A GUIDE FOR THE SOCIAL ENTERPRISE SECTOR
Social Enterprise UK estimates that there are over 100,000 social enterprises in the UK (Sept 2023). Social enterprises are unique organisations dedicated to making the world a better place. They operate differently from traditional charities. They’re profit-focused, but here’s the twist: their profits often get reinvested or channelled towards noble social causes. To effectively fulfil their missions, social enterprises must maintain tight control over their finances. This guide looks at how digital accounting can benefit social enterprises.
What is digital accounting?
Digital accounting is simply accounting done using online software tools to create, manage and store your financial transactions. It produces the same results as traditional accounting but it has benefits such as wider access to data and opportunities to automate time-consuming processes.
Why is it important for the social enterprise sector?
Digital accounting can turbocharge the financial management of social enterprises, which increases profitability. You can reinvest extra profits back into the organisation on new initiatives or donate more to current or future social aims.
What are the benefits of digital accounting?
Digital accounting stands head and shoulders above its traditional cousin. The biggest advantage of digital accounting is the time saved by using software rather than other methods such as spreadsheets or even ledger books. Aside from time savings, other benefits include:
Accuracy – Fewer errors plague digital accounting thanks to recurring invoices for sales and cutting-edge receipt capture technology that feeds information directly into your accounting system. Manual input errors become a thing of the past.
Accessibility – Digital accounting software enables you to access your financial information wherever you are in the world, at any time. This leads to better, more timely reporting and decision-making.
Collaboration – Most digital accounting tools allow multiple users to access the system simultaneously. You can give clients and other stakeholders read-only access to their data. The result? Teams collaborate more efficiently with access to the same financial information in real-time.
Compliance – It’s vital that social enterprises adhere to the relevant compliance requirements in their industry as well as tax regulations. Using digital accounting helps to ensure that the organisation follows the latest rules.
Data security – Digital accounting, as long as systems are properly protected, provides better data security than traditional paper-based accounting systems. Advanced encryption techniques store vital information safely and regular backups mitigate the risk of data loss.
Remote working – You can hire the right people into your organisation wherever they are based because digital accounting means they can access the system remotely without having to come into an office.
Traditional accounting vs. digital accounting – the benefits and challenges
|Tried and tested methods that are credible and trusted for decades or even centuries.
|Real-time, ease of access, worldwide
|Ability to customise accounting according to exact needs
|Improved accuracy, avoiding duplications, omissions and keying errors
|Independent from technology, therefore not impacted by power outages or cyber-attacks.
|Efficiency and time savings
|Slower reporting leads to delays in decision-making
|Initial costs can be prohibitive
|Limited accessibility reduces the capacity for collaboration and remote working.
|Potential for data loss and cyber security risks
|Prone to human error, especially duplication, omission and transposition errors.
|Steeper learning curve for staff to become proficient users of new technology
The different types of digital accounting software
With so many different digital accounting tools available, how do you decide which one suits you best?
Cloud-based accounting software: This software is hosted on the internet and can be accessed from anywhere. Most small and medium businesses and smaller social enterprises are likely to gravitate towards a simple monthly subscription-based tool such as Xero or QuickBooks.
Desktop accounting software: This software is installed on a computer and can only be accessed from that computer. Examples include QuickBooks Desktop and Sage Accounting.
Hybrid accounting software: There are software tools which combine the features of cloud-based and desktop accounting software which might be appropriate for organisations wishing to keep more control over system upgrades, user licences and remote access..
Choosing the right digital accounting software for your organisation
Making a decision about which software tool to use for your accounting may feel overwhelming – after all, you only have to Google ‘best digital accounting software for small business’ to see that there are many different options available. Ask yourself the following questions to help you make the right choice:
What does my organisation need?
Start by assessing your unique accounting requirements. Think about the size of your business, the complexity of your financial dealings, and how many staff will be using the software.
Would you prefer cloud-based or desktop software?
Decide whether you lean towards cloud-based software for the convenience of remote access or desktop software for that local, hands-on feel. Each option has its perks and quirks.
What features are non-negotiable?
Nail down the must-have features, like creating one-off and recurring invoices, tracking expenses, managing payroll, crunching those all-important monthly reports and getting accurate data for financial planning. Make a list of the essentials and the nice-to-haves.
What’s the budget?
Set up a budget for your accounting software adventure, including initial costs (if any) and ongoing subscription or licensing fees. Don’t forget about training and support expenses.
How important is user-friendliness?
Take a good look at the user interface. Is it intuitive and straightforward? User-friendliness matters, especially if you’re not an accounting supremo.
How scalable is the software?
Can the software keep up with your organisation’s growth and development? Will it handle increasing transaction volumes and the addition of new team members as you expand your horizons?
What about integration with other software?
Check if the accounting software is compatible with your other tools, like CRM systems, e-commerce platforms, or your bank’s tech. Integration can be a real time-saver.
What’s the level of customer support?
Dig into the customer support situation. Are there various ways to get in touch, like phone support, email, or live chat? And what’s the turnaround time? What do other customers say about the customer support?
Is data security adequate?
Give the software’s data security a thorough once-over. Ensure it packs robust encryption, regular backups, and solid protection against data mishaps or security breaches.
What reporting and analytics features are standard?
Explore the reporting game. Can it whip up essential financial reports? Does it offer nifty analytics tools and visual data presentation options for deep insights into your financial story?
Does it comply with regulatory requirements?
Verify that the software plays by the rules in your neck of the woods. Make sure it can generate those all-important reports and documents required for tax purposes.
Is there a free trial or demo?
Whenever you can, take advantage of free trials or demos. Get your hands dirty and see if the software meets your needs.
What’s the vendor’s reputation?
Do your homework on the software provider. Read reviews, ask for recommendations, and suss out any history of data hiccups or security blunders.
What’s the long-term viability of the software?
Think about the long haul. Will the software continue to evolve and stay relevant? Will the vendor provide updates and support as the accounting world shifts?
What does my accountant think?
Finally, before you commit, chat with your trusted accountant or financial advisor. Their insights are gold and could save you from the future heartache of picking the wrong tool for your organisation.
Why Xero is a good choice for the social enterprise sector
Xero, one of the most popular digital accounting tools, is a great option for social enterprises. First off, it’s inexpensive, and as bonus you can get a discount from I Hate Numbers , our sister company, contact them for further details. Social enterprises are likely to require many of the same features as regular businesses so if you have staff or contractors, you may need the add-ons such as payroll or CIS accounting. Xero allows you to set up a bespoke chart of accounts so you can track your expenses at the ideal level for your organisation. As well as the usual profit & loss and balance sheet reports, you can also drill down into the detail of each account enabling you to keep tight financial control as well as budgeting and planning capabilities.
A user-friendly tool for easy financial management
Xero’s customer-friendly dashboard gives you everything you need at a glance so you can see your outstanding debtors, creditors and your cash position. Good cash flow management is vital for social enterprise organisations. As they have to balance social outcomes with profit generation, this can make them less attractive to investors. When cash flow is challenging, this vital source of funding may therefore be more limited. Xero provides integration with cash flow management software, enabling you to spot the early signs of potential cash flow issues.
Finally, Xero offers a vast range of integrations to more than 1000 other software tools and apps including email tools like Gmail and MailChimp, CRM applications such as Hubspot and Salesforce, e-commerce sites like Shopify, project management tools including Trello and Asana and payment methods including Stripe and Paypal.
The implementation process in four stages
1.) Planning the implementation
Managing the transition from traditional accounting, use of spreadsheets or even other digital accounting tools requires careful planning. You don’t want to be in limbo between two systems. Think about what aspects of accounting you need your software tool to perform and the best way to organise your data. What apps might be helpful? What chart of accounts do you need? Which user roles are required? There are many questions to be answered with detailed planning before you attempt your migration. Support from an experienced partner who is used to handling software migration projects can help avoid data disasters and delays in the project timeline. Don’t forget to include time and budget for staff communications and training which is often overlooked in project budgets.
2.) Transitioning to your new accounting software
Migrating your data requires attention to detail to ensure everything is moved correctly to your new digital accounting environment. It could involve importing information from your old system to Xero, manually updating data such as customer or supplier records, setting up and linking your bank accounts, credit cards and direct debits and adding all the required detailed accounts to your chart of accounts. You may also need additional reporting over and above the standard reports that Xero offers. Once all your data has been replicated in Xero and reconciled to your old systems, you can begin to use your new accounting software in earnest.
3.) Training your staff
One of the most important aspects of any software implementation project is making sure that users know exactly how to interact with the software correctly. Training your staff may be a time-consuming process but not training them well can be much more costly in the long run when you have to undo work and make lots of data corrections. Xero offers a customer hub of frequently asked questions called Xero Central where your staff can get guidance or you could implement a company training program in-house if you have a larger team using the software.
4.) Monitor the implementation
Once you have completed your migration, check how well the software is working. Are all the modules operating as you expected? Are your staff using the system consistent with your operating procedures? How much time are you saving by automating tasks such as invoice creation, expense receipt capture and bank reconciliations?
The ongoing maintenance of digital accounting software
Moving your financial records onto digital accounting software is just the beginning. Like any other aspects of your activities, you’ll need to do regular maintenance and updates. Make sure you are using the latest version of the software. If you opt for cloud-based systems such as Xero, your supplier automatically updates it for you. However, if you have desktop-based software, you’ll need to factor in software updates, which could incur additional costs. Similarly, you may also need to take regular backups of your data to mitigate any data loss in the event of software issues. With cloud accounting, however, you’ll benefit from automatic backups.
The future of digital accounting
The trend towards cloud-based finance systems will continue as more small and medium businesses move to digital accounting platforms to take advantage of time and efficiency savings as well as improved accessibility. Digital accounting is still in its infancy and we can expect significant changes in the way accounting is done in the future. Some of these potential changes include:
Use of artificial intelligence (AI): Digital accounting is moving towards greater automation with the integration of artificial intelligence and machine learning. AI can handle routine tasks like data entry, categorisation, and even basic analysis. This saves time and reduces the risk of human errors.
Blockchain integration: Blockchain technology, which powers cryptocurrencies, is becoming increasingly important in accounting. It offers enhanced security and transparency in financial transactions. In the future, blockchain technology will revolutionise how financial data is recorded and verified.
Data analytics and predictive insights: Advanced tools can now analyse vast amounts of financial data in real time, providing valuable insights and predictions. Accountants will play an even greater strategic role in helping businesses make data-driven decisions.
Getting support to move your social enterprise to digital accounting
Online accounting is a valuable tool for the social enterprise sector. It can help organisations save time and money, improve decision-making, and increase transparency. You’ll get immediate benefits from using a tool which is consistently developing and updated automatically as new features are rolled out or improvements to speed, reliability or security are offered. Take advantage of digital accounting in your social enterprise to achieve better social outcomes. If you need help with managing your transition to the online accounting world, get in touch for a free no-obligation chat about your circumstances and future financial goals.
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