Cloud computing is cheaper but the main reason to look at a cloud-finance system is to integrate all your business IT. After spending the last three years becoming a credible option for fast moving, smaller businesses, larger business should now evaluate moving their finance systems to the cloud.

 Tim Richardson is an Australian CPA with CFO & Finance Director experience with large SMEs and multinationals. He had senior IT and Finance roles in Indonesia, Asia Pacific and Western & Central Europe. Prior to moving into finance, he was an ERP developer, implementation consultant and implementation project manager. 

The cloudy new direction of business IT

The future of business IT is in the cloud. It's cheaper, simpler yet more insightful and more productive. The cloud revolution is propelled by fast, reliable internet; cheap, open-source servers and widely-used open-standards for interchanging data and instructions between software.

It's not the low cost which is the real potential of cloud-computing. It is these interfaces, called APIs, which are the most revolutionary aspect of cloud computing.

The API revolution

The traditional model of business IT is all-under-one-roof monolithic IT systems (the king of this jungle is SAP R/3; MYOB is its little brother). These systems were hard to integrate with other software, requiring specialised skills in proprietary languages and even proprietary databases. Once a business committed to a platform, it was largely locked in. After paying high upfront licence fees, they could look forward to expensive annual maintenance fees. Businesses relied for implementation on consultants who were narrow specialists in a particular proprietary solution (in fact, software specialists were themselves locked in to particular solutions; moving to a new system was a traumatic career change). 

The monolithic approach risks a "Jack of all trades, master of none" approach. Why did they dominate business software? Before the rise of modern APIs, the cost of wiring together "best of breed " software was so high that monolithic systems ruled the earth. Now, they are an endangered species. Expensive to own, slow to innovate and hard to use, they are on the way out.

The API revolution can be starkly illustrated by the old and new approach to integrating software. A traditional software solution charges very high fees to buy the "developer licence" which only then provides the documentation and software allowing programmers to import and export data. Apart from the licence cost, APIs were poorly standardised and required a lot of love and attention. Putting together systems required much specialised knowledge.

Cloud providers provide access to the API for free. Usually you don't even need to register. They all support the same approach to sharing data and commands, and allow developers to use open-source languages like Javascript and PHP. There are thousands of developers in Australia alone who can take two APIs they have never seen before, and get some basic interchange working later that day.

So the API revolution finally makes it possible for small businesses to combine best of breed software, something which even large companies would not attempt ten years ago.

But are you here to evaluate core functionality?

Smaller businesses come here looking to find a bookkeeping solution, and they will compare functionality to the benchmark, which is MYOB. This is actually fairly easy. Saasu is the closest match to MYOB Account Right Premier, since it has a basic inventory module. Xero doesn't. Saasu is cheaper than Xero as well. But Xero is still a good choice, as you'll see below. Xero has a better API and it has ready-to-integration with more software, including some very good inventory packages that leave MYOB Account Right in the dust.

The real benefits of a cloud package don't really come from being to view your accounts from an iPad on the beach. The real benefits will come when you want to add online stores, CRMs, marketing automation, point of sale, social media and Google Apps. You should give attention to the quality of the API and size of the ecosystem.

A case study in ERP savings for a larger business

I was approached by a manufacturing business using a legacy ERP system with annual maintenance fees of around $10,000. As well, the software required Windows Server, and an upgrade was necessary since they were on Windows Server 2003.

The owner of this business was interested in Xero but knew it was not a replacement on its own. So he contacted GrowthPath. 

I was skeptical. Xero had no inventory functionality, let alone any support for manufacturing. 

However, I studied a third party package called Unleashed. This package offered purchasing, ordering, inventory management and simple routing and costing. It was not a one-for-one replacement of the existing software. But it was close, and it avoided a server upgrade, delivered annual savings of around $8000 and allowed the owner to easily stay in touch with the business while travelling. For my consulting fee I provided data migration instructions. The conversion was successful.

A case study in API integration

A traditional POS cafe IT setup would cost around $8000, involving a Windows server, and dedicated POS software. On top of that you then provide an accounting package. There are hidden costs in running a server; the electricity bill is not trivial, but it needs backups and much love and attention.

Or you can subscribe to Xero for the bookkeeping and payroll, Kounta for the POS (running on iPads) and Deputy for staff rostering and timesheets, three cloud systems. There is no server. You still need to buy a cashdrawer and order printers, but there is a lot of change left from $8000, and you can see up to the minute sales data from anywhere.

A simple mashup

Another business is a jewellery wholesaler. When signing up retail outlets, it's helpful for both the wholesaler and the potential stockish to see that there are no other stockists nearby. Using APIs, it is only a couple of hours work to combine Google Maps and Saasu's customer database to have an stockist location map viewable on the sales rep's iPad. Google  has a free geo-location API which will take a list of addresses and give you the precise latitude and longitude, so you can easily show stockists with a certain radius of a location.

 

Accounting systems remain at the heart of business IT

The heart of the traditional business software is accounting functionality. Many visitors to this page are in one of these camps:

  • Businesses which are looking to exit MYOB because they have outgrown it
  • Businesses which are looking to exit traditional ERP software because they seek an alternative to expensive licence fees
  • New businesses looking for a system choice

Based on feedback and questions I get, I feel (anecdotally) that the the second type of business is growing fast. I am therefore reorienting this content. 

In all cases, visitors to this site are considering a cloud accounting system at the heart of their IT stack. Of course, by now, many businesses have cloud applications doing important roles: at the very least; websites, online stores, and possibly marketing automation tools like Infusionsoft. 

Three years ago, cloud accounting software had limited functionality and a deserved reputation as tools limited to micro-businesses. But since then, the functionality has evolved in interesting ways, particularly to support collaboration and a less PC-centric way of working. The other development has been the rapid growth of the cloud-ecosystem. The promise of building plug-and-play IT by linking together software from different vendors has come to pass.

So where do the Australian cloud-accounting packages stand? How do you choose?

The Summary

a) the core accounting functionality of cloud packages does not yet rival mature packages in some areas which may be important. However, functionality gaps are likely to be solvable by integrating another package. 

b) the ecosystem of connected applications is a key reason to make the move

c) For more complex businesses, Xero must be on the shortlist. Xero has the best ecosystem by far.

d) Business using traditional ERP packages can save a lot of money and dramatically modernise their IT

e) To assess how genuinely cloud-ready a package is, Google to try to find the API documentation for Javascript and PHP in less than two minutes (e.g. "Xero API")

f) don't forget the productivity advantages of modern IT. No more emailed reports. Lose the clunky integration with Microsoft Outlook. Mobile-phone snapshots of receipts and notes are simply attached. Mobile phones, tablets and Chromebooks are first class devices.

Our own experience

When we started GrowthPath, we had no intention of relying on PC-based software whenever there was an alternative. There were a few candidate solutions for our accounting & billing needs. We spent the first year on MYOB's offering, "Live Accounts", and then moved to Xero, and then to Saasu.

Vendors of cloud software usually deliver new features and improvements quite often, so these packages are moving targets. Comments here are based on functionality at the time of writing. 

MYOB Business Essentials (formerly MYOB LiveAccounts)

MYOB is a legacy vendor. Like many other businesses in the same position, MYOB was not very motivated to disrupt a segment when it had a dominant product. For a long time, MYOB offered a very basic cloud product. It was easy to use and cheap, but gained little traction. It had no API, for example, so it attracted no developer support. MYOB didn't commit to the real promise of cloud software.

Business Essentials is a reboot. It keeps the simplicity of LiveAccounts but offers a good API. MYOB lost years, and it suffers by being late to the market. However, MYOB itself appears to be resourcing integration with some well-known cloud packages, and the use of an web-based API means that building your own integration is easy. But for a business of any size, this could mean quite a bit of work.

  • MYOB Essentials is well supported, with very helpful live support included in the subscription.
  • It's a real double entry accounting system with real live feeds from bank accounts.
  • Given it's a real accounting system, it's not complex. It's fast to get started.
  • MYOB Essentials has some big functional gaps. No inventory, no support for different credit terms or even rudimentary job costing, no payroll.
  • Reporting is basic. Almost no support for cash flow forecasting. Virtually no export to Excel.
  • LiveAccounts looks quite close to MYOB. The default chart of accounts follows the same numbers. The BAS report looks like BAS Link.

While Essentials is a big improvement from MYOB LiveAccounts, MYOB clearly does not expect it to appeal to "larger businesses" (which it defines as > $3m). MYOB points people to a hybrid-web version of its traditional MYOB product, AccountRight, and from there it offers MYOB Exo, a traditional (and not very impressive) ERP package. MYOB is steadily adjusting to the new world; it remains to be seen what happens to its market share. 

MYOB AccountRight Live

Most of MYOB's customer base is using AccountRight Premier, the traditional MYOB product. It is basically a technological shipwreck. Over the years MYOB has made a few attempts at fixing it. MYOB's most promising response is AccountRight Live, a new product. It has some features of a cloud package, including an API. 

It is a new product despite the familiar name. It lacks functionality of AccountRight Premier, and doesn't support the ODBC driver, which is bad news for businesses which have invested in this form of integration. The client still requires use of Windows; so although the data is cloud-based, the software is not browser based. This is a strange and limiting approach. Possibly it is designed to appease concerns about lost internet connectivity, a mythical beast for most businesses. The premise of cloud IT is an internet service as reliable as its predecessor, the the phone system.

The developer in me also wonders about the complexity of keeping cloud and local data synchronised; no other product attempts anything like this and it is very hard to get right. And for what benefit? How often does your business internet connection fail?  We may admire MYOB for this achievement, but this complexity will slow down the rate of innovation.

MYOB says that the local data sharing works for up to five users. The limit of five unfortunately reminds me of the limitations of the traditional product, although hopefully this is just an eerie co-incidence. 

It doesn't seem to have gained much traction and MYOB is late to the market with this. It's hard to find advantages which outweigh the disadvantages and there are certainly a few questions I would ask before taking steps down this path. 

Xero

The elephant in the room, at least in Australia/New Zealand, is Xero. Xero is a genuine disruptor. Xero launched later than Saasu, but with a crystal-clear understanding of their market and what a cloud-solution should offer, Xero looks like a winner. Every third party product integrates with Xero; it is the iOS of the cloud accounting market.

Xero is a good accounting package. Australian localisation is second to none. It has an excellent and well tested API. It has promoted a good certification program to develop skills among book-keepers, and there is a lot of community support. Functionality improvements are constant. Even more interesting is where Xero does not attempt to go.

Inventory management is the best case study. So far, Xero does not offer an inventory module. MYOB AccountRight, a key competitor, does have inventory. So does Saasu, which was explicitly designed to be a cloud-version of AccountRight. 

Inventory is actually quite complex. AccountRight does not offer much in the way of costing flexibility, stock control, locations .... It doesn't help much with customer returns, order tracking, drop shipping, or product variants. When your business demands these, the traditional expectation is that you leave MYOB (or QuickBooks) and move to a "real" ERP. Inventory functionality is a rabbit hole.

Xero has decided not to go down the rabbit hole. Instead, it leaves this to other cloud-players, who can then use Xero's API to integrate easily. And this has happened. There are cloud providers who offer inventory management solutions approaching the capabilities of respectable ERPs with licence fees above $50K. These packages provide multi-site inventory management, purchase orders and sophisticated sales order systems. And of course, integration with online stores like Shopify is supported "out of the box". 

In terms of core accounting functionality, Xero is somewhere between MYOB Essentials and AccountRight. But with Xero, extending capabilities is easier than any of the competition. No package has a better API, and Xero also has the largest developer mind-share.

I think most medium sized businesses will find Xero's payroll, basic reporting and GST functionality fine. Like AccountRight and Saasu,  Xero requires that you understand book-keeping. MYOB Essentials reduces functionality and makes interface choices to be more accessible for one-person businesses.

Xero shines as part of a cloud-based workflow. Here it is well ahead of its competition. Export of reports into Google Drive is native, for example. Images and notes can be attached to most records. Saasu is making some recent strides in this direction.

Saasu

I frequently come across people who don't know Saasu. Saasu is older than Xero, and it's Australian. So why is it relatively obscure?

For strategic reasons. The founders of Saasu have chosen not to raise millions and burn it on marketing. I'm not sure that was the correct decision, but it's the main reason Xero is more well known. 

As a product viewed on its own merits, Saasu is good. Saasu is better value for money than Xero, and it does more. Because it was designed to explicitly win business from LiveAccounts, it offers a basic stock module, and a sales order module which includes quotes. GrowthPath uses Saasu; we moved from Xero because its core functionality was better, and because we were promised a proper API.

For a long, long time, Saasu's API was incomplete. After a lot of promises, a modern API now exists, and is mostly complete. The old API was good enough for some success with third-party providers. The new API will soon be on par with Xero. That combined with the general excellence of the core product makes Saasu a contender. I tend to recommend it more than Xero. 

Quickbooks Online

I have never investigated Quickbooks Online. The licence model is based per-user, unlike its competition, and I dislike this. The traditional version of QuickBooks is well regarded by book-keepers. It is currently discounting, where Saasu and Xero have sufficient market power to be increasing prices, so that is a sign of low market awareness. I don't hear much about it so I would carefully check the capabilities of its integration with third party products. Generally speaking, it's included functionality appears to be between Xero and Saasu, but it lacks the Australian presence of either of those packages.

 

When are cloud accounting solutions not right for your business?

I don't pay any heed to objections to cloud technology as such. Yes, cloud packages require you to be online.  That's about as useful as telling someone that a phone requires a mobile network. It's true, but business needs to be online now. I also dismiss data security concerns. There are more risks with a hard drive in your office. 

Moving to cloud accounting may not be right for your business. The pros and cons roughly speaking look like this:

  • You will lose core functionality if you come from a mature ERP
  • You will save a lot of money.
  • You will open the door to much better collaboration, remote access, mobile-device use, and workflows which deliver higher levels of productivity
  • You will better integrate peripheral IT systems such as online stores, business analytics (such as the open source Pentaho), CRM and helpdesk software, Google Analytics, marketing automation tools (Infusionsoft, for example) and so on. The cost of integrating these with 

Only the first point is a step backwards, but it may be significant. To address it, you need to carefully consider the best cloud packages to supplement the functional gaps of your cloud-accounting choice, and see what functional gap remains. In this case, paradoxically the choice of Xero to offer no inventory rather than offer a "poor man's inventory" solution may make it the better choice. 

The other points increasingly outweigh the disadvantage. Three years ago, in the first version of this document, I said that medium-sized businesses probably faced one more one five-year cycle on a traditional ERP. Half way through that period, I am confident that cloud solutions are starting to appeal to businesses looking to exit the traditional approach. 

 

Xero, Saasu and MYOB Essentials, in more depth...

In the past, I went into a deep discussion of the functional differences between the packages.

This is a now a bit beyond the point, since integration is more important than core functionality. Businesses should consider their accounting package as part of their "software stack". 

Xero is the purest player; in many areas, it has chosen to offer either no functionality or very basic functionality, rather than offer something in the no-man's-land of being only a little better than nothing. 

Saasu has the best "out of the box functionality", and MYOB Essentials is basic with no ambition to be anything more, except to feed you into MYOB's traditional product offers.

If you want to focus on out-of-the-box functionality, you need to answer these questions first:

Do you need inventory management? If yes, Xero is eliminated.

Do you need foreign currency? If Yes, MYOB Essentials is eliminated.

Leaving only Saasu (of these three).

But if you need good inventory management (backorders, variants etc) then consider Unleashed, and re-qualify Xero.

 

I will now summarise in a simple table. To represent the traditional world of mid-tier ERPs, I choose Sage ERP (accpac), a very traditional system (which I quite like). 

Module  MYOB Essentials (was LiveAccounts)  Xero Saasu  Sage ERP (Accpac)
 Sales  Very minimal.  Minimal. Third party options are very strong  OK. Third party options are strong.   Very sophisticated. Backorders, partial payments, complex payment terms. Returns, under payments and over payments are well handled. The interface is dated and the system is batch based, meaning careful attention to routine processing is required. 
 Purchasing  No No   Basic  Strong but bureaucratic
 GST  Excellent  Excellent  Excellent  Poorly localised. 
Payroll  OK for small payrolls  OK (plus good third party modules for more complex situations)  OK (plus good third party modules for more complex situations)  No Australian localisation. Requires third party modules.
Inventory  No  No (but lots of third party choices)  Ok for simple trading.Some third party choices.  Very good, but cumbersome. 
Intercompany  No  No  NO  3rd party solutions are very good.
Securing Access to functions, period locking Weak   Weak  Weak  Very strong controls over functionality. Locking is sophisticated: submodules like AR can be locked while still allowing GL postings. 
Cashflow management OK OK OK OK. Lots of possible insight, but hard to use.
Audit trail Not enterprise class   Not enterprise class  Not enterprise class  Very good. But bureaucratic and time consuming.
Multi-currency  No  Optional. Basic.  Optional. Basic.  Very strong, world-class. 
Third-party integration

 Example:

Kounta POS: Yes (Native). 

Unleashed sales and inventory: No

DIY: Easy.

 

Example:

Kounta POS: Yes (Native). 

Unleashed sales and inventory: Yes (Native)

 DIY: Easy

Example: Kounta POS: Yes (Native)

Unleashed sales and inventory: Yes (third party)

 DIY: Easy

Effectively none.

DIY: Possible. Talent is rare (although GrowthPath has expertise). 

API & integration

API is satisfactory, after years of no API. Not much out-of-the box support, but possibly growing.

 Outstanding, best in class and with momentum. Every cloud package offered to the Australian market will offer Xero integration, and the API makes it cheap to build your own integration.  API has only recently become  satisfactory, and Saasu is paying the penalty for taking so long.   Possible via use of Win32 COM (GrowthPath is experienced in using Python to drive Accpac and we have interfaced it to Shopify, Infusionsoft and Pracsoft). But it is much more cumbersome than Web APIs. Third party integration is poor. The vendor has online , CRM and business analytics packages which are classic examples of the "jack of all trades" problem.
Costs Somewhere between 10 and 100 times cheaper than a traditional solution  Somewhere between 10 and 100 times cheaper than a traditional solution   Somewhere between 10 and 100 times cheaper than a traditional solution  Expensive to buy. Expensive to implement. Expensive to keep. 
High volume data entry Not really expected Some optimisation has been made, but browsers are not ideal for this. High volume data entry should be done via the API. The API is mature. Some optimisation has been made, but browsers are not ideal for this. High volume data entry should be done via the API. The Saasu API is not yet fully mature. Outstanding. This software comes from the era of manual data processing.
User training (assuming the user understands the basics of GST and double-entry bookkeeping) Very minimal Very minimal, although non-standard events like customer overpayments are not obvious. There are plenty of YouTube videos and help documents. There are many certified book-keepers Very minimal, although non-standard events like customer overpayments are not obvious. There are plenty of YouTube videos and help documents. Saasu provides telephone help. You need formal training because the software is complicated and mistakes are hard to correct.