Category: Accounting

The End of Bookkeeping?

Originally transactions were actually recorded in journals or “books” – hence the person recording them was called a bookkeeper. Today we still refer to accounting records as “the books of account”, but they’re almost never found in books any more.

Today transactions either begin in a digital form or are soon converted into electronic form. In 1985 97% of all payments were made by cheque. By 2017 only 14% of payments were made by cheque. However we generally don’t have cheques ‘returned’ any more. An image of the cheque is made available online – typically as a PDF file.

With online banking there is no longer any need to “record” bank transactions. Instead we download them – and “import” them into accounting software. Our cheque images can be reviewed online if we need to see them.

40 years of technological and societal change has had a profound effect on the way in which transactions are recorded in “the books of account”

In many ways this means less work – however the work is now more complex. So the traditional role of the bookkeeper has pretty much disappeared. Today we can simply download bank transactions from our online banking system.

For our smallest companies, the transactions can be summarized and compiled
using sophisticated spreadsheet software. For somewhat larger companies,
transactions are pulled automatically from the bank and imported into
accounting software.

Today a CERTIFIED PROFESSIONAL BOOKKEEPER (“CPB”) uses accounting software. While we
still call it bookkeeping, it is actually much more sophisticated and complex than small business bookkeeping used to be. Unfortunately, the certification for CPBs is limited to examination by accounting software publishers in the use of their accounting software.

In our view at least, post-secondary training in accounting and tax should actually be mandatory for anyone providing accounting services to the public. That is why some of our associates formed the RECORDS MANAGEMENT TECHNICIANS OF CANADA in 2019.

6 Alternatives for Online Invoicing

Do a GOOGLE search for “Online Invoicing Systems” and you’ll come up with an enormous list:

About 1,810,000 results (0.33 seconds)

2 Types of Online Invoicing Packages

The truth is there are a large number of alternatives to choose from. So many in fact, that you’d be hard-pressed to evaluate very many of them. However there are really only 2 types of online invoicing packages that a start up should be looking at:

Standalone Invoicing Systems
Online Accounting Systems

I’ll look at 2 popular standalone systems and 4 different online accounting systems. They were chosen based on their relative importance in the marketplace and my estimate of their “staying power”. In other words I don’t think it makes sense to evaluate an alternative that is reasonably likely to disappear. I did this in part by researching the companies on CRUNCHBASE. Of course most of these companies do a pretty good job of letting members of the accounting profession know about them and, as a result I am quite familiar with a variety of offerings from each of these publishers…

Traditional Paper-based Invoicing System…

Using An Online Invoicing System…

Accounting vs Invoicing

The billing and collections processes are an essential part of any accounting system. Arguably they are the most important parts. The decision to implement some sort of invoicing system, must happen very early on – when you send out your first invoice.

For most startups the bookkeeping can be done after the fact, however if your business is going to survive you’ll have to bill early and often – assuming you have customers. That means building an invoicing system right out of the gate. The good news is that it is much easier to evaluate an invoicing system than it is to evaluate an accounting system. Comparatively, an invoicing system can be quite simple. If you’re evaluating a standalone system, you don’t really need to know anything much about accounting.

Remember that as a small business owner, you’re likely to be one of the primary users of the invoicing software. When it comes to using accounting systems, you’re much more likely to get someone else to do the bookkeeping for you.

If you haven’t yet made a decision regarding your accounting system, it isn’t really very risky to select a standalone invoicing system. Ultimately you can continue to use the invoicing system alongside your accounting system indefinitely, or simply transition later to using the invoicing features of whichever online accounting system you decide on. In fact you could even elect to try out Wave Accounting (see below) for its invoicing functions alone, since there is no cost for using the system.

Standalone Invoicing Systems

Freshbooks (Toronto , ON)

According to Crunchbase, Freshbooks received $30 Million Series A on July 23, 2014.

I have used their application for my own accounting practice since 2012. It is very easy to use and I highly recommend it – particularly for small, service-based businesses. Of course as an accountant, I don’t have to pay to use their system. If I did I might be tempted to test PayPal.

PayPal (San Jose, CA)

California-based PayPal was acquired by EBay in 2002 and is a market leader in the online payments space.

Until recently I wasn’t aware that they offered an online invoicing solution for small business. If I had, I might have evaluated it for my own practice. Given that they don’t currently appear to charge a fee (other than transaction-based fees), they would probably be worth your while to take for a test drive. Note that PayPal offers a solution for web-based businesses that sell products online.

Online Accounting Systems

Generally I would recommend that you select a bookkeeper or an accountant first, rather than an accounting package. Any of the packages discussed below will fill the accounting needs of a small start up. However in the wrong hands, any accounting system can be messed up. While many of my colleagues will disparage one or another system, from my perspective this is generally related to their own familiarity with a particular package instead of the particular flaws in the system itself.

On the other hand if you were to evaluate a free system – eg. Wave Accounting – primarily for its invoicing functions, you could easily either start using it later on for all of your accounting needs or transition to another system.

Wave Accounting (Toronto, ON)

According to Crunchbase, Toronto-based Wave accounting has raised $24.6 Million in 4 Rounds from 6 Investors, and has 2 million users worldwide. While the number of users is impressive, it is the only online accounting package that is completely free to use.

For my part I use it both for accounting and invoicing in Sutton Innovation Inc (a tax comsultancy practice). My partners in the practice have remote access to the data and I outsource the bookkeeping to a colleague in the Philippines.

So while I personally use it most often for invoicing and tracking receivables, it is a full-featured accounting package and I can easily supervise the bookkeeping and perform year-end accounting adjustments.

Xero (Wellington, NZ)

Founded in 2006, Xero went public in 2012. According to Crunchbase it has some 370,000 users worldwide – including one of my larger clients. Unlike Wave, Xero actually charges a fee to users – hence the lower number of users.

Quickbooks Online (Mountain View, CA)

Published by Intuit, QuickBooks Online (along with Sage One below) is one of the oldest and most established brands for financial and accounting software. Personally I use it – in conjunction with Freshbooks – for my accounting practice. In addition I use their Profile tax preparation software and can certainly recommend the company and its products.

Sage Online (Newcastle Upon Tyne, UK)

While Quickbooks is strongest in the US, Sage is stronger in British Commonwealth countries and in Africa. Over the years Sage has acquired Simply Accounting and MYOB – both of which I have used in the past. I have not tested their online software – it was just recently launched.

However, given the reputation of the firm, it clearly warrants a look if you are evaluating online accounting software.

While I believe that these probably represent the best options for start ups looking for online invoicing solutions, if you don’t think these 6 options give you enough choice feel free to check out the 27 Free Alternatives listed by Mashable (self-described as “a leading source for news, information & resources for the Connected Generation”).

27 Free Alternatives – Mashable

Why Professionals Say ‘NO’

Both public accountants and lawyers in private practice depend on new entrepreneurs defying the odds to try and establish new businesses. However they are only too aware of the risks that anyone will face as an entrepreneur. In fact a key role is to understand the nature of these risks and to help mitigate them to some extent.

Lawyers practicing commercial law will help with legal structures and contractual arrangements much of which is designed to protect the business owner from his or her partners, other shareholders, suppliers, customers and even the government in the form of the taxman.

Similarly public accountants help ensure that financial systems are properly designed, that financial information is accurate, that the appropriate, tax-efficient legal structures are put in place, that tax and regulatory compliance doesn’t become a problem. They also use their experience to understand risk and opportunity found in financial information.

Since entrepreneurs depend on professionals to identify risk, they shouldn’t be surprised when lawyers and accountants seem somewhat negative. From the professional’s perspective there is almost no risk to them in recommending against making an investment. If you don’t make an investment, you cannot prove how it ‘would have turned out’ . If someone else succeeds with an investment there are always factors that differentiate their situation from yours.

The alternative situation – recommending an investment – is fraught with risk for the professional. The entrepreneur can expect a large number of caveats from the professional to limit their (the professional’s) risk.

The Cost of Professional Advice

The best professional advice is expensive, and you have to line up to get it. Hourly rates for highly-skilled professional accountants start at more than $300 an hour for a manager. For senior managers and partners, rates often exceed $600. Large, multinational companies are prepared to pay these rates because they know that the best advice is worth it, and they only pay for what they need.

These same multinationals ‘poach’ talent shamelessly from the ‘Big 4’ accounting firms to staff up their internal accounting and tax departments. So when the VP of tax for an international mining company calls up a tax partner at KPMG to discuss a tax issue, it’s more or less a discussion amongst equals.