What Is Online Bookkeeping and How Does It Work?

Online bookkeeping, or virtual bookkeeping, is a digital method for businesses to manage their financial records, storing data through cloud-based software. It allows for the remote access of financial information, and unlike traditional bookkeeping methods which relied on manual ledger entries, the software online bookkeeping utilises means most accounting tasks can be automated.

Online bookkeeping effectively reduces the chances of human error in a business’s logs, and dramatically increases the efficiency of the entire process. If you are a business owner who is considering the use of online bookkeeping and would like to know more about the process and its benefits, keep reading, and we’ll expand on the topic.

How Online Bookkeeping Works:

As mentioned, online bookkeeping primarily operates through cloud storage, and this means that all your business’s financial data will be stored securely, encrypted in the cloud, and is made accessible online. You can then access your financial records from any device, anywhere that has an internet connection. Once you grant the software permission to access your financial information and view your bank accounts, things like the transactions you make will be recorded in real time, eliminating the need for manual ledger entries and any errors that come with it.

Thanks to the automation processes of online bookkeeping software, things like transaction categories can be set up to help keep your finances more organised. It streamlines processes such as invoicing or payments, as well as expense tracking, so you can see your business’s financial history in real time. If decisions need to be made quickly, you can view your finances online, access the up to date numbers, and react to problems or opportunities using accurate data at any time.

The Online Bookkeeping Process:

There are a few steps that are involved when you opt in to using online bookkeeping software, and it’s a simple enough process. We’ll briefly summarise each step to establish an idea of what you can expect when moving your ledgers online.

• Data entry: Once your business bank account has been connected to the software brand of your choice, and you have given them third party permission, your transactions will start being automatically imported, allowing for the real time syncing of income and expenses.
• Categorisation: The software will automatically categorise your income and expenses based on the types of transactions your business makes. If the software recognises a certain type of recurring payment such as a utility bill, it will assign it to the appropriate category, and it essentially means the entire process is sped up while eliminating errors.
• Reconciliation: Once all the transactions are logged, your software can help you reconcile accounts, too, by matching them with the correct bank statements. This will help you keep your books correctly recorded and balanced, enabling you to quickly identify discrepancies and take necessary action.

Accessibility and Flexibility of Online Bookkeeping Software:

In addition to previously mentioned ability to access your online bookkeeping software from anywhere and at any time, it also allows for the use of multi-user access—with permissions. So, anyone from your accountant, to relevant team members can log into the platform and work together on your finances, enabling for smooth collaboration without the need of sending back and forth files or making duplicate data entries. It also means the financial health of a business can be shared across multiple key employees or partners, relieving the burden from solely being on the business owners shoulders, if they choose to do so.

Integrating With Other Tools:

Another great advantage that online bookkeeping can bring to your business is the ability to integrate it with other tools such as payroll software or invoicing platforms, and even tax filing systems like Making Tax Digital (MTD). Once integrated, it further reduces the necessity for manual data entries across different systems as your software will be synced, and in the case of MTD, can help you stay compliant with tax regulations automatically.

As an example, your invoices can be generated and tracked, in one place, and your payroll can then be processed without the need of entering the same data twice. When synced, different software and tools can effectively help streamline your business operations by making your financial process a lot smoother.

In all, online bookkeeping can provide you business with a flexible and useful automated solution for managing your finances, and by granting you access to real time data that is accessible anywhere, help you make better financial decisions that will improve the overall health of your business.

What Are the Benefits of Using Online Bookkeeping Services for Businesses?

The use of online bookkeeping brings many benefits for businesses to assist them in managing their finances. From improved accuracy leading to cost savings, to real time access to financial data. The services provided by online bookkeeping tools help make more informed decisions without the need for manual processes.

To go into this topic further, and if you are a business owner who is considering the use of online bookkeeping services, below we’ll discuss the key benefits online bookkeeping services can provide you, and explain why they are so beneficial.

Cost Savings and Affordability:

Traditionally, bookkeeping using handwritten ledgers would often require hiring either a dedicated bookkeeper, or outsourcing the work to agencies which can wind up being costly, particularly for smaller businesses or startups. In contrast, online bookkeeping services are far more cost efficient, as their subscription based models are more affordable than employing a bookkeeper. Further than this, by eliminating the paperwork and moving everything online, you can also reduce the need for physical storage space such as filing cabinets which can be highly useful to businesses of all sizes.

The software will also automate most of the bookkeeping process which will in turn reduce the need for constant oversight, so instead of paying someone to manually enter the financial data or reconcile your business’s accounts, the software will handle most of these tasks, again cutting operational costs, and providing a more efficient solution while improving the quality of your financial management.

Time Efficiency and Automation:

As well as saving money, online bookkeeping platforms can also help you save time for your business, and that’s thanks to the automation of their services. With your permissions, many platforms will automatically sync with your business bank accounts to import and categorise your transactions. This means you’ll no longer need to worry about or waste time completing manual tasks that used to take hours, whether that’s from manually entering data or invoice processing.

While our own Fintech tool, Pulse, offers far more than simple online bookkeeping—it’s an all encompassing financial analytics tool, we can use how it processes data as an example. Data is gathered, organised, then presented to the user, giving you access to instant financial data and actionable insights that can be used to make better business decisions without the need for any manual work. This time saving will allow you to focus on growth, rather than spending hours on draining administrative tasks. Once automated, you will also no longer need to worry about human errors, which can be common when entering data manually.

Real-Time Financial Insights:

To go further now into real-time financial insights, they are another extremely useful feature of online bookkeeping and will remove the wait that comes with traditional bookkeeping methods. Where you once would need to wait until the end of the month, or even the quarter, to compile reports, with online bookkeeping you can simply view your financial data at any time to view important information on things like your cash flow and expenses, plus you can keep track of the overall financial health of your business, too.

With your real time insights you can also make quicker and more informed decisions, for example if you notice a sudden drop in your revenue, you can take quick action to try and correct the issues, whether that is adjusting your pricing or cutting unnecessary costs, you can do it immediately. You might also notice a growth opportunity, whereas in the past, if you were waiting on a monthly or quarterly financial report, you could’ve missed the said opportunity. This becomes even more important in fast paced markets, or businesses that function in a seasonal model.

Scalability and Customisation:

As your business grows, you’ll likely find that the complexities grow, too, especially ones revolving around expenses. Online bookkeeping platforms offer a solution to this as they can scale alongside your growth and easily adapt to increased data volumes. This means that no matter how many clients you take on, or additional services your business offers, you won’t need a new or different system, and your platform will not struggle to keep up with its performance.

Again using our platform, Pulse, as an example of scalability, our tool can accommodate both small businesses and larger organisations without any trouble, and for accountants, as many clients as you need. If you are a small business owner, you might only need basic bookkeeping services, however our tech can offer more advanced features, too, like financial forecasting, portfolio insights, and tailored reports, helping you to make improved decisions for the success of your business.

In all, the benefits you’ll find for your business through online bookkeeping services will be cost savings, time savings, access to real time insights, and convenient scalability that means no matter how large and successful your business becomes, you’ll always be financially organised and ready to continue growing.

How Secure Is Online Bookkeeping and What Measures Are in Place to Protect Data?

Online bookkeeping is extremely secure due to the use of encryption technology, protecting sensitive financial data from end to end and while in transit. Third party platforms are required by law to adhere to numerous online safety regulations, too, which ensures that they are built from the ground up with security in mind.

If you are interested in the security measures that online bookkeeping providers use to keep their platforms so secure, below we’ll expand further on the topic, and explain the measures that are in place to keep your financial data protected.

Data Encryption:

The first way that your data is protected is through encryption, as touched on above, and this means that the data is encoded so that only authorised parties can access it at any given time. By being end to end, the data is always protected, too, so that even in the case of an attempted cyber breach, the data cannot be read or tampered with.

Pulse also uses encryption to safeguard your data both at rest and during transmission, this means your data will be stored in the cloud just as securely as when it’s travelling between our platform and your device. In this way, and for all online bookkeeping tools, encryption acts as a very strong deterrent against hackers, so you can operate without fear of any sensitive data being stolen.

Multi-Factor Authentication:

The next way that online bookkeeping keeps your financial data safe is through the utilisation of multi-factor authentication, or MFA, and it adds another layer of protection to your sensitive data by requiring users to verify their identity through more than just a traditional password. In most cases, this involves something that only you will know, for example a password, and an additional step such as a code sent to your email before entry.

MFA is effective at reducing the likelihood of an unauthorised access to your data, as even if a hacker obtains your passwords, it still means they need the second form of verification before they can log into your platform. If your business is managing financial data, this will ensure you avoid any cyber threats, or at least make them extremely unlikely. We use MFA here at Pulse, too, to keep your data safe.

Data Backup and Recovery:

Online bookkeeping platforms also ensure data backup and recovery is available to your business, protecting it against any chances of data loss. This will help ensure your financial data records are not lost due to any reason, whether it’s technical such as a system failure, or a data breach from hackers. Regular automated backups are performed with copies being stored in secure locations, the data of which is also encrypted and protected, and you can then retrieve it if it’s ever needed.

In the unlikely event of a disaster, whether that is due to a system crash or a ransomware attack, you can be sure that your data is backed up and a recovery system is in place, meaning the difference between a temporary inconvenience for your business, and a complete loss of that data. You will find each platform has data recovery options, allowing you to also restore your financial data to a previous point in time, and should bring you peace of mind knowing that your data will always be recoverable.

Regulatory Compliance and Standards:

In the UK, all Fintech platforms are required to adhere to the General Data Protection Regulation, or GDPR, which ensures that all personal and financial data is handled both securely and ethically, and is why online bookkeeping platforms are so secure. The GDPR effectively mandates strict data protection rules, so platforms like us at Pulse must meet the regulations to keep client information safe, and keep our Fintech in line with those regulations.

Thanks to the regulations enforced by organisations like the GDPR, online bookkeeping platforms have been designed with robust security measures making them extremely secure. Between encryption, MFA, data backup and strong regulations, you can confidently use these services knowing your financial data is safe from online threats or cyber breaches.

What Features Should I Look for in an Online Bookkeeping Software?

When choosing which online bookkeeping software to use, business owners should choose one with the best suited features to their business. Reporting and analytics is also important, as well as user friendliness, and the software’s ability to integrate with any current systems the business is running.

There can be quite a few things to consider for new and established businesses when looking for the ideal online bookkeeping software, so below we’ll go deeper into the topic, and explain more in depth on each of the above mentioned features to give a better idea of what you should look for when making your choice.

Essential Features:

Most online bookkeeping platforms will come with automated data entry, and it’s really a must, as it allows for all your transaction data from linked bank accounts and credit cards to be pulled onto the platform. This is only possible with your permission, and when done will save you time and eliminate any more possibilities of errors that are associated with manual data entry. You should also look for expense tracking on a platform, as this categorises your transactions and will help you to keep a clear record of where your money is going.

If you are trying to grow your business, you will also need a platform that can manage your accounts payable and receivable efficiently, so using a software that will do things like track your bills, or send payment reminders and manage your invoices should be a must. Depending on your operation, you may also require multi currency support, especially if you deal internationally, although in the current year it can be handy to have this access regardless. It will handle transactions in different currencies for you, and automatically convert the amounts based on current exchange rates.

Reporting and Analytics:

Another important feature to look for is how effective the online bookkeeping system’s reporting and analytics features are. These are important because you want a tool that will reliably generate financial reports, whether those are your profit and loss statements or balance sheets. Being able to customise these reports will also be important, letting you focus on the financial metrics that are most important for your business, rather than a generic tool that might not be ideal for you.

With real time reporting, you can also get access to up to date insights into your business’s financial health, and with them you can make better, faster decisions. Look for a platform that will allow you to create and download these reports easily, too, in the case of needing to present it to stakeholders or tax authorities. The more comprehensive a tool you can find, especially in how through its reporting and analytics are, the more it will help you in boosting your revenue and achieving success.

Integrations and Compatibility:

You will likely find that you need to integrate your online bookkeeping software with other tools already established in your business, for example your payroll system or any invoicing platforms you use, as it will save you hours of manual work, and more money. If you are operating in the UK, you will likely need a tool that can integrate with HMRC systems to comply with the Making Tax Digital legislation, and this is for VAT submissions. Once done, you can keep all your tax filings accurate and timely.

Our platform, Pulse, can integrate with all popular accounting tools, whether that is Xero, Sage, or Quickbooks, and many others. If you are a user and want to make use of Pulse, too, your data will work securely between systems. So, by choosing software that integrates with any current tools you use, you will reduce the necessity of repeating data entries and eliminate any risk of errors.

User Friendly Interface and Support:

When we speak to business owners, and when building our own software, we were made aware of the importance of having a user friendly interface, and reliable support that can be contacted in the case of confusion. We advise that you look for a platform that has an intuitive user interface, as a clean, easily navigable dashboard can save a lot of time and stress. When using Pulse you can see all your financial metrics in clear, easy to understand infographics, so you can keep track of all your KPIs with ease.

Being able to access customer support at all times is also going to be useful, whether that is via an online chat or over the phone, as that way, any technical issues you come across, you can be certain that you’ll be provided with a solution. In many cases, platforms will have an FAQ on their website, like we do at Pulse, to help answer any regular questions, or you might be able to access tutorials and user forums for answers, too.

When making the choice about which online bookkeeping platform you want to use, you should think about the things above, and make the best choice for your own business model. The right platform should work to streamline your financial processes and help improve your decision making, while integrating easily with any other business tools you use.

How Can Online Bookkeeping Help Streamline Business Operations and Improve Efficiency?

By automating financial tasks, centralising data, and providing real time financial insights to business owners, online bookkeeping can heavily streamline a business’s operations and improve efficiency, saving time and money every month.

By using online bookkeeping software, a business can also spend more time focusing on strategic ideas to boost the productivity and success of the business. If you are a business owner who is considering how useful online bookkeeping can be for your business, below we’ll expand on and explain the benefits more deeply.

Reduced Manual Processes:

We can start with the benefits that come with the automation of manual processes, whereby traditional bookkeeping would’ve involved the time consuming tasks of many data entry, invoice tracking, and the reconciling of bank statements. With an online platform you have these tasks handled for you, speeding things up and eliminating the risk of human error. Other tasks such as invoicing and payment tracking can also be automated, helping your business to receive faster payments and maintain its up to date financial records.

You’ll find automation helps ensure regular financial tasks such as reconciliation or financial reporting are completed more efficiently, too. For our own platform, Pulse, which is an all encompassing financial analysis tool, we provide real time syncing and updates so that any time your financial data is entered or imported, it’s instantly reconciled with the appropriate accounts.

Centralised Financial Data:

Online bookkeeping will also allow you to keep all of your business’s financial data in a centralised place, so instead of needing to maintain separate systems for things like your invoices and payroll, you’ll be able to access everything from the same place. This should help to simplify your operations and make it easier to monitor your business’s financial performance, letting you assess key areas more conveniently. Once all your data has been centralised, it will also greatly reduce the likelihood of you losing any information or duplicating anything, and through automation, you can keep your records accurate and reliable.

Improved Collaboration and Remote Access:

Through online bookkeeping you can make use of the remote access and multi-user collaboration benefits it brings. Because online bookkeeping is cloud based, it means multiple team members, including third party users like your accountant, can log into the system to review transactions or generate reports if they need it. When given permissions, your team members can update your financial information in real time so everyone is working with the most up to date data, and this is especially useful when developing growth strategies.

You will find that this enhanced collaboration can improve your overall business efficiency as it removes communication barriers and means you can make important decisions related to finances faster.

Optimised Decision Making:

Online bookkeeping platforms can also provide your business with real-time, actionable financial insights that should be utilised to optimise your decision making. By keeping your financial data current, you can use it to either identify potential cash flow troubles and act to correct course, or capitalise on a potential growth opportunity. Having the ability to react quickly to changes in your finances will improve your business’s operational efficiency, and help you to achieve success in the long term.

Our tool, Pulse, is much more than a simple online bookkeeping platform, and we offer tools to track all of your key financial metrics in one place. Using our platform, you will be able to spot trends early and take proactive steps to stay ahead of your challenges and competitors.

Between automating tasks, centralising all of your data, enabling remote access to your financial information and improving your decision making, online bookkeeping can heavily streamline your business’s operations, and with the real-time insights that can be taken from those platforms, should help you to come to smarter financial decisions that will keep your business on track for growth.