We often get the question, Why Xero or why any cloud based system we suggest? Beyond the obvious redundancy, flexibility, and expandability that systems in the cloud give you, an often under appreciated concept here is the reduction of friction.
I define business friction as how difficult it is for something to happen in a business. To make a sale, to get a loan, etc.
The biggest obvious friction removers with cloud based systems we see for clients are the following:
1 – Invoicing from anywhere, on any device
2 – Automated follow ups for overdue invoice (Cash is king!)
3 – Automatically creating invoice/recurring invoices depending on the business use case.
4 – Automated Bank feeds
5 – Automated document feeds (Pictures, emails all directly into the accounting system)
6 – Simple back office friction – Having all your records and finances in order.
Let’s take invoicing for example.
How difficult is it for you to invoice a client?
Is the invoice automatically captured in your accounting records or in a separate spreadsheet? Is it automatically added to your debtors owing? Does your system follow up automatically on the invoice until it’s paid? Does this all feed into your accounting system that produces financial reports for you?
To demonstrate let’s take the example of invoicing an annual client.
We have a client that once had the following process to invoice their members (It is a membership non-profit).
1 – Every year there is a membership run. They circulate a very large list of emails directly to the client with a PDF attached.
2 – If these individuals wanted to remain members they then complete the form and email it back to the email provided.
3 – This email was then manned by one person who sent it directly to the accountant to create an invoice and the administrator for that region to reactivate the person in their database (Manual recapture of member information).
4 – The accountant created an invoice, on a desktop accounting system at the time and sent the invoice back to the person.
5 – This person then sent the invoice onto the individual member who then paid it.
6 – If it wasn’t paid in due course, there were phone calls and email follow ups on the outstanding amount.
When we got involved we immediately pushed the following changes.
Every admin person got invoicing access to the cloud accounting system (Raising an invoice is not rocket science!) and as phase 2 we created an online form.
The process then worked, mostly, as follows:
1 – Circulate an email with a link to the online form.
2 – Individual members completed the online form which automatically created a draft invoice in the accounting system and membership information was saved directly in a database.
3 – Admin person is alerted, reviews the invoice, clicks approve and sends directly from the accounting system.
4 – Client received email with invoice, with online option to pay (Credit Card or Easy/Instant EFT).
5 – If the client doesn’t pay, and invoice is still outstanding, the system sends automated email reminders for payment.
While the above didn’t save too many steps it did save time and manual effort (and many errors) for our client as well as their members. It was easier for clients to sign up and they could pay faster and 3 people were not involved in the background back and forth emailing. This saved a lot of effort especially when considering this had to be done for many hundreds of members.
Another more back office example is the end result of having all your business financial information feed into a central cloud based system.
This is a problem many small business owners have faced. Most companies need a loan at some point in their existence. Without up to date financials it is difficult to apply for a bank loan. The bank won’t even consider the application without the correct combination of financials, supporting schedules, and of course, confirmation that you are tax compliant.
For a business without these in place before hand, the process would go something like this:
1 – Client wants a bank loan. Bank requests financials, tax clearance and other supporting schedules (Cashflow, etc)
2 – Client finds an accountant, asks them to quote on financials and tax clearance.
3 – Accountant quotes but then realises there are no actual accounting records and alerts the client.
4 – Accountant asks for all the financial information required to prepare the accounting records. This takes a couple of days to weeks.
5 – Accountant prepares the accounting records.
6 – Accountant prepares the Annual Financials from these accounting records.
7 – Accountant alerts client to a tax bill that these financials create and goes ahead and submits the tax return once confirmed with client
8 – Client pays the tax bill, if they’re in a position to.
9 – Accountant gets tax compliance clearance and sends this together with final financial statements and any other schedules to the client.
10 – The client then forwards this to their bank.
These steps, in our experience can take anywhere from 3-8 weeks (Or longer in some cases). When you are working with an accountant on an ongoing basis, and using the right systems, you likely skip directly to step 9. The entire process of getting the information takes 1-3 days.
Steps 1 to 8 will likely already have been done many months ago. The information is submitted easily daily via an automatic bank feed, documents are forwarded via email or submitted via a simple picture as they come in. Cash Flow forecasts and management financials are prepared monthly. Not even mentioning the many other good reasons you would want this all in place, the simple business friction it creates is often reason enough. When trying to raise financing, these are 3 to 8 weeks you cannot spare.
One very important area this can extend to in a business is that of sales. In assessing this we always try and ask ourselves:
- How easy is it for my client to find me?
- How easy is it for my client to buy from me?
- How easy is it for my client to pay me?
From there this can then be extended to many other areas of your business like some of the examples above. This all leads to serving more customers within the same space of time, to more revenue and finally to more profit.
One of the basic ideas of business (and economics) is creating value. You create value (and profit), by doing more (or at the very least the same), for less. The largest companies in the world spend very large amounts of money removing steps, and ultimately removing friction in every facet of their business. But this is not simply for the largest businesses. It is for every business or organisation and you’d be surprised by the impact it can have.
*All guides are intended as general information only. Always check with a professional for advice