How Does Cloud Accounting Work? A Complete Guide for South African Businesses

If you are a business owner in South Africa, you may have heard of cloud accounting as a way of managing your financial records. But what exactly is cloud accounting, and how does cloud accounting work? In this article, I will answer these questions and more, and show you how cloud accounting can benefit your business.

What is Cloud Accounting?

Cloud accounting is a method of accounting that uses software that is hosted online, rather than on your own computer or server. This means that you can access your accounting data from anywhere, anytime, using any device that has an internet connection. You can also share your data with your accountant, bookkeeper, or other stakeholders in real time, without having to send files or documents back and forth.

Cloud accounting software is also known as online accounting software or web-based accounting software. Some of the popular cloud accounting software providers in the market are Xero, QuickBooks Online, FreshBooks, Sage Business Cloud Accounting, and Wave.

Cloud accounting is not a new concept. It has been around since the late 1990s, when the first online accounting software was launched. However, it has become more popular and widely adopted in recent years, thanks to the advances in technology, security, and internet speed. According to a report by Xero, South Africa has the highest adoption rate of cloud accounting in the world, with 77% of small businesses using cloud accounting software in 2020. This shows that cloud accounting is not only a trend, but a necessity for South African businesses.

What are the Benefits of Cloud Accounting?

Cloud accounting has many benefits for South African businesses, especially for small and medium-sized enterprises (SMEs) that need to manage their finances efficiently and effectively. Some of the main benefits of cloud accounting are:

• Accessibility: You can access your accounting data from anywhere, anytime, using any device that has an internet connection. This means that you can work on your business finances whenever and wherever you want, without being tied to your office or computer. You can also access your data on the go, using your smartphone or tablet. This gives you more flexibility and convenience in running your business.
• Security: You don’t have to worry about losing your data due to theft, fire, flood, or other disasters. Your data is stored securely in the cloud, and backed up regularly by your software provider. You can also control who can access your data, and set different levels of permissions for different users. Your data is also encrypted and protected by passwords and firewalls, so you can rest assured that your data is safe and confidential.
• Efficiency: You can save time and money on your accounting tasks, by using cloud accounting software that automates and simplifies many processes. For example, you can connect your online banking to your cloud accounting software, and import your transactions automatically. You can also create invoices, track expenses, generate reports, and more, with just a few clicks. You can also reduce errors and mistakes, by using cloud accounting software that checks and validates your data for accuracy and consistency.
• Integration: You can integrate your cloud accounting software with other online tools and applications that you use for your business, such as e-commerce platforms, payment gateways, inventory management systems, payroll systems, etc. This allows you to streamline your workflows and processes, and avoid duplication of data entry. You can also share your data with other platforms and services, such as tax authorities, auditors, banks, etc., without having to export or import files manually.
• Collaboration: You can collaborate with your accountant, bookkeeper, or other stakeholders in real time, by using cloud accounting software that allows you to share your data online. You can also communicate with them via chat or email, and leave comments or notes on your data. This allows you to get instant feedback and advice from your financial experts, and keep them updated on your business performance. You can also invite them to access your data remotely, without having to send files or documents back and forth.

These are just some of the benefits of cloud accounting for South African businesses. Cloud accounting can help you improve your financial management, increase your productivity and profitability, and grow your business faster and smarter.

How Does Cloud Accounting Work?

Now that you know what cloud accounting is and what are its benefits, you may be wondering how cloud accounting works in practice. In this section, I will explain the basic steps and processes involved in cloud accounting, using simple and clear language.

Step 1: Choose a Cloud Accounting Software Provider

The first step in cloud accounting is to choose a cloud accounting software provider that suits your business needs and goals. There are many cloud accounting software providers in the market, each offering different features, functionalities, pricing, and support. You should do some research and comparison before making a decision, and consider factors such as:

• Security: How secure is the cloud accounting software provider? What measures do they take to protect your data from unauthorized access, theft, or loss? Do they comply with the relevant laws and regulations in South Africa and other countries where you operate?
• Scalability: How scalable is the cloud accounting software provider? Can they handle your business growth and expansion, without compromising on performance or quality? Do they offer flexible plans and options that can adapt to your changing needs?
• Customer Support: How responsive and helpful is the customer support team of the cloud accounting software provider? Do they offer 24/7 support via phone, email, chat, or other channels? Do they provide training, tutorials, guides, or other resources to help you use their software effectively?
• Pricing: How affordable is the cloud accounting software provider? What are their plans and pricing options? Do they offer free trials or discounts for new customers or referrals? Do they charge any hidden fees or extra costs?

Some of the popular cloud accounting software providers in South Africa are Xero, QuickBooks Online, FreshBooks, and Sage Business Cloud Accounting. You can check out their websites and reviews to learn more about their features and benefits.

Step 2: Connect to Online Banking

The second step in cloud accounting is to connect your online banking to your cloud accounting software. This will allow you to import your bank transactions automatically into your cloud accounting software, without having to enter them manually. This will save you time and effort, and ensure that your data is accurate and up-to-date.

To connect your online banking to your cloud accounting software, you will need to log in to your cloud accounting software account, and follow the instructions on how to link your bank account. You may need to provide your bank details, such as your account number, branch code, etc. You may also need to authorize your cloud accounting software provider to access your bank data.

Once you have connected your online banking to your cloud accounting software, you will be able to see your bank transactions in your cloud accounting dashboard. You will also be able to categorize them into different income and expense accounts, such as sales, purchases, rent, salaries, etc. You can also create rules or settings that will automatically categorize your transactions based on certain criteria, such as keywords, amounts, dates, etc.

Step 3: Create Invoices

The third step in cloud accounting is to create invoices for your customers or clients. Invoices are documents that show the details of the goods or services that you have provided to your customers or clients, such as the description, quantity, price, tax rate, etc. Invoices are also used to request payment from your customers or clients.

To create invoices using your cloud accounting software, you will need to log in to your cloud accounting software account, and go to the invoices section. You will be able to create new invoices using templates or customizing them according to your preferences. You will also be able to add your logo, contact details, payment terms, etc.

Once you have created an invoice using your cloud accounting software, you will be able to send it to your customer or client via email or other methods. You will also be able to track the status of your invoice, such as whether it has been viewed, paid, or overdue. You can also send reminders or follow-ups to your customers or clients if they have not paid on time.

Step 4: Track Expenses

The fourth step in cloud accounting is to track your expenses for your business. Expenses are the costs that you incur for running your business, such as rent, utilities, supplies, travel, etc. Tracking your expenses is important for managing your cash flow and profitability.

To track your expenses using your cloud accounting software, you will need to log in to your cloud accounting software account, and go to the expenses section. You will be able to record new expenses using receipts or bills that you have received from your vendors or suppliers. You can also scan or take a photo of your receipts or bills using your smartphone or tablet, and upload them to your cloud accounting software.

Once you have recorded an expense using your cloud accounting software, you will be able to categorize it into different expense accounts, such as rent, utilities, supplies, travel, etc. You can also attach notes or comments to your expenses to provide more information or context.

Step 5: Generate Reports

The fifth step in cloud accounting is to generate reports for your business. Reports are documents that show the summary and analysis of your financial data, such as your income, expenses, cash flow, profit and loss, balance sheet, etc. Reports are useful for monitoring your business performance, making informed decisions, and planning for the future.

To generate reports using your cloud accounting software, you will need to log in to your cloud accounting software account, and go to the reports section. You will be able to choose from different types of reports that are available, such as:

• Income Statement: This report shows your revenue and expenses for a given period, and your net income or loss.
• Balance Sheet: This report shows your assets, liabilities, and equity at a given point in time, and your financial position.
• Cash Flow Statement: This report shows your cash inflows and outflows for a given period, and your cash balance.
• Budget vs Actual: This report compares your actual income and expenses with your budgeted or projected income and expenses, and shows the variance or difference.
• Tax Summary: This report shows your taxable income and tax payable for a given period, and helps you prepare for your tax obligations.

You can also customize your reports according to your preferences, such as changing the date range, adding filters, sorting columns, etc. You can also export or print your reports in different formats, such as PDF, Excel, CSV, etc.

Step 6: Collaborate with Your Accountant

The sixth step in cloud accounting is to collaborate with your accountant or bookkeeper. Your accountant or bookkeeper is a professional who can help you with your accounting tasks, such as preparing financial statements, filing tax returns, auditing your books, etc. Collaborating with your accountant or bookkeeper can help you ensure that your accounting data is accurate, complete, and compliant with the relevant laws and regulations.

To collaborate with your accountant or bookkeeper using your cloud accounting software, you will need to invite them to access your cloud accounting software account. You can do this by logging in to your cloud accounting software account, and going to the users section. You will be able to add new users and assign them different roles and permissions. You can also remove or edit users at any time.

Once you have invited your accountant or bookkeeper to access your cloud accounting software account, they will be able to view and edit your data online. You can also communicate with them via chat or email, and leave comments or notes on your data. You can also share files or documents with them via cloud storage services, such as Dropbox or Google Drive.

Collaborating with your accountant or bookkeeper using cloud accounting software can help you save time and money on your accounting tasks, while ensuring high-quality results.

How to Choose the Best Cloud Accounting Software for Your Business?

Now that you know how cloud accounting works in practice, you may be wondering how to choose the best cloud accounting software for your business. There are many factors to consider when choosing a cloud accounting software provider, such as security, scalability, customer support, pricing, etc. However, the most important factor is how well the cloud accounting software matches your business needs and goals.

To choose the best cloud accounting software for your business, you should first identify your business needs and goals, such as:

• What type of business do you have? What industry are you in? What size is your business?
• What are the main features and functionalities that you need from a cloud accounting software? What are the specific problems or challenges that you want to solve with a cloud accounting software?
• What are the main benefits and outcomes that you expect from a cloud accounting software? How do you measure your success or progress?
• Who are the main users of the cloud accounting software in your business? How many users do you have? What are their roles and responsibilities?
• How do you prefer to use the cloud accounting software? How often do you use it? How do you access it?

Once you have identified your business needs and goals, you should then compare different cloud accounting software providers that meet your criteria.

You can also ask for recommendations from your peers, colleagues, friends, or family who have used cloud accounting software before. You can also contact the cloud accounting software providers directly and ask for a free trial or demo of their software.

By comparing different cloud accounting software providers, you will be able to find the best cloud accounting software for your business that meets your needs and goals.

Conclusion

Cloud accounting is a way of managing your financial records using software that is hosted online, rather than on your own computer or server. Cloud accounting has many benefits for South African businesses, such as accessibility, security, efficiency, integration, and collaboration. Cloud accounting also works in a simple and easy way, by following six basic steps:

• Choose a cloud accounting software provider that suits your business needs and goals.
• Connect your online banking to your cloud accounting software, and import your transactions automatically.
• Create invoices for your customers or clients, and send them via email or other methods.
• Track your expenses for your business, and categorize them into different accounts.
• Generate reports for your business, and monitor your financial performance and progress.
• Collaborate with your accountant or bookkeeper, and share your data online.

By using cloud accounting software, you can improve your financial management, increase your productivity and profitability, and grow your business faster and smarter.

If you are interested in trying out cloud accounting software for your business, you can contact us at Thrive CFO. We are a professional cloud accounting service provider that can help you with all your accounting needs. We can help you choose the best cloud accounting software for your business, set up and migrate your data, train and support you on how to use it effectively, and provide you with ongoing accounting services and advice.

We have experience working with different cloud accounting software providers, such as Xero, QuickBooks Online, FreshBooks, and Sage Business Cloud Accounting. We also have expertise in different industries and sectors, such as e-commerce, manufacturing, hospitality, education, etc. We can help you tailor your cloud accounting software to suit your specific business requirements and goals.