Taking Accounting to the Cloud
March 27, 2019
In this podcast, John Delalio, Managing Director of the EisnerAmper Cloud Accounting Services Group, tells us how cloud accounting is much more than virtual bookkeeping, the technology behind it, and which stakeholders and industries can benefit. John also gives a real-world example of a client issue, cloud accounting solution and the interesting outcome.
DP: We've heard of the cloud; we've heard of accounting. What's cloud accounting?
JD: Great question. The cloud is this concept that's been growing since 2000 where applications and technology are moving into the cloud to allow people to do things they never could do before. What we're seeing with cloud accounting is that accounting is actually moving into the cloud now where you can get access to all of your bank accounts via the cloud; access to your general ledger, via the cloud; access to your bill pay system and your HR payroll system, via the cloud. What this does is it allows business owners to not have a lot of infrastructure and hassles in order to run their business. Basically they can run their business by their phone if they work with the right team to do it. There is this concept of bookkeeping and cloud bookkeeping and cloud accounting software. These are all elements that might be used in a cloud accounting solution. For example, you would use cloud accounting software to provide cloud accounting services. However, these are two separate things.
DP: John, I've heard people lump cloud accounting in with virtual or online bookkeeping. How are they different?
JD:Bookkeeping generally takes a historical view of the data. People are focused on making sure all the transactions going in and making sure everything's reconciled, bills are paid—all valuable things to do. But at the end of the month, the month's close. You get a number, okay, you made money, you didn't make money. Cloud accounting is designed to take that data add analytics, add scorecards, add advice and guidance from folks who are experienced in managerial accounting, perhaps the next CFO or controller. To be able to take that data and say things like, hey mister company owner, we see your cash is going up. You can hire more people and grow your business faster. Or maybe we see there's some investment opportunity. He needed to talk to a bank to get a line of credit to make that move. Wouldn’t you like to have the confidence to take on that money knowing that you have a financial plan in the background that you're able to execute. That's where it's really different. So bookkeeping is very historical, reactive. I'd say cloud accounting is much more forward looking and proactive.
DP: Obviously there has to be some strong technology behind this. Who are some of the partners that EisnerAmper is working with to make all this happen?
JD:Probably the two biggest players in the cloud accounting software space are Xero and intuits QuickBooks. We work with Xero because we think they have a perfect solution for the type of services we are providing. We also do work with QuickBooks to an extent. We also work with a company called Bill.com that has a great bill pay platform. We work with a company called Expensify that has a great expense management platform. We also work with a number of HR payroll and PEO companies such as ADP and Gusto that all have great solutions. Our expertise is weaving them together to give the right solution to a client.
DP: A lot of heavyweights on the team. What type of industries would this be good for? Who's going to benefit from this?
JD:The service does very well in service-based companies. I would say the only industry that doesn't do well is probably the manufacturing and inventory-type of companies, where you have to control a shop floor and there's a lot of transactions around bill materials and all that. You probably want that data living locally to the work process. Any service- based company, technology based company, life sciences company do exceptionally well on it. We also work with a lot of e-commerce and technology companies. The question is, you have your product in the cloud, why wouldn't your accounting be there as well?
DP: Makes sense. So at these clients and potential clients, who are some of the stakeholders that you'd be working with?
JD: We work with the primary business owner or founder, the CEO, the CFO, maybe a COO, CIO as well. But we also do a lot of work with smaller clients. Cloud accounting is a great fit for this small to mid-size business. As you get into a larger business where a full ERP system might make sense, that's probably a different solution. Cloud accounting is all about a small to mid-size business where there isn't an accounting department. That cloud accounting service is the accounting department.
DP: I had read in one of your leadership thought pieces, there was an interesting chart that showed the growth trajectory of a cloud accounting client. Tell us about that.
JD:Well, generally companies start with a little bit of money and a lot of work. And for the typical startup where they're borrowing money from their friends and family, they can probably grow their business to a certain point, very successfully, using perhaps a cloud bookkeeper or maybe even doing something on their own like QuickBooks Desktop. But at some point you cross a threshold, either an investment or in revenue, let's say around $1.5 to $2 million where your business is probably being constrained because you can't grow fast enough. That's when cloud accounting solution can make a lot of sense because what it does is takes all your transactions, accumulates them into data, which then an accountant provides you advice and guidance on what to do with your business. So imagine making a decision based on data and experience instead of a dart board. That's where the true value comes in. And then as you grow and you start taking in more money, you realize being platformed on a cloud accounting solution actually increases the value of your business because your investors know that your books are being taken care of by professionals. And as you take in money, we have some clients that actually are sent to us from investors who say, “Listen, I want to put a couple million bucks into this company. Take care of their books.”
DP: Now bring this full circle for us and try and crystallize this for me in a client example. Of course, without mentioning any names, but walk me through, the issue the client had, the solution you proposed and what the outcome was.
JD:I have a client that is on the West Coast and they have two businesses, both internet startups, and one of his companies was an e-commerce company that came up with a product that took off on social media. It was growing so quickly that this entrepreneur could not keep up with everything he needed to know: for example, selling a product around the United States or sales tax issues about where your product is and who you have to pay tax to. If your product is in a distribution center in Iowa, you might need to pay sales tax there. But this entrepreneur wanted to see the sales opportunity to push his business forward. So he actually contracted us to do the cloud accounting services. So not only do we take care of his books and records, pay his bills, reconciled revenue, did AR to Shopify and Amazon. We also are taking care of his tax issues. The guy is thrilled because he's actually taking that money that he's making off the one business and pushing into his other business, which needs funding. So he's actually self-funding two businesses and we're taking care of the books and records for him and giving him good advice. I'd also say he came to us and said, “What? I need to hire some people. I haven't paid anybody yet, but I need to now, how do I do that?” Well, we recommended a few PEO partners that we work with. He picked one. He had his people being paid two weeks later. He was able to give them a great benefits package, which typically doing it on your own, you wouldn't be able to do. He's very happy. His businesses are growing, and he's doing what he loves: selling.
DP:Freeing him up to do what he does best. That's a great story.
JD:I'll just add, if you're an entrepreneur and you're spending your Sunday evenings doing accounting transactions, there's something wrong, right? You started your business to take control of your life and yet your business is running your life. That's not what you should be doing with your time. And that's something where a cloud accounting solution could absolutely take that headache away. When you work you work, and when you're not working you can be with your family.
DP: Good point. Well that sounds great, John. Some more interesting stuff coming out of EisnerAmper as far as new and innovative service offerings. Thanks for your time.
JD: Thanks very much. I appreciate being here.
DP: Thank you for listening to EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.