7 Benefits of Digital Accounting For Small Businesses
Digital accounting is fast becoming the norm in the industry. With the introduction of advanced accounting software, more and more businesses today are looking to avail it.
However, many small businesses follow the more traditional route of hiring specialist accountants for their day-to-day entries. You cannot blame them for supporting the manual accounting procedures; a system that has been in place for more than 900 years will garner more confidence than the one that has just emerged.
With the historical background and the liberty to be in control, small businesses are likely to opt for manual accounting. However, with the advent of newer, faster techniques and the upgrade in accounting software, entrepreneurs often undervalue the significance of digitizing their operations.
With the burdens of managing taxations, expenses, receipts, and payments, a specialist hired by a small business will either wilt under pressure or take assistance which increases your total cost.
In addition to the cost of paying the bookkeepers for their daily salaries, there always lies the threat of you losing your books and information due to mismanagement. A move to the digital format will help you in organizing the records, ensuring that every tiny bit of information is safe and sound.
You can retrieve the financial records easily once you save the information in your computer. Along with the operational benefits, there are other benefits of moving to the digital format. However, of all the benefits and justifications that go in favor of digital accounting, the one factor that genuinely tips the scale in favor of digital accounting is the value for time and money.
With software and a system at your disposal, you have the liberty to take time out and focus on running the business rather than prioritizing the operation of business recording.
Digitizing all your operations will save you a lot of time and money, probably more than you need. However, let’s leave that debate for some other day and focus on the benefits you will gain by digitizing your accounting systems.
1. A Streamlined System
As discussed before, one of the disadvantages of manual accounting is that it is hard to store the information in one place. In a manual accounting system, you will have to store information in various places. Recording the information or managing the books may not be the challenge but the gathering information and using it for the creation of a report or a summary will be tough.
Although the manual accounting system is knitted very well, organizing the data and ensuring that everything falls perfectly into place is difficult. Balancing the information in the trial balance may seem like a relatively easy task on paper. However, in reality, the hard work that goes behind it is inexplicable.
In addition to making things easier for the owners, a digital accounting system stores information in a specific area, giving the owners real-time access to essential details and information. In a digital accounting system, critical financial data, from cash flow to balance sheets, will be accessible in a few clicks.
2. Accessibility to Important Financial Information
In a business, interdependence is the key. Departments are interlinked together, with each department helping the other out. This is one of the key reasons why some small companies outperform others. A business where all the factions and departments are interlinked in a sound framework is bound to outshine other competing businesses.
This interdependence means that all departments must have access to the critical information of the business. When the need for financial updates comes from a specific department or a faction of the company, it is imperative that the data is readily available. In manual accounting, presenting the required information according to the needs of the department can be challenging.
The supply chain department will need information related to the turnaround of goods and data. This equips the supply chain team with complete information about purchase orders and the amount of time operating capital is tied up. This is especially important with accounting for eCommerce businesses.
The calculation of these formulas and the numbers that a business generates from these formulas help entrepreneurs in shaping the policy for a business. With numbers readily accessible, the team and the department can make rapid decisions. For a small business, the timing of the decisions and their turnaround is crucial. The more time a company takes to achieve a decision indicates a business’s inability to adapt and react to changes in the financial environment.
With a paper-based accounting system, the turnaround time of processing information and making a decision increases considerably. In this modern-day and age where market instability is dominant, this can cost a business quite a fortune. Additionally, a person will have to spend extra time to accumulate the required data and handling paperwork; this can be annoying and time-consuming for an accountant.
3. Ease of Use and Improved Speed and Productivity
This factor stems from the previous one which claims the accessibility an individual gets in case of data being readily available. The ease of use is one of the core aims of the changes in technology. Providing users with convenience and comfort, the accounting software applications are easy to use in comparison to the manual methods.
The primary purpose of recording all accounting data is to:
- i) keep a record of all the transactions on a monthly or yearly basis and
- ii) to analyze the data and the numbers accumulated to make business decisions.
It might take an individual more than an hour to create a cash flow and gather information. The associated costs may take ample time for a business. A digital format gives you the comfort of running all kinds of financial tests on the readily available data. A manager may be able to create the cash flow of the business within minutes.
In addition to the ease of use, a business also takes advantage of increased efficiency and productivity with digital accounting. A business that makes use of digital accounting will have more staff available to focus on other essential aspects of the company.
A financial manager or their assistant can now compile the same reports and present the same numbers in considerably less time. Digital accounting saves time in processing online transactions since it allows the accounting department to prepare reports and compile facts and figures in minutes.
In addition to improving the efficiency and productivity, this may also help in reducing the cost of the business since previously manual tasks are now fully automated.
4. Increased Data Security
Even though you have a filing system in the store, it is likely that the system may fail with a slight accident or someone robbing the documents and stealing all the critical data. Imagine years of hard work and accounting data gone in just a flash; this very fact should be enough for you to move to a paperless system of recording entries.
With digital accounting, you can now backup your data and secure it safely in a server. Obtaining the information in a cloud system will enable you to retrieve data even if things go wrong.
One of the primary reasons why businesses and companies today are looking for automation and digitizing operations is because doing so enables them to save more by minimizing the cost of services.
Using digital data is more cost-effective than other forms of recording data. It works faster and saves businesses time so they can concentrate on different parts of the company.
Hiring a professional to manage the accounts of a business is costly because a professional, regardless of how well trained they are, will cost the company more. This depends on the scale and nature of the work.
A digital accounting service may only charge the cost of installation as its sole cost. If you don’t know how to operate the software, you may hire someone with the required expertise.
6. Reliability and Scalability
One edge that machines and software have over us humans is that they are not prone to committing mistakes and errors. A device is designed to make perfect results void of any error. This nature of automated services and software adds an element of reliability to the digital accounting system.
In comparison, human error is very normal when a person is responsible for compiling data. To prevent the human error from damaging the facts and figures of your accounting system, small businesses often hire another person to ensure that a mistake does not go unnoticed.
The hiring of another individual may considerably lower the chances of error creeping into your system, but it will also cost you more. If you have a digital accounting system in place, you are safe from the cost of the additional inspection. Additionally, you also have reliable data on your hands.
Imagine making a wrong business decision that costs you the whole business just because of a simple human error.
In addition to reliability, the digital accounting system is also fast becoming a favorite among companies and entrepreneurs alike because of its simple nature. For a small business that is in its growth stage, opting for a manual accounting system is fine temporarily. However, as the business grows and the scale of operations increases, the manual accounting system will need a huge reshuffle.
The reshuffling process can be very strenuous and costly for the business because, at times, you need more people for tackling the operations. This is not the case with companies that have a digital accounting system in place.
A mere software upgrade is enough for a business to adjust the digital accounting system to the growing needs of the company. This scalable nature of digital accounting procedures is another reason why seasoned entrepreneurs recommend digital accounting.
7. Say ‘No’ to Monotony and Facilitate Standardization
All accounting experts are well aware of the challenge of recording entries based on the different accounting techniques present. Given the variety of standards present, it is easy to understand why it is difficult for manual accountants to record data.
However, with digital accounting, the case is different; the software applications providing the accounting services are standardized to an accounting system. This makes it easy to use since the user now knows the accounting technique the software follows.
Moreover, ask any manual accountant the one thing that they hate about their job and they will unanimously respond with monotonous procedures. Manual accountants are faced with the challenge of carrying out the same routine over and over again; this makes the job rather boring.
A tedious job and the lack of interest in it can only result in mistakes. We have already highlighted how a simple accounting mistake can lead to severe consequences for the business.
Given the current scenario, all major companies and well-established businesses are already aware of the benefits of digital accounting systems. The onus is now on small businesses to move from the traditional school of thought and move to a revolutionary method of accounting.
Fully Accountable is an accounting firm that specializes in eCommerce and outsourced accounting for online businesses. For more information on digital accounting packages, contact our team at 1-877-330-9401.