Does new technology in accounting wipe out the old?
Quite a tough question above I guess. I have always been interested in what technology can do for business – both as a management accountant and academic. It is probably fair to say that the past decade has so much more technological change than previous decades. We have seen smart phones, tablets, the cloud and social media all appear and take over our lives and change how business is done.
Personally, I am watching how accounting in small business is now potentially so much easier than ever before. For example, all a sole trader needs is a smart phone and they can issues invoices, records expense and even get paid. I would hope that over time this will become a reality. However, at the same time I am quite aware that it will be while before we see small businesses not having some manual recording.
I have also recently become a little interesting in accounting history. It has been commonly accepted that symbols used on clay tablets used by traders in ancient Mesopotamia were a precursor to modern writing. These clay tablets were in effect what we call invoices or delivery notes today. One would imagine that writing would help simplify business of the ancient Mesopotamians, and replace the symbols on the tablets. Recent archaeological finds in Turkey however suggest otherwise. It would seem the tablets and symbols survived for many centuries after paper and writing were in common use. So I wonder will it a few centuries before small businesses take advantage of the present day accounting technology ? Incidentally, it seems tablets (but not clay ones) are probably a very simple way to manage small business accounting.
Artificial intelligence in Accounting
In the latter part of 2013, I noticed several new developments in cloud accounting software. I suppose one of the key advantages of cloud accounting software is that it allows the software provider to concentrate on what they do well, while at the same time allow other software providers to integrate with their products. And, some of these products include some level of artificial intelligence.
To give an example of a non-cloud product first, Irish firm OCRex use optical character recognition to help accounting practices do bank reconciliations when smaller clients don’t do this – see http://www.ocrex.com/home. This software reads scanned bank statements and reconciles opening and closing closing balances, and leaving the accountant with the job of checking for missing items only. Thus, this product is intelligent in that it matches items on the bank statement using amounts and other information like to a reference.
Now let’s take this idea to the cloud. Several accounting software products can now scan emails., faxes and scanned documents to determine not only the amount of a business transaction, but also determine what kind of transaction it is. For example, xero software offers an add-on which reads transactions and posts automatically to the correct expense account. From my understanding of the xero add-on, it also learns as it goes, learning what supplier is posted to which expenses account etc. This certainly has a lot of potential for small businesses, reducing processing time and storing documents in the cloud.
What is big data?
This post gives you a brief introduction to “big data”, a term used in many circles and in many businesses. The following posts will then give some examples from real business to help you understand the effects this might have on accounting and accountants.
Although the term big data has become mainstream in recent years, it has been used for a decade or more by scientists to simply describe very large amounts of data. Diebold (2003) defines big data as follows:
Big data refers to the explosion of quantity (and sometimes, quality) of available and potentially relevant data, largely the result of recent and unprecedented advances in data recording and storage technology.
It is hard to believe that this definition although only a decade or so old, bears little resemblance to what can be achieved today in terms of data collection. Devices such as smartphones and tablets in a cloud-computing environment allow users to use cloud-based services (such as software or social networks) and, in turn, data can be collected through these devices and stored elsewhere in the cloud. The result is vast potentially vast amount of data, which can be analysed for many purposes, including business decisions. Facebook has about a billion users, there are about 500 million tweets per day sent on Twitter and Google handles about 3 billion search queries per day. These vast uses of each of the mentioned websites/network generates hitherto unknown amounts of data, some of which may be useful, some of which may not. In an article for Forbes, Feinleib notes three issues with big data, which give a good insight into what it is, and the problems facing business:
1) big-data is ill-defined.. We are not sure what exactly big data is, but a Jevons Paradox seems to exist in the world of big data. As technology evolved to allow the storage and analysis of large volumes of data, more data is being stored and analysed by organisations.
2) big data is intimidating. He asks “how do we make big data approachable” from perspectives such as having tools to analyse data, to getting the right insights and information from the data.
3) big data is immediate. Huge volumes of data are generated, but the analytical value of this data can decay rapidly. For example, in the near future companies like Google and Groupon may display adverts on mobile devices for businesses in the immediate proximity of a consumer – the time to analyse and act on this data could be a matter of minutes, or even seconds.
Diebold, F. 2003, “ ‘Big Data’ Dynamic Factor Models for Macroeconomic Measurement and Forecasting” (Discussion of Reichlin and Watson papers), in M. Dewatripont, L.P. Hansen and S.Turnovsky (eds.), Advances in Economics and Econometrics, Eighth World Congress of the Econometric Society. Cambridge: Cambridge University Press, 115-122.
Expense tracking – there’s an app for that
To keep track of the many things I do, I have to take notes. For example, all the posts on this blog are noted somewhere first and then I write about them when I get time. I use a product called Evernote, which is just brilliant. I can do anything I want in this app in terms of taking notes. And, like all apps there tends to be adverts for related products from time to time. One I found interesting (but don’t use) is Expensify. This app seems to be very useful for track this annoying expenses. You can see more here on the app’s features. One thing it might be really useful for is those annoying fuel receipts small businesses have. For example, a sole trader might have 2 or 3 receipts for diesel each week, which are probably paid for in cash. These receipts frequently get lost and are a pain to store too. So it might be useful to use a product like Expensify to take a snap shot of these and store them. You can also use the app to track mileage, so this might be useful for small companies whose employees may get paid mileage.
- Expensify Trips: Track your itinerary from your expense report (expensify.com)
- Apps I’m digging lately (intomobile.com)
What is iXRBL
At end of last year (December 2011), Ireland’s tax collection authority (Revenue Commissioners) issued a consultation document on iXBRL. I have written a post of two on XRBL previously. XBRL is mark-up language (like XML or HTML) which has been specifically designed to assist in the electronic filing of financial reporting documents. If agreed as a global standard, XBRL would present great advantages for state agencies like tax authorities, company registries and statistical bodies. This is simply due to the fact that XBRL presents a common a relatively easy to use electronic way for businesses to file financial statements, without the need for any form of manual interference and without the need to send files more than once.
So what is iXBRL and how is it different from XBRL? iXRBL stands for “inline” XBRL. It is more or less the same as XBRL in that it uses tags to identify data within a file. For example, a tag would identify the figure for same in the statement of financial position. Using tags means that data can be intelligibly read using software, which makes data manipulation a whole lot easier. The only problem with tagged data is that is typically not human readable. Where iXBRL differs is that all the tagged data is “hidden” within a human readable document. For example, a PDF file of a company’s financial statements might include all the necessary tagged data. The major advantage of this is there no need to produce a separate special XBRL file. You can read lots more about XBRL and iXBRL here.
Costs, volume and profits – an example from the taxi sector.
Back in the late 1980’s and early 1990’s when I was young enough to be frequenting pubs/clubs around Dublin city centre, one of the biggest problems was getting a taxi home. At that time, the number of taxi’s was regulated, with (if my memory serves me right) about 1,200 taxis for a city of about a million people. The effect of this was a market for taxi licences. Many taxi drivers depended on this for their pensions, with a licence yielding IR£ 60,000- 80,000 (about €75-100,000). Now, Dublin has a de-regulated taxi system and has more taxi’s than New York (see here for a taxi-eye view). The price structure is also heavily regulated, and a common price structure applies to all fares throughout Ireland. And, of course, a taxi licence is nowadays worth very little.
Why and I writing about taxis you might ask? Well, while on holiday near Leipzig (Germany) over the Christmas period, I read an article in a local paper (Doeblener Allgemeine Zeitung, Dec 27, p.7) about how a taxi firm is dealing with rising costs. The taxi sector in Leipzig is de-regulated too as far as I know, and competition is strong. The article interviewed a manager from a local taxi firm, 4884. Rising fuel prices seem to be a major problem for the firm – and indeed for Dublin taxis too. However, as I read on I realised that Dublin and Leipzig taxi firms/owners, while having a lot in common (over/high supply, rising costs, relatively declining static/declining market), the Leipzig firm 4884 seemed to adapt well to become attract and keep customers. For example, in June 2011, 4884 launched an app to order taxis (using GPS). They also (according to the Dec. article) regularly train and annually update their drivers on things like customer service skills – it is even written into the drivers’ contracts. In Dublin too, there is at least one taxi app I am aware of (Irish Taxi), but I am not sure it is as advanced in terms of GPS. London too has a GPS service available for ordering a taxi.
So what’s the management accounting point? Well, if we compare the market for taxis now to compared to the past (in most countries, but certainly Ireland), there is a far greater supply (volume). The cost structure is typically beyond the control of all taxis. Most costs are fixed – radio rental, advertising, taxi licence fee, insurance – with fuel being the main variable cost. With more taxis in supply, a static market, fixed prices and little ability to control costs, then the ability to earn a profit is likely to be more difficult now. So what can be done by taxi owners/firms to sustain profit. Most have joined forces to create firms/co-ops, which can share some costs (e.g. central booking). Other options are to increase customer retention through things like apps and improved customer service. At the end of the day, with so many costs beyond their control, taxi drivers/firms can only but be adaptive to stay in business. If they are not, they can (and do) go out of business.
Financial reporting apps – now and the future
The October 2011 issue of CIMA’s Financial Management had a good article summarising the development to date of iphone/ipad/android apps for financial reporting. Since the advent of the internet, most public companies (and many other organisations) now publish their financial statements on their websites. Some just provide a static PDF file, while others offer more dynamic PDF files, Excel downloads and even XBRL formats. I suppose it is only logical that some firms are now providing a corporate reporting app, which not only make financial information more readily available, but also available in an offline format. According to the article, only a few companies have taken the “ground-breaking” step to develop and provide an app solely for financial information. Nestle launched the first such app (30,000 downloads), which incorporates news, financial reports, presentations and share prices. The article also mentions (just) two other firms, Shell (3,000 downloads) and Cemex – i think Tesco also have an app. There are obvious benefits of an app – reducing distribution and print costs, faster information dissemination – but the objective according to the article is to make the user’s experience far more interactive than web pages currently do. At present, given the infancy of such apps, interaction is their biggest downfall too. According to the author, only increased interactivity and a more user-friendly approach will increase the use of financial reporting apps. But, no matter what way these apps develop over the coming years, one thing is for sure – mobile communication will increase. Perhaps these early adopters of financial reporting apps may become the leaders in the field soon – only time will tell.
Microsoft Excel keyboard shortcuts
Like most accountants, I have to resort to Microsoft Excel quite a lot. No accounting software can ever give you all the information you need to make business decisions. Similarly, some ad-hoc decisions just use estimated figures and any calculations can be easily done in a spreadsheet. The more you use software, the more you realise that keyboard shortcuts are often the fastest way to do things. The typical Windows Ctrl+C is very handy to copy something you have just selected with the mouse.
Excel to has lots of keyboard shortcuts. Here’s a great webpage with a long (if not full) list of Excel’s shortcuts.
A financial dashboard for entrepreneurs?
I read a post on the “Your the boss” blog on the NYTimes recently [see here] which gave some details about some software called inDinero. It’s one of a number of software solutions out in “the cloud” at the moment. The company got off to a really good start, recently receiving $1m in funding which is not bad for a start-up founded by a 20-year old graduate.
I read a little about the software on the website and was surprised by one of its logos “no more accounting”. I suppose this true to an extent in that inDinero does away with the drudgery of enterjng transactions like sale invoices and so on. How you ask? Well it concentrates on the key thing in any business – cash. The software connects with the business bank accounts and credit card accounts online [US banks only at present it seems] and automatically updates all cash inflows and outflows. So, for an entrepreneur, reports are available daily on the cash situation of a business. Any cash flow issues can be seen pretty quick and managed.
I don’t think it’s true to say that inDinero equals no accounting, as financial accounting is of course still needed for tax authorities and so on. It can export data to MS Excel and common accounting applications like Quickbooks, so this can help with the dull but necessary accounting. But, where the real advantage lies is the simplicity with which information on the cash flows of a business is gathered and reported – and this is just what entrepreneurs need. Remember, CASH IS KING. Let’s hope this or similar products make their way this side of the globe too.
A netbook of laptop? Which is best for a small business owner?
It goes without say that the vast majority of business owners and entrepreneurs live with some piece of computer hardware not to far away from their person. The choice for a small business is not dictated by cost any more either. In fact, the choice is more about what you need the technology to do for your business. Here, I’ll focus on the choice between a netbook or a laptop.
What’s a netbook? The simple answer is a smaller, lighter version of a laptop. The first netbooks came a few years ago with stripped down operating systems and low disk space. This is no more. I bought a HP netbook a few weeks ago for my daughter and it has a 160GB hard disk, 1 GB of ram, full WiFi connectivity and a full version of Windows XP. So in my mind, it’s exactly like my laptop- only smaller and lighter. And all for about €250 net of VAT. So if you’re running a small business and you want to get away from a desk, should you buy a laptop or netbook? My answer is to first ask yourself three questions:
1) What is the computer used for? If it is MS Office, browsing, email and basic accounting/business software go with the netbook. If applications are more intense, like CAD or graphics, a laptop might be better.
2) Who is going to use the computer? If you’re mobile, or your staff are, netbooks are really light and portable. So are laptops, but they can cost a little more.
3) Where is the computer used? I have seen some business people use a netbook (with mobile broadband) in their car – obviously while stopped! Again, netbooks are so portable and you can think of them as a travelling version of your office PC or laptop.
Some people have said to me, ” hang on, these netbooks don’t have a CD drive, how do I install software?” Download it is the simple answer. So, given the low cost and full connectivity, netbooks are the best option in my view – unless you’re a designer or architect running heavy applications.
A simple way to bill customers – software you can use for free!
I read this article in Business & Finance (Ireland) recently and thought, whoa, this is too good to be true! A new website called billfaster.com offers small business owners the ability to create good looking invoices for free – yes free! I had a quick look at the software, and it is free to start off with. You can, according to the website, add more features at a charge but the basic invoicing function is free. You can easily (3 clicks they claim) create and invoice and print it or email it to your customer.
To be fair, the 3 click is probably right if you have all your products and customers set-up. The invoices created are quite professional and all is in simple layman’s terms. The whole idea is wonderful for a start-up business in two ways 1) it’s free and 2) it helps you get off to a good start in terms of accounting – a point I keep on making in my books. As the system is web-based, this means your accountant can hop in every so often to see if you doing okay and also you don’t need to worry about things like computers failing or needing backups. A big drawback though is that although invoices can be done, that’s as far as it goes it seems on the free version. You cannot for example get any reports on how much each customer owes you etc.