We all know the old adage ‘cash is king’ and in a recession, never atruer word can be said. Our business community is at risk and evidencesuggests that UK SMEs in particular are feeling the effects of the economic downturn. It is no surprise that SMEs are vulnerable and ithas been predicted that the number of small business failures will increase by 18% by the end of 2009.

Failing to embrace the internet age is dangerous for any business and with the availability of powerful and affordable business software over the internet on an increase, there has never been a better time to look at Cloud Computing. 

One of the challenges of running an SME business today is dealing with the feast-or-famine nature of business. Never has good cash flow management been so important.

As traditional lenders start to tighten their funding lines it is important for businesses of all sizes to acknowledge that they are less likely to be able to borrow if times get tough so having an accurate and immediate picture of  cash flow is a business imperative. External pressures can seem overwhelming and can distract from the necessity to make timely and effective financial decisions.

Online accounting applications have evolved, and over the past year in particular they have increased in availability and popularity. The number of companies using SaaS systems has trebled in the past year and now represents approximately 10% of the total market.

According to a recent ICAEW report the potential is enormous, “In an era where the electronic filing of statutory returns is increasingly the norm, online accounting now seems less like a ‘big risk’ and more like an idea whose time has come bringing some significant business benefits along with it. On a practical level, using the internet to access and maintain business accounting records can make tasks such as bookkeeping, accounts production and payroll administration, much easier for everyone involved.”

Mixed Feelings

I therefore have mixed feelings  about the recent  warning from Gartner which dismissed many of the real benefits of SaaS - http://www.businesscloud9.com/news_analysis/gartner-dont-make-assumptions-about-saas [1]. SaaS is a compelling model for acquiring, using and paying for business software functionality.

“SaaS is cheaper during its first two years of use” Gartner finds, “but the total cost of ownership over five years would be lower for on-premises software.”  Whilst this may well be true in some cases I think Gartner is missing the point here. It is the fact that SaaS offers low upfront costs for acquisition and deployment that makes it most compelling.  For many smaller businesses, it is the up front costs associated with on-premise software that makes this option prohibitive, particularly in current market conditions when cashflow can make or break a business.

With SaaS, no large initial outlay of capital is required to license the software and the solution is typically purchased on a “per user, per-month” basis. This may significantly ease the burden of licensing software and makes the price paid for software  directly in proportion to its use.

SaaS is considerably more than just software. It is a business service, providing the software and its management.  Included in the solution is the infrastructure necessary to deploy: storage, database, application server, web server, disaster recovery and backup, all of which has to be paid for and maintained separately with traditional licence based software; and which is usually forgotten about when comparing the true total life costs of online software and legacy solutions.

You don’t have to install the software, it is already set up and ready for you to use. You don’t have to manage the hardware, the application itself or the upgrades as the SaaS provider ensures a continuous stream of ongoing upgrades to the solution, all behind the scenes. What Gartner also fails to mention is that SaaS systems can also enable SMEs to access value added functionality that they would not otherwise be able to afford. Take business intelligence for example.  

Data by itself in an accountancy application is fairly pointless. It is interpretation that is important. Now I am not saying that to be effective, SMEs require complicated data analysis but they do need to be able to answer the fundamental questions of what is our current performance, why is it thus and, based on an understanding of these two points, what are we going to try to do in the future?

In this regard BI is ideally suited to address these issues. SaaS accounting systems permit intelligent, graphical reporting in the form of simple, concise dashboards and scorecards. Business managers are able to insert non financial variables – for example, a shop owner might want to understand average shelf life of products in different parts of his shop, or a consultancy business might want to know average overheads per fee earner.

These configurable graphical reports fundamentally facilitate an understanding of current business performance to non accountants, who frequently are the decision makers in SMEs. Furthermore this information can now be extracted directly from the company’s operational data without the need for complicated, physically disparate databases. Now armed with a much clearer understanding of current performance, SMEs can use their accounting systems to model future scenarios, inputting a range of variables and reviewing the results in clear, graphical displays.

Franchising

I was pleased that Gartner’s report positioned the fact that SaaS does not just fit basic requirements and that SaaS systems can integrate with other business applications.  The BI example shows how a SaaS system can support accounting requirements beyond simply book-keeping and bring information together in a standard way.  Franchisors as another example, have complex business models and are continually seeking new ways to add value to their offerings for their franchisee network, reduce internal administrative costs and boost efficiencies.

SaaS accountancy solutions help franchisors centralise accounts data for their franchise network on a central server so franchisee staff can input data remotely and run reports through their web-browser, while their data is secure and not accessible by other franchisees. The system takes the hassle out of IT, with no need to install or upgrade software across the franchisee organisations.

The Franchise Group has over 60 franchises across the UK and Ireland, with hundreds of franchisees. The company has built up considerable knowledge about accounting packages in the market but saw huge benefits for the franchise model from using a tailored online system. Key factors in the decision were the online access a SaaS solution provided for franchisor, franchisee and its staff, the systems’ ability to tailor the solution to the specific needs of the franchise, the strong analysis and reporting capability and the power of the platform to handle large volumes of transactions by multiple franchisees, in multiple locations and multiple currencies.