is based on a per user, per month payment model. This allows you to smooth our your cashflow and to increase or decrease your user licensing in accordance with the peaks and valleys of your business. This is subject of the terms of the service agreement, of course.

Virtual accounting and CFO services

The opportunity to provide new and innovative services does not come to the CPA profession very often. Therefore, when a new offering emerges, it is important to take note and learn all about it so that you can make a strategic decision as to whether or not to get your firm involved. The newest growth opportunity for accounting professionals is to provide outsourced accounting and/or CFO services.

What makes virtual accounting and CFO services new and innovative is the way in which cloud-based software solutions are leveraged to deliver services to your clients that are relevant, timely and in high demand. The ability to optimize the allocation of financial and personnel resources is core to the success of every business. Leveraging virtual accounting and CFO services via the cloud offers many businesses the best option. Essentially, you are providing your clients the opportunity to outsource to your firm a function that they typically do not like dealing with and lack the skills to perform effectively.

So, what exactly are we talking about? The concept is to establish an accounting service delivery model using cloud-based software solutions that allows for maximum efficiency through a high degree of workflow automation for payroll, accounts payable, accounts receivable, cash management and financial reporting.

The value proposition for your clients:

  • More relevant and timely information to make informed business decisions
  • Higher quality of financial information at a lower cost
  • A high level of confidentiality and privacy of their financial affairs
  • Anytime, anywhere, any device access to the information they need to run their business
  • Alleviate their responsibility for the technology issues related to securing their accounting and financial information and protecting it from disasters

The value proposition for your firm:

  • Attract new clients from near and far
  • Provide additional revenue with a high margin
  • Increase the valuation of your practice for succession via “sticky” client service
  • Recruit and retain young professionals with a state-of-the-art accounting service delivery model

The service opportunity should be considered by every existing CPA firm. It is also an especially great option for those who may be looking to start up a new practice. The cost of entry is relatively low and can be delivered successfully in a sole practitioner model. The scope of services you choose to offer can range from full scale transaction processing and financial reporting to a higher value model serving as a virtual CFO and serving as the client’s trusted business advisor providing them with a KPI (key performance indicator) dashboard and serve as their financial coach. Either way, it is a new service opportunity that is ripe for the picking.

Let’s take a closer look at the two service models. The virtual accounting service typically includes providing virtual bookkeeping services such as payroll processing, bill payment, bank reconciliations, etc. With the combination of highly automated transaction processes and bookkeeping staff providing the bulk of the service, you can generate a revenue stream that is both high volume and high margin. The challenge is that you are closely involved in the client’s day-to-day business and must be diligent in meeting deadlines on a continuous basis.

The virtual CFO model is more closely aligned with the skills and knowledge of the CPA professional. In this service, you are working more in the capacity of trusted advisor to the business owner. The core feature of this service is increasingly being embodied in the development of a relevant financial reporting model that leverages the concept of KPI dashboards that allow the virtual CFO and the client to keep a pulse on the performance of the business in real time and make informed business decisions. This service does not typically involved day-to-day attention to the client; more typically, it is week to week or month to month. This model presents a great opportunity for CFOs who are looking to establish their own practice with only a handful of clients to service.

In summary, the cloud technology model is having a significant impact on the traditional accounting services model, at both ends of the spectrum. It is an exciting time in the professions, as new opportunities are presented to leverage innovative technologies to automate every aspect of the accounting cycle and move the CPA higher up the value chain in client service.

John H. Higgins, CPA, CITP, is strategic technology advisor at CPA Crossings, LLC. He has been recognized by CPA Practice Advisor magazine as a top thought leader to the profession and is a member of the AICPA Business and Industry Hall of Fame for his work in helping CPAs leverage technology. John specializes in the topics of cloud accounting and Office 365.