Cloud accounting is one of the most game-changing technologies to hit Canadian small businesses in the last century. While the business of accounting hasn’t changed — it is still mostly a matter of collecting and making sense of data — the ability to affordably store and process that information in the cloud has the potential to change everything. To a certain extent, it already has changed Canadian business for the better. Cloud accounting is generally faster and more secure than desktop-based solutions. It’s also more flexible and adaptive than older methods of accounting, with a lot of promise on the horizon to get better and better.
Where did this innovation come from, and where is it headed now? How popular is cloud accounting among Canada’s small businesses, and what does it do for them? Perhaps most important, what are cloud bookkeeping apps doing for Canadian companies, and why are so many switching to online solutions for their payroll and revenue tracking software? The path forward for many small businesses seems to be through the cloud, and so it’s worth a look at the current state of the art, as well as a brief look at where current trends are likely to go in the near future.
The History of Small Business Cloud Accounting
Small business cloud accounting has been an overnight success years in the making. Starting with a few small experiments in the mid-2000s, cloud bookkeeping and accounting programs quickly found their niche and expanded into the industry standard. Mobile technology helped at crucial points, so that now it’s getting to be unusual to find a business that isn’t at least thinking about moving its books to the cloud.
The Beginning of Cloud-Based Accounting
The first stirring of what would become cloud bookkeeping began in 2006, with a small number of experimental apps running mainly in New Zealand and Australia. What was new about the cloud approach to accounting was that it promised to entirely replace desktop versions of accounting software within a few years. Here was a bookkeeping ecosystem that hardly took up any space on users’ hard drives, kept up to date on the latest changes in tax laws and accounting best practises, and used cutting-edge security programs that could stay ahead of the most determined hackers and malware sites. Best of all, cloud-based accounting apps delivered these perks automatically, since the servers they ran on could regularly be updated by professionals working in a data center, rather than leaving it all to a group of employees at the customers’ locations. The benefits of cloud bookkeeping were easy to explain and market to almost anyone professionally engaged in accounting work.
Within a few years of those early experiments, QuickBooks Online was launched as an integrated solution for most or all small business cloud accounting needs. Using many of the best ideas from the experimental period, QuickBooks offered an online-only version of its already very successful desktop software. In addition to all of the advantages of the cloud, this product brought a few new selling points. One important advantage QuickBooks software had was integration of third-party apps. These are accounting and bookkeeping apps users might already have been using for years and be comfortable with, or new apps that added useful functionality to the job of running a professional set of books. Users of other apps might not have been eager to switch to a new system, so QuickBooks made it possible to import data directly from the old systems and still use some of their best features in its own cloud ecosystem. This turned out to be a winning approach, and QuickBooks got an early start marketing its online-only product in Canada and the United States.
Going Mobile: App-Based Online Accounting
At the same time cloud providers were marketing a new way to do a company’s books to accountants and other bookkeeping professionals in the U.S. and Canada, another quiet revolution was taking place that would have just as big of an impact on cloud-based accounting as the original software did: mobile technology.
The first modern smartphone was released in 2007. It introduced millions of people who had been used to flip phones to the concept of easy app-based computing, and the positive response fueled the development of newer and better models of smartphone. Tablets were next, with mobile computing turning from a fun toy into a serious piece of business technology. Soon, HR professionals, IT managers, and accounting pros all over the world were doing at some of their work on the go or from home. By June 2009, the U.S. Federal Communications Commission (FCC) reported over 38.4 million active mobile subscriptions. One year later, that number had increased by 85 percent, to 71.2 million subscriptions in a nation of roughly 100 million households. It was inevitable that mobile technology and cloud-based accounting apps were going to find one other.
Small Business Cloud Accounting Today
Cloud accounting has risen to take a leading role in the modern Canadian economy. By taking advantage of the cloud’s high reliability, fast data handling and near-infinite storage capacity, a small business today has the ability to compete with even the giants in its industry. From single-person operations in Toronto managing the accounts on a dozen sales a day, to medium-sized drilling companies in Alberta tracking costs on over a hundred exploratory wells, the current state of small business cloud accounting in Canada is exciting and alive with promise.
The Saturated Market
By 2018, the number of cloud users had ballooned to an estimated 3.6 billion. That’s up from 2.4 billion in 2013, which was itself the product of rapid early growth in the late 2000s. There are many applications competing for what has arguably become the largest consumer market in the world, but cloud accounting remains a favorite entry point to the cloud for hundreds of millions of users. Canadian businesses are near the front of the pack for adoption of cloud technology. Between 2016 and 2017, the percentage of Canadian businesses doing some kind of business on the cloud jumped from 59 percent to 73 percent. That growth has continued with no sign of slowing down.
It’s not surprising that cloud-based accounting has taken off among Canadian organizations. More than 75 percent of Canada’s workers are employed by the service sector, which accounts for over 70 percent of the entire Canadian economy. At the high end, this sector is all about B2B and finance, which depends on fast, secure communications and accounting all parties can rely on to work. Cloud accounting is the best way to deliver what might be Canada’s major export to the world: reliable financials.
Big Data and Other Innovations
Another reason Canadian companies have been enthusiastic adopters of cloud solutions to accounting has to do with all the extra information they’re working with these days. IBM estimates that 2.5 exabytes — that would be 2.5 quintillion bytes — of data gets generated by normal commercial activity every day. It is further estimated that 90 percent of all the data humanity has ever collected has been generated since 2017. Accounting for all this data requires attention to the “four Vs” of big data on the cloud:
- Volume. The volume of data Canadian businesses have to deal with is huge and getting bigger all the time. Even for a modest accounting firm, a single client might be asking for analysis of thousands of geographically distributed transactions a day. Small businesses now have the ability to gather data as efficiently as larger enterprises, which can give even the smallest players an edge if they can handle the information coming at them.
- Velocity. Data arrives fast, and it has to be captured and processed as quickly as possible if it’s to be of any use. One advantage cloud accounting has is the ability to distribute data acquisition and processing throughout a network, which not only helps prevent avoidable mistakes, it also speeds up the decision-making loop considerably.
- Variety. Modern businesses take in an awful lot of diverse data, which takes a cloud solution to manage and make sense of sometimes. Just one company’s accounting software is likely to have revenue and expense data, as well as payroll, bookkeeping, taxes for every country it works in, currency conversions (computed daily, weekly, monthly, or quarterly) and countless other bits of seemingly unconnected data. When the manager of a Canadian logging company is trying to decide whether it’s a good idea to contract U.S. loggers in Maine to cut 1,500 acres and pay them in dollars, or to hire Indonesian loggers in Java to cut 2,750 acres and pay them in rupiahs, this is the kind of diverse information that might be needed.
- Veracity. Information does no good if it’s false. In fact, untrustworthy data does far more harm than having no information at all. Yet, over 65 percent of executive-level decision makers say they don’t trust at least some of the information they’re given when they research issues pertaining to their business. Cloud accounting has the great advantage of being a potentially incorruptible source of reliable information for executive decision makers to lean on when assessing financial issues, from sales volume to payroll matters.
Verticals and Micro-Verticals in Cloud Accounting
In the old days, the cloud accounting software market worked very much like an old-fashioned grocery store. The vendor would guess what the customers wanted, then the shelves would be stocked, and the products would sell or not sell, leaving the grocer to guess again at what the customers were interested in buying. Today, the cloud accounting market couldn’t be more different. The big change since 2010 or so has been the development of vertical and micro-vertical integration across platforms. In part, this has been driven by increasing ability for cloud servers to handle big data and tailor solutions for specific clients, but it’s also in response to organic industry demands.
In cloud applications, a vertical integration is when the client and vendor collaborate to create a service the customer needs most, while other customers get similar but customized products for their own operations. In the grocery analogy, this would be like a customer from an Italian-food restaurant asking for Roma tomatoes, and the shopkeeper ordering them in the exact quantity needed. If the owner of a vegan restaurant asks for heirloom tomatoes, the grocer agrees to stock exactly enough heirloom tomatoes for this customer. And so on.
In cloud accounting software, a vertically integrated solution could be a payroll system that tracks and pays for hours worked, plus overtime, plus commissions for certain employees. Then, a similar but distinct payroll app could do a similar but slightly different job tracking hours worked, plus bonuses, minus withholding deductions, plus vacation hours accrued, and so on. In the context of the cloud, this could be the work of half a dozen separate apps, all of which work together holistically in a tailored solution that works for the specific customer.
What Does the Future Hold for Cloud Accounting?
Nothing stays the same forever, and the future is hard to predict. With those caveats, it is possible to peer through a glass darkly at the immediate future of cloud accounting for Canadian small businesses. Some innovations, such as AI, are the kind of change that can be expected to have broad-reaching effects on almost every business in the economy. Others, like increased vertical integration and micro-layering of apps in the cloud, are much more specific. While it’s tempting to think in broad strokes about the big changes, sometimes it seems the small changes have the most leverage going forward.
Machine Learning and AI
Artificial intelligence is all the rage in modern computing, as it has been all the rage in science fiction for decades past. It’s not fiction anymore for accounting, and machine learning algorithms are already starting to make a difference to how Canadian small businesses are handling their accounting in the cloud.
As Canadian firms take in ever-increasing volumes of data, some kind of sorting mechanism has to be employed to make sense of it and come to reasonable conclusions. At its heart, this is what AI is for — sifting through ridiculous amounts of seemingly unconnected facts and drawing reasonable conclusions. With the right machine learning system, it becomes possible to not only track the income and expenses for a single company, but those of an entire industry across decades of recorded data and derive likely projections from it. This has obvious applications for up-and-coming small businesses, as well as for Canadian firms looking to compete abroad in a post-USMCA trading environment.
A good accounting AI can already, in the present day, use its almost human-like language processing ability to rapidly scan through thousands of documents and come up with certain key phrases — such as “debt” and “unsustainable” — to arrive at predictions about where a company’s finances are going. That’s a simplified model, but the same trick can be done with billions of transactions to identify even tiny amounts of waste and fraud. Employees with a company gas card, for example, tend to use it at slightly different times of day, or in slightly different quantities, if they’re filling up their own vehicles. That kind of misuse of company assets, though petty in itself, is definitely worth catching, and the algorithms to spot it are only getting better.
Another way artificial intelligence can help sort a company’s books is with long-range, but highly specific, predictions about which customers, clients or markets are more trouble than they’re worth. It has been known for decades that the vast majority of costly customer service and other issues are caused by a relatively tiny fraction of the customer base. In a similar way, most of the losses related to employing workers are generated by a relatively small fraction of the total workforce. An intelligent computer system can sift through the various signs problematic customers and employees tend to give off and predict which are likely to become a headache later on. This information — for instance, if customers in Winnipeg tend to complain over the phone 1.5 percent more often than other customers in Canada — can then be used to plan a better approach for those potentially dissatisfied members of the public. In this case, it might be worth sending out a mailing to Winnipeg-based customers with instructions on how to use a product the company sells, for example, to allay the inevitable customer service inquiries. In the case of problematic employees, a good AI could spot the connection between employees taking paid vacation and then later calling out sick. The insight generated might allow an employer to restructure an incentive program for attendance or even encourage a specific employee to get a checkup from a doctor well before a potentially costly health issue comes up.
The vertical integration of compatible apps has already become a major part of what makes cloud-based accounting apps as powerful as they’ve grown to be. This is almost certain to continue as apps grow more varied and specialized, with new needs arising for increasingly niche applications. Much of the work currently being done in cloud accounting software is toward better and more seamless integration between apps with different capabilities, and some systems have already achieved a reasonably big inventory of compatible apps users can choose among to work with. This trend can only continue, until something like a market standard for compatibility is common to every app, and a cloud-based solution is available for virtually any need that could arise.
Another approach to vertical integration that hasn’t made a splash yet, but which might have a big future is layering apps. This works a lot like the package deals vertical app markets currently offer, but with a more salad bar-style approach that lets the user build a more tailored cloud accounting solution for themselves. An example of this would be if a small accounting firm needed to handle financials for a startup, payroll for an established client and a data security audit for a one-off customer who might develop into a long-term contract. In that case, an ideal solution might be to have a standard payroll app coupled with a financing app, interest rate/loan calculator and a report generator for the audit client. The layered approach to this situation is to choose a specific app for each task, then combine — or “layer” — them all together into the cloud app you’re already comfortable using. This can already be done to a certain extent, as when QuickBooks users combine their payroll and time-tracking applications in a single workflow. The system has been working so well for so many users, it’s hard to believe this isn’t going to be a major feature of any cloud app ecosystem of the future.
Cloud accounting has come a long way since the first experiments on a few New Zealand-based servers in 2006. Since then, the range of online-only applications has ballooned outward to the point that cloud-based systems are now the norm in accounting, finance and many small businesses in Canada. Today’s apps have a lot of advantages, notably in security, speed and storage capacity, but there’s obviously still a lot of room to expand. In the future, it’s likely that the demands of big data and complex international transactions will call up novel solutions that modern systems only hint at. In particular, artificial intelligence is likely to play a bigger role in analysis and decision making at the executive level, while integrated software packages are set to make the biggest splash on the ground floor. Layered computing is possibly the sleeping giant of the cloud computing world, while online cloud accounting software, such as QuickBooks, seems poised to hold its lead among Canadian accounting and small business enterprises. QuickBooks Online Accountant helps you manage projects, tasks and clients together. Sign up for free.