Major Differences Between Online Accounting and Desktop Accounting
The major differences between online accounting software and desktop accounting software are:
- You can log in from anywhere, at anytime, from any device with an Internet connection. This also means no Internet, no luck!
- You can have multiple users work on (and mess up) the same data at the same time from different locations. Sharing data is easy.
- You don’t have to deal with different users having different versions of the software, or different file versions.
- You pay for every single business / company you set up (there’s no operating 10 businesses on 1 software license as you can with desktop software).
- In certain ways you are going to be working with a less powerful / complex piece of software (although this is continually changing for the better). So, you may either need to find a workaround or a third-party add-on to add back functionality to your online accounting software.
Online Accounting Software Ecosystems
Do you evaluate software based on its native capabilities or what it can do with add-ons?
Most of the time online accounting software isn’t going to do everything you want it to. There will be things it just can’t do (such as inventory) or things that it could do better (perhaps
More and more, small business online accounting software will be judged based on its ecosystem, not just what it can do out-of-the-box (or more appropriately, out-of-the-cloud). This is quite similar to how you choose a phone and it’s operating system (ex: Android, iOS, Windows Phone, Blackberry). They can have a lot of basic functionality already built-in, but you can always add an app to increase the functionality. So, like smartphones, there’s much more that small business online accounting software can do when you consider the entire ecosystem, beyond what it can do natively.
Switching to Online Accounting Software
Here is a checklist of things to consider when making the move to online accounting software:
- Choose the right online accounting product for your business.
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Unless you’re moving from
QuickBooks Desktop to QuickBooks Online, you are most likely going to have to re-create your data (and this will be the basis of the rest of the article).- You can’t easily import transaction level details, like each entry in your general ledger. Instead, you’ll most likely be importing summary data, like your trial balance.
- Most online accounting software can import a chart of accounts, and a contacts list (customers and vendors), but not much else.
- There are some services that will help you transition your data (like QuickBooks Online’s import of QuickBooks Desktop files or Xero’s service to convert QuickBooks Desktop data to a new company in Xero).
- You’ll want to make sure that your taxes are filed, your records are reconciled, and your data is clean before exporting any data.
- Try to choose a clean cut-off date (like the end of a fiscal year, tax filing, or month) when making the transition.
Checklist of things export when making the move to online accounting software
Assuming all your records are reconciled and your data clean, you would export the following:
- Export a Trial Balance
- Export a detailed report of your outstanding Accounts Receivable
- Export a detailed report of your outstanding Accounts Payable
- Export your bank and credit card reconciliation statements
- Export your contact list(s)
Thing to be aware of when importing data into online accounting software:
- Most of the time, you’ll need to reformat the exported data to fit the format required by the new software.
- It’s most likely, that even if you thought you cleaned up your data before exporting, you still have plenty of errors that need to be corrected before importing (example: your contacts list has address information in the wrong fields).
- Certain account types, names or variables will not be the same and will need to be modified (some software can’t do sub accounts for example).
- There’s usually no resetting your data or creating some restore point that you can revert back to if you screw something up. I always suggest creating a free trial account (all vendors offer some type of limited time free trial) to do a test import of data before doing the real thing. Chances are, if you’ve never done the switch before to the particular accounting software before, you’ll get something wrong.
- Bank feeds can usually only go back a maximum of 90 days. For this reason, and for being able to control the exact dates for which you import data, I usually recommend starting off by using downloaded bank statements to first reconcile your bank. Once you are up-to-date with you bank balances you can then set up the automatic bank feed. However, if you test a bank feed on a free trial account first, you can see whether or not you can start off with an automatic bank feed right away.
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You will most likely to create transactions / adjustments for the following three things:
- Outstanding customer invoices
- Outstanding vendor bills
- Uncleared checks or transactions (which can be found in your reconciliation statements)
Other random tips
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The way that taxes are handled are probably different between the two accounting software systems. Get ready for some frustrated
learning . - The new workflow will probably be completely foreign to you. Don’t discount new software because you don’t get it right away. I found that a lot of software grew on me the more I used it (although some software definitely grew in a negative light).
- Best practice is to run the two different software systems in parallel for a month or two until you are confident everything has transitioned smoothly.
- Add-ons are something you’ll probably need to get more familiar with. Since online accounting software natively has less functionality than desktop software, you will most likely need to use some third-party add-ons. This is not necessarily a bad thing, and is actually part of the strategy or new way of thinking around online accounting software. Instead of being an all-in-one business solution, it’s a platform that various online apps can tap into. While some online accounting software have yet to match all the functionality found in desktop software via add-ons, it’s just a matter of time that it matches and surpasses the capabilities of desktop software.
Are there some tips that I missed? Leave a comment and tell me what tips for moving from desktop accounting software to online accounting software that I missed?