If you run a business in the US, you know that keeping up with your finances is much more essential than ever before. In a report by the International Data Corporation (IDC), 74% of small businesses claim they've become better at making decisions with electronic resources, like cloud-based accounting software. As a business owner, you probably wonder: How can you keep your business growing? Should you maintain traditional accounting or switch to virtual accounting?
Here, we will compare conventional accounting with virtual accounting that will help you make the best choice for your company.
What is Traditional Accounting?
The old school way of accounting is conventional accounting. It may include writing down transactions manually in physical ledgers or even making use of spreadsheets, or having an outside accountant track your financials. This technique has been utilized for decades and lots of businesses still use it as it is familiar and simple.
For traditional accounting, your financial records are generally in hard copy or on PCs without software. You might have an accountant or accountants or maybe a group of accountants that perform from bookkeeping to tax filing.
Pros of Traditional Accounting:
- Familiarity & Simplicity: In case you have been running a business for some time, you most likely know some fundamental principles of traditional accounting. No need to learn brand new software or use the internet.
- Security: With your records on paper or local area computers, you worry less about data breaches or even cybersecurity. You know where your financial records are all the time.
- Control: A number of business owners like to control their finances themselves, without utilizing third-party services.
Cons of Traditional Accounting:
- Time-Consuming: It is slow and requires effort to track finances by hand. Your accountant or bookkeeper might spend hours entering data, causing delays in decision making.
- Errors Prone: Human error occurs in conventional accounting. One wrong entry of data could cost your business dearly.
- Limited Access: You might need to actually visit the office to get records or even wait for your accountant to send them through - which may be tiresome in case you want info fast.
- Challenge to Scale: Growing your business could cause conventional accounting to be behind in the amount and intricacy of financial transactions. It might be expensive to employ more accountants or work with outdated techniques.
What is Virtual Accounting?
Virtual accounting or cloud-based accounting is the contemporary method to control your company finances. Rather than keeping physical books or even utilizing spreadsheets, virtual accounting utilizes online software to monitor your transactions, deal with your books, and also display real time financial information.
The great thing about virtual accounting is the fact that you are able to access your financial information from anywhere - in work, at home, and on the move. Anywhere you have a connection to the internet you can access your business finances.
Virtual accounting services also provide VCFO services (Virtual Chief Financial Officer), where you outsource more complicated financial functions like financial planning & strategy without employing a full time CFO.
Pros of Virtual Accounting:
- Accessibility & Flexibility: Using virtual accounting you can check your financial information from anywhere. This flexibility is handy if you run a remote business or frequently travel.
- Real Time Financial Data: Virtual accounting software keeps your financial records current. This is helpful for quick business decisions.
- Adjustable to Growth: Virtual accounting is ideal for growing businesses. With no extra staffing, the software can handle more transactions and larger financial details as your business grows.
- Cost-Effective: Some software subscriptions have fees attached, but virtual accounting is often less costly compared to employing an in-house accountant when you consider time and money saved on manual processes.
- Enhanced Security: Even though conventional accounting appears more secure at first glance, reputable virtual accounting platforms encrypt your information and also employ other cybersecurity measures. They frequently keep backups to stay away from loss of data.
- Automation & Analytics: Many tiresome things such as billing and payroll could be automatized using virtual accounting software. Additionally, it can provide financial reports and analytics to enable you to understand your business performance.
Cons of Virtual Accounting:
- Dependency on the Internet: Virtual accounting requires a connection to the internet. Your financial records could be temporarily unavailable in case your internet goes down.
- Learning Curve: It might take effort and time to implement a brand new accounting platform. Both you and your team may have to get acquainted with the software - which might include some training.
- Concerns with Cybersecurity: Virtual accounting platforms are safe but there's always a chance of cyberattacks or data breaches. Choose a reputable provider with excellent security protocols set up.
Which One is Right for Your Business?
Now as you understand the differences between traditional and virtual accounting, exactly how do you pick which is ideal for your company?
Select Traditional Accounting if:
- You run a small company with simple finances.
- You prefer to be hands-on and you don't mind doing some manual bookkeeping.
- You worry about cybersecurity and want to keep your records locally.
Choose Virtual Accounting if:
- You will need real-time financial data to make fast business decisions.
- Your business expands and you want a scalable system which grows along with you.
- You want to have the ability to access your finances from anywhere.
- You want to eliminate human error and automate invoicing and payroll.
- You need additional financial support - like VCFO services.
Final Thoughts
Traditional and virtual accounting both possess benefits, however in the electronic world of these days, virtual accounting is definitely the ideal choice of many companies. Its versatility, and real time data access make it a solid choice. But in case you operate a small company with simpler financial requirements, conventional accounting might still work for you.
For personalized advice and all your accounting needs, contact The Fino Partners and let us handle your finances.
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