Cloud accounting: what you need to consider

The more things that accounting software can connect to, the more valuable it will be.

When small to medium businesses choose software, the big factors to consider are the suites of apps on offer and how well each option connects to other systems.

One of the most striking changes in the past decade has been the extraordinary jump in valuations for accounting software companies. Take MYOB – Archer Capital bought it for US$437 million in 2008 and sold it less than three years later for US$1.3 billion.

Within six years of its launch, Xero hit a US$1.6 billion valuation in 2013 with just 78,000 paying customers. 

Why are these software companies suddenly worth so much money? The reason is that accounting software has moved beyond crunching bank reconciliations. It can now connect you to other business software and financial services, and automatically feed data to add-ons to update information and cut out tedious administrative work.  

Cloud accounting software connects much more easily than software installed on the actual PC, which is why the jump in valuations has coincided with the shift to the cloud.

The more things that accounting software can connect to, the more valuable it is to its users. It is much easier to advise clients on selecting the right accounting software if you know a little about how the software connects.

The connector in the software is called an application programming interface, or API. You can imagine this interface as a collection of levers that, if pulled, will do something inside the accounting software. 

For example, one lever could create an invoice and another a new contact. Other programs pull these levers automatically when they want to share information. A sales management program could pull a lever and copy over the details for an invoice or contact.

The collectors

This automated exchange of information reduces the effort to keep multiple systems up to date. In turn, this makes it easier to understand what is happening inside a business. 

Today’s cloud-based accounting software connects to a vast multitude of niche business programs, mostly online, that are referred to as apps. These apps, often made by other smaller software companies, can be divided into those that collect information, such as bills and expenses and point-of-sale (POS), and those that perform a specialised function, such as customer relationship management (CRM) and inventory. 

“We are pushing to an API-centric platform. We will see a rapid growth in add-ons as that platform comes to market.” Keran McKenzie, MYOB

The former category uses APIs to push data from scanned receipts and documents into your accounting software. The best known examples in the Australian marketplace, Receipt Bank and Squirrel Street (formerly Shoeboxed Australia), use processing rules to categorise repeat purchases to the chart of accounts. The app creates a “spend money” transaction in your accounting software and can attach a copy of the scanned receipt to the transaction. 

APIs save users a lot of time when it comes to POS. Vend, Kounta and other POS apps push the day’s sales directly into the accounting software. This replaces the manual end-of-day cash reconciliation in a cash register using the Z report. 

Invoicing and job management apps also fall into this category. Tradespeople can fire off an invoice to a customer on their smartphone using ServiceM8 or SimPro and it will automatically record it in their accounting software, too. 

In theory, the more apps that connect to your accounting software via API, the better the quality of data contained in your accounts, as it eliminates manual intervention. 

The specialists

The second category of specialist apps update themselves using information contained in the accounting software. The most common is customer details. It is a tedious and error-prone task to type a new customer’s name and contact details into multiple apps.

An API will automatically add the customer in connected apps – and in some cases update existing customers, which is just as much of a chore. As well as updating the customer’s basic contact details, an app can also automatically update more detailed information such as invoices and payment history.

This is especially relevant to CRM apps used by sales teams. A salesperson visiting a client, for example, needs to know if the client has paid their latest invoices, and may want to view their order history.  

CRM tools are still trickling down from larger enterprises into small to medium firms, but the trend is picking up pace, particularly as they become easier to use due to self-updating API connections. Check out Insightly, Salesforce.com, Capsule CRM and Accelo, which are all popular with smaller businesses.

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Inventory software is another critical user of APIs. Small business accounting software – especially cloud-based versions – lack the muscle to manage complex inventories. Apps such as Dear Inventory, Unleashed, TradeGecko and Cin7 are filling the gap for plumbers, wholesalers and smaller importers. In fact, these businesses often use the inventory app as the single source of truth and the accounting software for compliance only. In software terms, the accounting program becomes the “add-on”.

One of the most important use cases for accountants is reporting. Fathom, Spotlight and Futrli (formerly Crunchboards) draw data from accounting software to populate graphical reports and dashboards.

Here, the API eliminates the low-value task of copying and pasting data into Excel spreadsheets to create graphs and tables. Accountants can instead spend their time explaining the reports to business owners and helping them make useful decisions. 

The improvers

There is a third, miscellaneous category of API-driven apps which can improve the operation of the accounting software itself. For example, customers are becoming more comfortable paying their invoices online. Accounting software may connect to a payment gateway such as Stripe, PayPal or eWAY. When a customer receives the emailed invoice they can click on the link and enter their credit card details immediately. The payment is automatically reconciled against the invoice. 

While a white-label form of this service has long been available with MYOB's M-Powered Services, SMEs can now choose from a range of payments providers with differing terms and fees. 

However, some accounting software connects to more things than others. A telltale sign of software with a developed API is the size of the ecosystem of connecting apps and services. A better API is easier to connect to and can do more things within the host accounting program, and it can push data out from the accounting software as well as receive it. Here’s a quick look at the major accounting software players for SMEs.

Xero

When Xero launched in 2007 it built its accounting software around its API. It was a radical approach at the time but it set the stage for rapid growth in third-party or add-on apps.

Today Xero has the largest add-on ecosystem in Australia and possibly the world (Intuit is the other contender). The number of add-ons passed the 500 mark in 2016, with apps for industries such as hospitality, construction, agriculture, legal and more.

It has also demonstrated a larger range of connections than anyone else. Xero was the first to offer in-app lending, teaming up with National Australia Bank (NAB). Xero users who connect a NAB bank feed see a little button within Xero. The loan process takes a snapshot of the Xero file, passes it to NAB to be assessed by algorithms and, if the applicant passes muster, a loan for up to A$50,000 can be transferred the following day.

In a test, Xero also demonstrated integration with CGU Insurance, which produced a quote for workers’ compensation insurance based on a review of the contents of the Xero file.

This year, Xero is expanding the API on the partner side with the coming launch of Xero HQ, a dashboard to manage all the Xero files in a firm. Xero hopes to replicate the business apps ecosystem with a smaller one for practice management tools that automatically pull and push data from a firm’s Xero file.

For example, an accountant could send alerts for activity statements and tax returns to popular project management tools such as Trello or Asana.

MYOB

MYOB took a while to build APIs for both its browser-based Essentials and the cloud-connected desktop software, MYOB AccountRight. Now, however, it is fully committed to the concept.

“We are pushing to an API-centric platform. We will see a rapid growth in add-ons as that platform comes to market,” says Keran McKenzie, MYOB’s platform evangelist.

The existing API is relatively limited, and a lot of data such as contacts is isolated, McKenzie says. A new API will change all that, although no release date is available yet.

Today MYOB products connect to 250 apps, representing the combined ecosystems of AccountRight, Essentials and POS app Kounta. MYOB doesn’t break out the size of the individual ecosystems. 

“The more things that accounting software can connect to, the more valuable it is to its users.”

MYOB claims to be further ahead than its competitors in connecting to one of the most important data sources, the Australian Taxation Office (ATO).

The ATO is also upgrading its API as part of the much larger Standard Business Reporting project, which can display a client list from the ATO within Accountants Enterprise. The API will then automatically create activity statements from the ATO’s list as they fall due.

Intuit

The US giant Intuit has been onboard with APIs for more than three years now. It may be in a tie with Xero in integrating with financial institutions, but Intuit is pulling away in its mobile apps, which are also dependent on high-quality APIs.

The QuickBooks Online (QBO) mobile app boasts more features than any of its competitors. Intuit is also moving quickly to produce a voice-driven mobile app called QuickBooks Assistant that will create invoices on command. 

Intuit is unique in exploring a new direction for integration – turning ecosystem apps into plug-ins that add extra features inside the accounting software itself. The technique was pioneered in Australia by payroll app KeyPay.

As Intuit had no local payroll app, it made KeyPay the primary supplier. The difference is that KeyPay’s payroll screens appear inside QBO and look like they are part of the accounting software.

QBO is still testing this plug-in framework with time-tracking and rostering app TSheets. If it takes off this will be a very powerful way to increase the usefulness of QBO.

Reckon

An unlucky choice of technology in 2012 forced Reckon to rebuild its cloud accounting software from scratch. Reckon began building an API for Reckon One only 12 months ago and has a correspondingly tiny ecosystem of apps.

However, the company has big plans. It has been adding services such as Reckon Loans and acquiring apps for timesheet tracking and POS. When the API matures, Reckon One will be able to push data directly to these apps and generate quotes for small business loans at the push of a button.

The app ecosystem will grow but not at the same rate as Reckon’s competitors, as Reckon prefers to take what it calls a curated approach. It’s unclear what this will look like in practice but the idea is that Reckon will pick a preferred app for each category rather than have multiple suppliers.

The biggest news on the API front is an impending integration with Zapier, an integration app in its own right that lets a user connect and then move information between other apps automatically. Zapier interfaces with hundreds of apps, so this one move will make a big difference.

Saasu

The old man of Australian cloud accounting software, tech-savvy Saasu was one of the earliest to move to a modern API and was onto its second generation API by 2015. The privately backed Saasu hasn’t enjoyed the same level of investment as Xero or Intuit, so it has been more selective.

Saasu has targeted e-commerce companies and developed integrations that suit their needs. For example, it was the first to integrate with Australian-based drop-shipping service Neto, which automates delivery of stock from warehouses.

It has strong integrations with e-commerce apps such as BigCommerce and Shopify and also connects to integration tools OneSaas and Zapier.

Its biggest feature release in recent years was a search feature called Jump Search that used the API to look up many types of information in less than a second.

A new API in the wings will include the ability to add attachments to transactions and have more secure connections to popular apps.

Sage

Sage is better known among accountants for Handisoft, its practice management software brand. However, it does have online accounting software for small business called Sage One, released in 2015. Sage One didn’t have an easy ride to market either and, like Reckon One, it is at the very beginning of developing API connections to third-party apps. In fact, its Australian website lists only a single app, the receipt-scanning Squirrel Street, in its marketplace. 

Sage has more advanced online software built on the Salesforce.com CRM platform called Sage Live, which hasn’t yet launched in Australia. It will have immediate access to the hundreds of apps in the Salesforce.com ecosystem, although not all may be relevant to accounting software.  

Read next: Choosing the right online accounting software


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