By The Numbers

South African SMEs rely heavily on accounting software to run their companies. The third annual State of South African Small Business 2019 report, conducted by Xero and World Wide Worx, states that 79 per cent of respondents said it was “very important”. The report found that almost a fifth of South African businesses have abandoned desktop software, too, and are using cloud-based applications to keep track of their accounts. Yet, a similar number are still doing their books manually, missing out on the digital revolution completely.

Pieter Bensch, executive VP at Sage Africa and Middle East, says many SMEs are merely comfortable with their desktop accounting software and not aware of how much time and money they could save — and the flexibility they could achieve — by adopting more modern, online software.

“Companies used to be concerned about data privacy and security issues, but those concerns are dissipating as the market becomes more educated about the benefits of the cloud and how cloud vendors protect their data,” says Bensch.

He says that the benefits for a SME switching to a cloud-based accounting solution include the automation of business processes, accessing information on-the-go from anywhere, cutting operational expenses like software maintenance and support, and lack of upfront licence costs due to the pay-as-you-go business model.

Additionally, as soon as employment law, tax or data protection requirements are amended, cloud software is instantly updated so that all necessary laws are adhered to, says Bensch.

Getting up and running on cloud accounting software is easy for a small company, especially if you are a new business. “Simply sign up online, set up your account and away you go in a matter of minutes.”

The future of accounting

Mark Silberman, owner of cloud-based AccFin software, says that cloud-based applications aren’t inherently easier for the entrepreneur, but there are advantages. “Most SMEs are founded by entrepreneurs who have no idea about accounting and very little about finance,” he says. “What happens is that where the entrepreneur has an accountant or tax practitioner, they will take the view of the tax practitioner.

“There is still fear about outsiders having access to the data and security issues. The main advantage of being on a cloud-based solution is the ability to appoint a bookkeeper who doesn’t reside nearby. If you’re running a business in Johannesburg, you can appoint a bookkeeper in George and give them immediate access to your accounts.

“There is also a poor tax morality in South Africa based on the state capture scenario, so I think a lot of businesses want to keep data tightly-held and not in the cloud,” says Silberman.

Why not the cloud?

The Xero report found that one key reason for avoiding the cloud remains poor connectivity. If the internet goes down, you can’t access your books — and that’s a concern for many SMEs.

Pierre Dixon, director at Real Time Accounting (RTA), says manual accounting methods are still being used in certain segments of the market due to a combination of business maturity, tax avoidance, and security concerns around cloud-based software.

He says the benefits of switching to a cloud-based solution means SMEs are able to make better decisions using real-time information, no contracts or installation fees, no backups, and being continuously upgraded with enhanced features.

South Africa has one of the most advanced banking infrastructures in the world and at the rate current applications are being developed and adopted, Dixon estimates that more than half of businesses in SA will switch to the cloud within two years.

“It is critical that business owners understand the importance of disciplined business processes and procedures as the software does not do all the work,” says Dixon.

He adds that cloud solutions are able to provide key metrics and measurement against targets. “Knowledge about business performance is in big demand.”