If you already use accounting software on a desktop PC you’re probably wondering what makes online accounting software so different.
Online vs On Your Desk
The biggest difference between desktop software and online software is where the software is located. Desktop software runs on your desktop or laptop computer (no surprises there).
Online software runs on a bunch of large computers called servers sitting in a big data centre. You need an internet connection to view your online software which you do with your internet browser.
This change makes a huge difference from a practical perspective and frees up users from a number of responsibilities. Here are the top four.
Easier to keep updated
Desktop model: The user is responsible for maintaining the software. That means any upgrades or patches to the business software must be downloaded and administered by the user or a colleague. If an update goes awry it is up to the user to restore from a backup and try again. And if you use the same program on your laptop, your home computer and your work computer you need to update it in all three places.
Online model: The software company is responsible for upgrading the software. Updates tend to happen invisibly without users knowing. All users are instantly upgraded to the latest version. (A caveat: Businesses moving from desktop software can sometimes find unannounced improvements disruptive when they alter established processes.)
Easier to run
Desktop model: The user must ensure that their computer is powerful enough to run the business software. This forces the user to upgrade their machine regularly to keep up with the requirements of more sophisticated software.
Online model: The software company must ensure that its servers are powerful enough to run the business software. This is much easier to manage in a data centre which has tons of spare computing power on hand. A user only needs enough computing power to run a browser. This is why you can use complex and powerful online programs through your smartphone. As noted previously, an internet connection is essential.
Easier to secure
Desktop model: The user is responsible for protecting the accounting software and its data. This means physical security such as locking the office door as well as backing up the software. Few businesses follow correct backup procedures which recommend on-site and off-site backups in multiple formats, or test whether restoring from those backups will work.
Online model: The software company handles all security of the software, including backup. Much of the cost of the security is split with the data centre which provides a base level of protection to all servers inside it. The software company also makes regular backups of all users’ software and restores the data as quickly as possible in the event of a major outage.
(A caveat: The terms and conditions for online software typically exclude software companies from compensating users for loss of data. Some users download key data from their online accounting software at regular intervals as a precaution.)
The end of versions
Desktop model: The user is responsible for maintaining compatibility between files and software. For example, accountants must maintain several versions of one desktop accounting program so they can open files sent to them by clients.
Online model: There are no compatibility issues with online software because only one version of the software exists at any one time (per country or region). Instead of sending files between two or more people you invite others to look at and work with your file containing your live business data.
A new way of working
The world of software is undergoing a slow migration from the desktop to online. Every software company from Microsoft down is shifting from desktop programs to online software – and in some cases stopping desktop software altogether.
Why? Every so often we have a major breakthrough in technology that causes a leap in productivity. The word processor which replaced the typewriter. The invention of the internet and email. The invention of handheld computing with smartphones and tablets.
Online software is another such leap. It is the next stage of the productivity boom unleashed by the internet and mobile computing. It is worth understanding what makes this boom so special.
There are five reasons driving the change.
It is much easier for two or more people to work together using online software. Instead of emailing or physically couriering a file, a user can extend invitations to others to view the exact same file. You can invite your bookkeeper or accountant to look at your file from their office while you’re talking to them on the phone. This speeds up the time it takes to troubleshoot, explain or advise on your financial data.
An accountant using desktop accounting software recreates your financial data in their own system. This is no longer necessary with online accounting software because the accountant works on the same file. This is often referred to as “common ledger” or “single ledger” accounting. This saves a lot of time and improves the quality of data shared between you and your accountant. This concept has been developing for a while but the multi-user access brought about by online accounting software has accelerated it. More traditional accounting firms may be reluctant to adjust to this process.
Working from anywhere
Online software can be viewed from any device with a browser. It could be in your office or in a hotel resort, on a desktop or an iPad. It means you never have to return to the office to look something up. Online software lets owners and employees work from wherever they are, whenever they want – as long as they have an internet connection. The trade-off is that if you’re in a rural area or on a plane then you won’t be able to use it. However, even planes are adding WiFi networks and coverage of rural areas will continue to improve.
It is typically difficult to share information in desktop software. Everyone has had to manually export lists and re-import them elsewhere. Online software can swap data with other online or desktop programs, automatically and often for free. This instant sharing eliminates repetitive data entry and makes sure everyone is working with the latest list of customers, products or invoices. Desktop accounting software can connect to other programs but the range of options is much smaller and the latest services (credit checks and postal address matching) are not available.
Companies that write online software no longer need to spend time supporting multiple versions of the one program. This frees them up to add more features to the existing program. The pace of development is much faster than with desktop software. Instead of an annual update, online software is often updated several times a year. Bugs can be identified and dealt with much more quickly.
Making Exceptions – The Hybrid Model
Not all software companies are abandoning desktop software. Australian software company MYOB has updated its AccountRight Live suite of programs to include many of the benefits of online software.
AccountRight Live has a mobile app, bank feeds, a mobile payments app and automated superannuation payments – features more likely to appear in an online accounting program. It has the added advantage of working online and offline as users can “check out” their information from the cloud by saving it to the desktop.
Compromises include requiring to download the software before opening the data file, and only then to PCs; the software doesn’t work on Macs or Android devices. First-time users of accounting software will also benefit from the productivity gains in newer interface design in online accounting software (whether made by MYOB or its rivals).
AccountRight Live suits users of desktop accounting software who want most of the benefits of online accounting software without changing the interface or their workflows.
To understand the pros and cons of hybrid software check out Chapter 6: Strengths and Weaknesses.
The basics of accounting don’t change, whether running as a desktop or an online program. It can be broken into three components; general ledger for categorising your transactions, payroll for paying your staff, and managing your payments. Online software has made improvements in all three areas over desktop software.
In the next chapter we look at how making and taking payments with online accounting software can improve your cash flow.