Bookkeeping Software, Part 1: The Pros and Cons

Alright, folks, listen up! This episode is a must for all you business owners and bookkeepers out there, because we're diving deep into the realm of online accounting……software! It's a game-changer, sure, but before you jump on the bandwagon, let our resident bookkeeping mensch, Paul Rosenblum, walk you through the ups and downs of each option. With his savvy insights, you'll be armed to make the right call on which cloud-based accounting tools to roll with. So sit back, grab a coffee (or something stronger), and let's jazz up your financial game plan for success!

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Transcript

Episode #30

 A Deep dive into the Pros and Cons of Online accounting and how people aren’t using it efficiently and how to use it efficiently.

In this two-part episode, I will be talking about online accounting which has been gaining such popularity in the last 8 or 10 years that it’s hard to find accounting software that you can install on your local computer, other than QuickBooks Desktop, which is starting to go away, as we spoke about a few episodes ago.  Let’s dive into 10 pros and cons of online accounting software. In part 2, I’ll give you some suggestions for specific online software other than QuickBooks online (aka QBO). I’m (getting close to tax-seasoned out) Paul Rosenblum.

In this list, I will first present the ‘Pros’ and then the ‘Con’ for each item for what I call ‘full-service bookkeeping and accounting software’. Next week, we’ll talk about some of the ‘a-la-carte’ software.

Let’s Start with Collaboration: 

1.  (Pro) With cloud-based accounting, more than one person can log in and work in different areas from different locations without having a different license.  User #1 can be working on customer invoicing and User #2 can be working on a bank reconciliation at the same time. User 1 can be on their PC, User 2 can be on their MAC.  If used correctly, it could be a very efficient way to work. QBO gives 3 users with Essentials and 5 users with the + version.
2. (Con) In a small company, realistically, how many different hands do you want to have in your books?  Who is overseeing the data entry? In a larger company, there are controls in place, but in a small business, there probably aren’t. Since consistency is important in bookkeeping, as I have spoken about before, I believe that there should be ONE bookkeeper only. I have clients who have QuickBooks online, and they enter customer invoices, and payments, and I do the rest. There are times that the payments are not entered correctly, or the wrong date or even the wrong year is on the payment, and we end up with double entries. So if you, as a business owner want to be in your own books, have your bookkeeper or someone else train you in how to do things the right way. 
3. Always On: 
   1. (Pro) With online software, all you do is to log on and in theory, your books are always available. (Not just for you, but for other users with their ID’s and processes can happen in the background. 
   2. (Con) Since the software is always on, your imports from third party applications can and will happen automatically.  Banks, credit cards, project management, POS systems, etc. will all import without any monitoring.  It’s very easy to get used to that and just assume that all of this is happening when you sleep at night, but I can tell you from first- hand experience, they don’t always work correctly, even if they are set up perfectly. 
4. Unique cloud-based features:
   1. (Pro) One of the features of online accounting is that because the software is always on, you can schedule a customer invoice to be emailed even when you are on vacation.  Your computer doesn’t have to be on or logged in to your books. 
   2. (Con) Again, too many automatic things, even if you schedule beforehand, I’d still check to see if that function actually worked and did what it was supposed to.  Just because it worked once, it doesn’t mean it’s going to work every time.
   3.  (Pro)If you are using online banking, the system will automatically connect every 24 hours (In most cases) to the bank and download the previous days transactions. 
   4. (Con) Online banking is great, but there are several times a year that when I’m reconciling a bank or credit card account, the balance might be off by thousands of dollars.  As I go back and manually reconcile the account, I find that there is a day or two (or sometimes more) of transactions missing from the download.  I try and fix it, by disconnecting and reconnecting to the bank account, but to no avail.  So, I end up manually inputting transactions one at a time to make sure that everything is entered properly.  I could try the .csv file way, (which I’ll talk about in a few minutes) but if the bank wasn’t uploading those transactions directly to QuickBooks, then I didn’t want to take the chance with the .csv file doing the same thing.
5. (Pro) Bank and Credit Card statements: 
   1. In QuickBooks online, for one example, most banks, even the community banks and credit unions, allow you to connect and download transactions directly to QBO.  
   2. Many banks allow you to download and print out bank and credit card statements without the necessity of logging into the bank’s website. 
   3. (Con) Again, downloads from banks aren’t perfect.  One still has to do a manual reconciliation of all accounts to make sure that the downloaded transactions are correct and that there are no missing transactions or double entries.
6. Receipts: 
   1. QuickBooks and other online software also allow you to upload receipts that are handed to you when you purchase something for business purposes.  There is no limit as to how many receipts you can upload to your books. There usually is a limit per upload at around 20 or 25 megabytes which is plenty for a paper receipt.
   2. (Con) I’ve seen where receipts are uploaded to manually entered transactions, and then the bookkeeper (or sometimes the owner of the business) goes to the downloaded transactions and accepts the same transaction again.  To reconcile I end up deleting the downloaded transaction and keep the manually entered transaction since that transaction has the receipt attached to it. 
7. E-Filing 1099 NEC’s 
   1. (Pro) Because the E-filing is built right into QuickBooks online (for one example) ---- and many other online accounting software, there’s no separate site to log into.  Everything is integrated within the software.
   2. (Con) With all that I have spoken about in this podcast about 1099’s and all of those rules, I think I’ve armed you with the information that you need to E-file the 1099’s correctly.  But for the people who don’t listen to this pod, do they really know all the nuances as to how to create audit-proof 1099 NEC’s to stand up to scrutiny? The online software makes it sound so easy, but in reality, they aren’t, and I know that YOU know that (and if you are new to this pod, please listen to the multiple episodes about 1099’s.)
8. Upgrade/Downgrade 
   1. Like streaming TV services, the ‘pro’ is it’s very easy to upgrade instantly to a different version of whatever online software you’re using.  In QuickBooks online, you can upgrade from Essentials to the + edition in seconds, and even downgrade back to Essentials if you want or need to.  One does not have to change license numbers or reinstall software to your local computer.
   2. (Con) But which editions of QBO (for example) can you upgrade/downgrade to without a problem?  Your bookkeeper will know, or the pro-advisor bookkeeper will know, but most users won’t.  If you upgrade from Simple Start or Solopreneur to Essentials, you can’t go back to Simple Start or solopreneur--  Just to name one. 
9.  Importing Bank transactions ‘Indirectly’ 
   1. As I mentioned a few minutes ago, even if your bank doesn’t directly connect to the system, it doesn’t necessarily mean that you can’t import transactions in another way. Most software will allow you to import a .CSV (Excel file) into the online banking function.  So, as long as you can log in to your bank’s website, and download transactions via a .CSV file, you will be in business.
   2. (Con) Not everyone understands .csv files.  Once you download a .csv file, it has to be matched up to the columns and the input template of whatever accounting software you are using.  Once you do it a few times if needed, it’s ‘learnable’ and not that difficult. (A side note here: These are the kind of short videos I can do on the YouTube channel or in the Substack newsletter coming out soon.  Please see the link and sign up!  Or email me and I’ll put you on the mailing list myself.
10. Third Party apps: 
    1.  (Pro) Besides the receipts, QBO has an app built into it to track mileage that you use on your personal car for business matters.  They also have job costing apps that employees can put on their phones to track time spent on a particular job and then import to QBO later.
    2. (Con) Most of you know that I don’t love third-party apps, because unless you really scrutinize the numbers, you won’t know if something is being imported or  exported incorrectly.    

1. Sales Taxes
   1. (Pro) In QBO, for example, if you are creating sales receipts or invoices for your customers, the software will compute the sales tax rates automatically.  There is a company called “Avalara” and they connect to a few of the online accounting/bookkeeping softwares.
   2. (Con) The automatic sales tax feature ONLY works if you are typing in Sales Receipts or Invoices.  If income is being imported from third-party software or a shopping cart on your website, you have to be sure you are setting that up 100% correctly so that the sales tax numbers will also be imported.  However, QBO will not compute the % for you if you are using a third-party app to upload sales figures. 

These are my top 10 pros and cons to online accounting, in my opinion.  One important one that I didn’t mention, however.  There are times that I want to log in to QuickBooks online, and I get error messages, which just happened today, right in the middle of a bank reconciliation.  It’s usually fixed within 30 minutes, but it means that I have to start working on a desktop company until they fix the technical issue.   This also happened to me once during a webinar that I was doing for QBO, and the system shut down.   We waited almost 20 minutes, and it still wasn’t fixed.  So, it disrupted a large group of people who were logged in for the webinar. 

This brings up the larger issue of marketing the online accounting software.  Many companies market their product as easy to use, and a small business owner can do it themselves.  However, with all that I have spoken about the last several months related to what bookkeeping is in this podcast, it should be clear that bookkeeping isn’t only about the software, it's about the knowledge that a bookkeeper has.  It’s bookkeeping and accounting and taxes all combined to create one good product.  Every bookkeeper works differently, and has their strong points and weaknesses, (as do I) but then the next member of the team, the accountant or tax preparer, will make adjustments for tax purposes. It’s a team effort.  I have always disagreed with the marketing of online accounting software. (they say that it’s so easy to use, you can do it yourself). (That may be correct technically, but it doesn’t mean that you can do it CORRECTLY yourself).

I hope this episode helps in making a decision from now until July 31st either to use the online editions of accounting software or to go to QuickBooks desktop, when subscriptions will not be available any longer for new subscribers, except for the Enterprise edition.  

Please email me what YOU want me to talk about in upcoming episodes. Part 2 of this episode will be online April 4th. 

It’s still tax season for me --- I’m Paul Rosenblum