Cloud-based accounting and African SME growth

For many small to medium-size enterprises (SMEs) in African economies, accounting and financial management has been an isolated function — with management accountants fulfilling a very important role.

In most scenarios, the SME accounting role has been limited to laborious data capture and annual meetings between the accountant and business owner to hand over reports and financial statements.

With regard to the use of accounting technology and software, the African SME market has been dominated by a few popular products, such as Sage, QuickBooks, and Xero.com, particularly in South Africa. Overall, the role of accounting in driving SME growth on the continent has been severely limited.

This is changing fast, thanks to the emergence of advanced cloud computing technology and accessible software-as-a-service (SaaS) accounting solutions.

“The Fourth Industrial Revolution is set to have a major impact on the way SMEs operate and manage their finances,” said Arthur Goldstuck, managing director of World Wide Worx, a South African IT consultancy. “Cloud computing in particular is rapidly changing financial management already. We believe that SaaS and its associated tools will have a massive, positive impact on costs and efficiencies within accounting for SMEs.”

Within the broader African SME space, Goldstuck said that SMEs will probably leapfrog from basic, paper-based accounting to cloud platforms in the next 24 months — primarily because of the new data centres coming online in South Africa. In fact, according to the annual State of South African Small Business report from Xero and World Wide Worx, 79% of small businesses said that they believe that software support is very important and three quarters of respondents already use accounting software.

We spoke to experts to find out how cloud computing is transforming the accounting function for SMEs on the continent and enabling growth.

Elevating the role: Graham Shapiro, founder of Myccountant, a provider of virtual accounting solutions in South Africa, explained that the cloud has enabled a far more collaborative relationship with clients.

“Gone are the days when clients and accountants kept separate sets of books and collaborated yearly to discuss financial statements,” said Shapiro. “The value of the cloud is to collaborate with clients in the cloud, by accessing the same set of accounting records and sharing information freely with each other.”

So instead of the accountant collecting a paper file monthly and capturing data manually, the cloud offers integrated solutions (such as a bank feed, whereby bank transactions feed into the cloud) that remove the need for manual capturing — and are faster and less prone to error. “This allows more time for analysis and advisory type work for clients,” he added.

Accountants will also be required to perform a finance business partnering role as the finance function is embedded across all areas of the business.

Looking ahead, Shapiro asserted that the most sought-after accountants will be cloud specialists, who use cloud platforms as their primary ecosystem.

Providing funding: As SMEs begin to shift to cloud-based accounting solutions, integration with other key functions is made easier. In African markets, SMEs have traditionally struggled to access funding. Cloud-based accounting software is now building a bridge between SMEs and digital lenders.

In fact, the skills accountants will need go far beyond just understanding the cloud. Accountants will be expected to develop a mindset that enables them to constantly learn, unlearn, and relearn skills. This will require them to broaden their skillset to accommodate digital, people, and leadership skills and contribute holistically to the business.

“At Xero, for example, we’ve announced new agreements with three South African digital lenders: Bridgement, Retail Capital, and Lulalend. Initiatives like these will improve businesses’ access to funding — and make the accounting function more versatile and multidimensional,” said Colin Timmis, country manager at Xero South Africa, a global software company that offers a cloud-based accounting software platform for SME businesses.

Enabling innovation: The use of cloud-based software means that, instead of sitting on-site, SME data is stored off-site on common servers. This allows cloud software providers to track SME data and form benchmarks (with the permission of the business owners).

“By accessing this data, we can unlock opportunities for changes in the business models of SMEs,” said Timmis. “Also, when you have 1.8 million SMEs working off the same platform all over the globe, you have the power to utilise time-saving and value-adding machine-learning [artificial intelligence] type features.”

Notably, by gaining access to real-time data, banks and other lenders can also track SME trends and provide more tailored products and services to enable growth.

Understanding the costs of cloud computing: From an IT investment perspective, the good news is that cloud technology should work out to be cheaper than using traditional servers and hardware.

“It is often a daunting task for SMEs to re-assess their traditional models of working, and the word ‘cloud’ conjures up complexity and apprehension,” said Timmis. “It is therefore very important to understand the business model for SaaS. All of the [IT] costs are generally a fixed monthly fee for a service, with little to no initial infrastructure and capital costs … and, more importantly, no long-term contractual commitments.”

For business owners who choose to leverage the cloud to enlist a full, virtual SME accounting solution, the cost equation changes.

According to Shapiro, virtual accounting services are generally more expensive than the classic accounting solution.

“However, although the costs of virtual accounting and financial management for SMEs are higher than the traditional accountant/bookkeeper set-up, the real value is realised as the SME grows. Instead of employing a full, in-house financial division to match growth, virtual accounting provides the benefits of accounting as well as advisory services — at a far lower cost than employing in-house professionals. So it is a highly efficient value proposition … allowing SMEs to have access to the same bouquet of services (and systems) that are usually only accessible for big corporates and well-funded organisations.”

Shapiro said that the cloud investment should be equivalent to the size of the business and the aspirations and financial knowledge of the owners.

“If you are starting out, you should start on the right foot and get outsourced virtual accounting with a firm that offers everything”, including cloud accounting and advisory services. “This way, you can increase the services required as you grow.”

— Jessica Hubbard is a freelance writer based in South Africa. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.