CAPEX and OPEX an Accountants view

Laurence Moore is Chairman of Prime Accountants

Jonathan Toni (Strategic Alliances Director Compare the Cloud) has asked me to write a guest blog about the benefits derived by moving from a CAPEX model to an OPEX model when moving to the cloud.

As a practising Chartered Accountant he wants me to explain that to techy people who apparently see this as a major benefit.

Interesting question because when recommending cloud technology to SME businesses I rarely, if ever, mention it. I probably should throw it in more often, but don’t.

The reason is, I dont see that as one of the benefits driving this technology change but really an extra benefit as a bonus, resulting from the decision already made.

I hope Jonathan wasn’t hoping for an indepth explanation of the different accounting treatment of CAPEX and OPEX because, if so, we will all nod off at about the same time.

The simple benefit to the businesses I advise from that aspect, is purely cashflow – no big upfront payments, and reduced commitment, no long tie-ins. OK thats the accounting bit done then.

So why am I passionate about the cloud?

Two reasons – benefits to a business – and secondly the benefit to my ability to advise and support businesses.

We all know the business benefits in terms of secure data centres, remote logins from multiple locations and multiple users, no need for local backups, ease of updates, so I will explain what it means for my accountancy business when advising clients.

Traditional accounting practice and its traditional client

Business installs Sage on PC in office, hires bookkeepers who are reasonably good (problem number 1 – as how does the business owner know that?)

Bookkeepers ‘keep the books’ knock out the VAT returns, have a go at reconciling the bank and a few months after the end of the year send the accountant a backup.

Accountant tries to find the same version of Sage or Quickbooks on his network, restores the backup, fiddles around with the numbers, enters them into his specialised accounting practice software and prints the year end accounts out.

He then either forgets to give the client the adjustments to make to their Sage/QB or he sends them to the bookkeeper who ignores them as they dont understand them.

Client gets accounts 6 months after the year end and sticks them in a desk drawer as too old to be of any use. Accountant sends client his fee note, client moans about it.

Go back to beginning and start again for the second year.

Cloud accounting practice and cloud client

Accountant explains cloud accounting sytem to client, sets it up and gives client login(s) and training. Agrees fixed monthly fee for all services including cloud accounts subscription

Cloud accounts connects to online banking system automatically downloading bank transactions daily.

Client raises sales invoices in the office or out on the road on phone or tablet. Employees enter their expenses on a restricted login profile. Accountant answers any queries immediately they arise as he has constant live access to the single ledger which everyone shares.

Client scans his supplier invoices into Dropbox, shared with accountant’s staff

Accountant enters supplier invoices into cloud system and reconciles bank transactions. If required, sends statements to customers by email on behalf of the client. Perhaps gives the customers a direct dial number in his office for any queries they have.

Accountant pays client’s agreed supplier invoices via his secure BACS bureau using file extraced from cloud accounts, so no-one enters any payments into banking system or writes cheques out.

Client gets monthly accounts with explanation, possibly compared to budget set at beginning of year.

Straight after year end, accountant completes year end accounts with any adjustments entered directly into live cloud accounts system

Accountants annual fee is less than traditional costs of on-premise software, bookkeeper(s) and traditional year end accountant, which resulted in no useful information available to the business.

This is all happening now with real clients now.

And thats why I love the cloud

….and dont care about CAPEX, OPEX, EBITDA, PBT, EIS, FRSSE and nor do my clients.

 

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