This article was a joint collaboration between chartered accountant Jonathan Bradford and computer scientist Ian Leader. They blog at Jay Eye Sea.
Online advantages
To date, there have been a number of online accounting systems developed - e.g. Mint and Xero - which showcase some of the obvious benefits of online accounting:
- Collaboration: More often than not, accounts are prepared collaboratively by a business owner and their accountant - and there may be a bookkeeper involved for all but the smallest companies.
- Retention of records: Typically businesses are required to retain their records for a fixed period of time by the tax authorities (six years in the UK).
- Accessibility: Typically the stakeholders are located in different places - currently requiring spreadsheets to be sent back and forth between the various individuals.
Drawbacks to Current Online Accounting Systems
There are a number of drawbacks in the solutions currently available:
Simplification
The greatest drawback from which accounting systems suffer is their UI. Accounting systems are invariably designed "by accountants for accountants", which makes them overly complex for the small businessperson - who typically doesn't have accountancy training. At the end of the day, it's just debits and credits. Accounting systems need to be "Googlised" - in the same way that Gmail broke the mold from what had come before (compared to mainstream products like Yahoo! Mail and Microsoft Outlook), accounting systems need a simplified interface that makes sense to business people.
Costs
Accounting software providers are well known for limiting the functionality in their "starter systems" - forcing users to upgrade to more expensive systems if they want to do much more than they can already do in Excel. Online solutions have exacerbated this problem by charging small amounts on a monthly basis forever.
What are the marginal costs of operating an online accounting system? They do not require significant processing capability, nor do they have significant storage or bandwidth requirements.
Basic online accounting systems should be FREE. There are significant opportunities to generate revenues from other sources other than the core functionality. Small businesses are overcharged for "limited" accounting systems. Offering free business services is familiar territory for Google or start-ups working off a cloud computing platform, such as Amazon Web Services.
Why Would Accounting be Attractive to Google?
Google could bring significant expertise to online accounting, thanks to their ability to deliver simple, effective online applications with high-performance and reliable infrastructure.
But other than providing an attractive service to small businesses, which could be integrated into Google Checkout and Google Docs, what else would make this proposition attractive to Google?
Historical information
Eric Schmidt stated this year that it is "Google's goal to organize your daily life". However he also said that "we cannot even answer the most basic questions because we don't know enough about you. That is the most important aspect of Google's expansion."
Let's revisit the records within an accounting system and consider them from a different perspective: what we have is a detailed multi-year repository of information about a small business. Remember, business owners are required to retain records for a certain period by tax authorities.
The records would include: what it has been bought, when it was bought, from whom it was bought it and how much was paid. This is the information that 'loyalty cards' regularly look to acquire. So it creates significant opportunities to deliver targeted and localized adverts. Undoubtedly Google could generate revenues from an online accounting application that exceed its low incremental cost. Yes, there are privacy issues, some of which Google faced when it launched Gmail. But consider this: the threshold a business owner places on his/her business records are lower than his/her personal information. You regularly share your financial information with your accountant and bank manager - but you wouldn't do the same for your personal data.
A business owner might also benefit from sharing this information to allow Google to present more cost competitive suppliers. Furthermore, it is not unusual for small business expenditure to be greater than an owner's personal expenditure - thereby creating a more attractive opportunity for advertisers.
Other revenue opportunities
There are two exceptions to 'accounting systems should be free': one is payroll, and the other is automated submission of returns (VAT, income tax and national insurance).
Both of these business processes require updating and validating on at least an annual basis, to keep up with changes in national legislation. Almost all small businesses pay an accountant and / or payroll agency to handle these - but an online system could offer this at substantially lower cost. This might not be that far away, given the recent additions by Google of Gtaxes to their DNS records...
Lack of innovation
Sometimes it takes someone to look at things from "left field" to move an application forward. By way of example:
Online scanning. Since the launch of Book Search, Google has developed significant capability in scanning and the TesseratOCR technology. This could easily be used to scan invoices and bank/credit card statements - removing the tedium of its input. Furthermore, it will include additional information which would be valuable to Google. Rather than just record the flight costs, the invoice might include other information such as time, destination etc. These documents could be scanned or faxed - similar to the service provided by File123.
Mechanical Turk
If scanning documents does not appeal, why not use a service such as Mechanical Turk to outsource the manual input of less sensitive information, such as such as invoices. Scanned invoices could be randomly presented to different Mechanical Turk users to be input for a few cents.
Integration capability
Google already has a variety of services available that could be tightly integrated into an accounting system:
- Google Search; the use of scanning/OCR technology would create a much larger repository of information on which a user and Google could search.
- Google Docs; invoices, spreadsheets and charts could all be generated using existing applications.
- Google Base/Checkout; online traders could integrate their online presence on Base and also Checkout to integrate with the accounting system.
Tell us what you think in the comments - is Online Accounting the next business frontier for Google to enter? Or will one of the current crop of online accounting startups get there first?
Top image: 10e20.com
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