Those who have been in the profession for a while have seen manual bookkeeping shrink and almost vanish, timesharing on mainframe computers come and go, and the rise of minicomputers, personal computers, and in-house networks. You’ve also seen the client-server model emerge as a default solution.

In that, the desktop is used for data entry and examining the underlying financial and transactional data, and the actual accounting system is run on a centralized server. Recently, that centralized application and data repository has increasingly moved off of in-house servers — and into the cloud.

That’s not too surprising, given that much of our lives have moved there as well. The initial distrust and uncertainly of moving client accounting into the cloud has started to dissipate.

We surveyed nine vendors who currently offer cloud-based accounting on where they thought the application was going, and what features customers and accountants are asking for. Also included was Jim Bourke, a partner at WithumSmith+Brown and perennial member of Accounting Today’s Top 100 Most Influential People in Accounting (for more, see article at left). We weren’t at all surprised that most of the respondents see a similar future, and that future bodes well for the cloud.

 

PLAYS WELL WITH OTHERS

Application integration is something that has plagued in-house installations since the beginning of the computer age. The reason that integration is so important is simple: Financial accounting doesn’t exist in a vacuum — it’s just one part of a business’ overall workflow. And the more difficult it is to move data along the workflow, the less efficient, productive and accurate that workflow becomes. Add to this the fact that accounting itself has multiple components in what used to be called subsidiary ledgers, and it becomes obvious what a bump in the road poor integration and workflow can present.

Different vendors are taking different approaches to smoothing the bump. One approach that some are taking is to present their offering as a single seamless product or system, incorporating the features they believe will be most necessary to their customers. NetSuite’s Craig Sullivan, senior vice president of enterprise and international products, told us, “We have recognized that businesses are increasingly looking beyond basic cloud accounting solutions to operational ERP systems that unify more of their business processes in the front office with traditional finance functions in the back office.”

Kirk Simpson, CEO and co-founder of Wave, noted: “On one hand, tech-savvy business owners who use multiple cloud tools want those tools to talk to each other. On the other hand, given the choice, they would rather not have to use multiple tools. Small-business owners would prefer to have everything built into one tool, rather than go through the exercise of connecting add-ons.”

Others are developing or have developed application program interfaces, which are pipelines that allow data to flow from one application to another. AccountantsWorld is just one of the vendors taking this route. “There are some really useful subsidiary apps, such as bill payment, credit card gateways, time and billing, and project management apps, inventory management systems, and employee expense systems. I anticipate that accounting applications will include functionality from some of these apps within the next couple of years,” AccountantsWorld CEO Chandra Bhansali told us.

Regardless of how it’s accomplished, better data flow is important. NetSuite’s Sullivan emphasized, “Being able to access financial information from applications outside of the accounting/ERP system is vital to operating a modern business.”

 

SHOW ME THE MONEY

Cash flow is a major concern for both accountants and their clients. This is being almost universally reflected in the design and implementation of accounting systems that reside in the cloud.

In looking into their crystal ball, many of the vendors told us that they either already have strong accounts receivable/billing or are giving this area of the accounting system increasing importance. “Payments are a big thing for us. Giving our customers, whether accountants or their small-business clients, the ability to collect payments right away is huge,” said Kasey Bayne, director of marketing at Kashoo.

 

MANUAL? WHAT MANUAL?

Ease of use was another area that vendors are putting a lot of effort into. “What can be made simple, will be made simple. What can be automated, will be automated. This will force accountants to refine the value proposition of their work. The most successful accountants will be those who transform their practices to offer what software can’t do: strategy, advice, business optimization and so on,” predicted Wave’s Simpson.

Kashoo’s Bayne agreed: “We’re focused not on adding more features necessarily, but making the whole experience, from start to finish, even easier for accountants and their clients. Less data entry, more automation, and great integration with our partners; that’s where the future of cloud accounting can really improve for our clients.”

Wave is another vendor emphasizing this: “Our enhancements in the next year are around ease of use. It’s about taking the best insights around user experience and product design, and bringing simplicity to what have traditionally been complex tasks,” Simpson told us.

 

ENSURING THE RIGHT FIT

Vertical markets are another area that many vendors are paying more attention to. In some cases, vendors are partnering with third-party developers, a practice that’s common with purveyors of in-house applications. Other vendors are taking the approach of making their cloud offerings more modular, letting a vertical enterprise tailor the system to their particular needs.

Vijay Ramakrishnan, senior director of product marketing for Intacct, feels that verticals offer an opportunity: “We believe cloud accounting is uniquely positioned to offer vertical solutions. The concept of being a best-in-class solution relies on partners extending existing systems for specific vertical-use cases. As a result, we are seeing high customer growth in traditional vertical industries such as nonprofits, wholesale distribution, and light manufacturing.”

Xero US president Russell Fujioka also sees an opportunity in cloud-based verticals: “Accounting has traditionally been horizontally focused, but the increased concentration of venture capital investment and market adoption of vertical applications will propel the accountants to align their practices along certain industries too.”

Not everyone we surveyed believed that there is a wide market for cloud-based verticals. “My expectation is that a few verticals, with very deep pockets and very specific needs, will see custom development. Law firms are one example,” said Wave’s Simpson. “Here’s the thing that limits this approach even more: If I’ve adopted a niche accounting software made for my vertical, and I’m paying premium prices for it, I’m going to want that software to do more than accounting.”

 

EVEN MORE MOBILITY

One of the largest attractions of the cloud is that it’s easy to reach from anywhere there’s an Internet connection. With accountants often being among the most peripatetic of professionals, the need for mobility is taking on increasing importance.

Wave’s Simpson addressed the point: “It’s less about ‘How can we squeeze accounting software onto an iPhone?’ and more about reimagining how you accomplish the goals of accounting in a smart mobile experience. How do you get to the right outcomes (insights, actual cash flow, and readiness for tax filings) via a mobile-friendly tool set? That’s what we’re working on at Wave.”

Sage is another vendor putting greater emphasis on mobility. “Mobility is also key. Being able to take your business anywhere you go is essential. The office of the future is no longer a desk in a building. Instead, it is anywhere and anytime,” we were told by Jennifer Warawa, global vice president of product marketing for accountants.

 

BIG CHANGES COMING

Another thing that many of our respondents seem to agree on is that the role of the accountant is going to evolve along with the accounting system. NetSuite’s Sullivan noted, “More than ever, we’re seeing finance and accounting taking on greater responsibility in overall business strategy. People in these roles have a huge opportunity to advance beyond simply ‘keeping the books,’ but it requires a flexible system.”

Talha Baqar, Zoho’s market development manager, agreed: “Online finance programs and the industry of cloud accounting are rapidly moving toward an automation of day-to-day tasks, with accountants transitioning to consultant and financial advisory roles. This allows business owners to move beyond managing finances to focus on what truly matters: growing their business. ... Accountants are also moving away from providing end-of-quarter and end-of-year services to becoming hands-on consultants.”

Intacct’s Ramakrishnan also has some ideas of where cloud accounting is heading: “Manual data entry disappears. As companies move to paperless processes and cloud applications, data entry will disappear as data will flow seamlessly from system to system. Also, approvals are nearly eliminated. Manual approvals will be replaced by machine-learning algorithms which will handle 99 percent of all approvals, leaving only exception processing for human approval.”

Several vendors also proffered a prediction that the cloud will hasten the evolution of accounting software. Jorge Olavarrieta, group product manager for Intuit, predicted, “Within the next few years, we see the open nature of platforms and the greater availability of data opening the door to a new breed of solution — business intelligence tools.”

Sage’s Warawa sees accounting becoming transparent: “As employees run their daily activities, accounting will be happening even if they are not aware of it. For example, time and expenses will be tracked in the moment, payments processed and posted as they happen, decisions will be made with the latest real-time data with a tap on a wearable device. Ultimately, this will all lead to businesses having real-time intelligence so they can make smarter decisions, faster.”

And WS+B’s Jim Bourke provided an even more interesting prediction. “I see a shift from the smaller to the larger companies going to the cloud as they come up for equipment refreshes. Many small guys jumped on quickly, but the larger could not do the same due to their investment in infrastructure,” he said. “There will continue to be a huge continued migration to the cloud — so much so that I believe we’ll finally see legacy vendors killing off production and support for their in-house solutions.”

Xero’s Fujioka echoed Bourke’s vision: “We believe we are at beginning of the end of small-business accounting software and the dawn of small-business platforms built beautifully in the cloud.”

And Kashoo’s Bayne summed up the future in a single sentence: “Cloud accounting will just be called ‘accounting.’”

 

CLOUD ACCOUNTING PLAYERS