Is the accounting software company trying to run your business

accounting softwareThe relationship between software providers and clients has changed radically in recent years, at least in the accounting industry. As a matter of fact, I believe that this change is not just in our industry, but that software companies are crossing borders more broadly. The clients that entrepreneurs have worked so hard to acquire, are suddenly becoming joint clients and you start getting advice on how to run and price your own business. This reality really hit me when the CEO of Digibalance companies, who runs our operations, said that most of the accounting software updates are negative, trying to steer us in a direction we don’t want to go.

Cloud services (SaaS) have been a major, and in many ways positive, game changer for the software industry. For example, the current operations of online accountants firm AutoAccount are completely dependent on cloud based applications, and we have no longing for server software or even more ancient local installations. However, the active interference of a software company in our own business is strongly disapproved by the entrepreneur. The most equivalent memory that comes to my mind is that of an exchange student from decades ago. The endearingly jealous host family brother legendarily uttered “how about making some own friends” when he noticed I was constantly hanging out with his old buddies 😊. However, it’s an equally sensitive issue with the entrepreneurial mind. When a software salesperson, after one Teams meeting, starts calling your long-term customers “our customers”, a mental war is easily waged.

The set up has become quite awkward for the entrepreneur as a client and is starting to resemble a dating market. Software providers are inviting you to constant non-productive meetings and calling the entrepreneur a partner, which he or she may not want to be. The tricky part comes when the accounting software company changes their pricing to reflect how they feel the client’s industry should operate. In our own accounting process, we run over 2000 client books a month and even small changes in pricing can be critical. For years we were effectively reliant on one accounting software, but in the current climate this dependency had to be broken. It is now a question of which provider’s software, pricing and attitude best supports our own processes. In Sweden, for example, after a little initial fidgeting, we have been understood where we are going with our own business. Then we can talk about partnership.

An entrepreneur should never become arrogant and turn a deaf ear to comments from outside. A person unfamiliar with your field, may occasionally make comments that hit on a surprising point that you hadn’t thought of. I would still encourage every entrepreneur to protect their customers. If you are not vigilant, someone is always ready to co-opt your customers mainly to support their own business.

Author Mikko Ilves the Chairman of the Board of Digibalance Group

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The problem of negative equity

company bookkeeping

A few years ago, I wrote in my blog that the registration of a limited company without share capital is possible in several countries. The aim is to lower the threshold for entrepreneurship and it has certainly done so. Now that we look at it from a practical point of view, the flip side of the ease of incorporation has been highlighted by the difficulty of closing the company. In other words, if a limited liability company has been set up without a clear plan for its future, or if circumstances have changed irreversibly as a result of covid-19, the idea of dissolving the company may have arisen. The associated liquidation process, with its costs and the time it takes, has come as a surprise to many entrepreneurs. The country-specific corporate law usually states that if the Board of directors finds that the company’s equity capital is negative, they shall without delay take action. For example, in Finland you must make a notification to the Trade Register of the loss of share capital. There is more time in some countries to correct the balance, for example by the next annual closing of the company bookkeeping.

In practice, negative equity usually appears when the “total equity” line in the company bookkeeping balance sheet shows a figure under zero. Many small company has been set up without share capital, has no other equity invested and might be making a loss. In such a case, a loss of even one euro results in negative equity, which could lead to problems. It is quite easy to make a loss and the issue of negative equity can sometimes come as a surprise to the entrepreneur. The traditional situation is that of a start-up company with a short first financial period, financed with a loan. There may be liquidity for payroll and other expenses, but sales invoicing has not really started yet. The outcome for the period is a loss = negative equity. I encountered a slightly more peculiar situation recently in the connection of a car finance. A small company that employs its sole owner well and is able to pay a normal salary. In addition to the cash salary, a car benefit was utilized by buying a car on the company’s balance sheet with 100% financing. Some EBITDA margin is generated and there is enough cash to cover the repayments, but the annual depreciation of the car will bring the result down so badly that the equity is strongly negative.

There are a number of situations, as described above, where a small business can run into a negative equity problem. There are also accounting means that can be used to improve the situation without stepping into the grey area. For example, expense entries should not be aggressive and the overall periodization of costs can make a difference; whether it is actually an expense for next year or an investment for future years. The periodization of income and expenses for companies receiving various project grants is an art in itself, and expertise in this area is important in avoiding negative equity. However, the easiest action point is to invest sufficient equity in the company as early as possible. This does not have to be in the form of share capital since there are more flexible ways to be utilized. Alternatives can be sought, for example, by bookings a meeting with Digibalance Consultancy Service, where the issue can be examined directly on the basis of the client company bookkeeping.

Why should a negative equity be avoided? It is difficult to give an exhaustive answer to this question, but first of all it creates the situation mentioned at the beginning, where further action is required. If the notification to Trade Register is needed, there is also a need for further action to remove the entry in the register at a later date. This will entail accounting work and costs, i.e. it will also be an administrative burden. The notification in itself may also create complications to run the business. Purchasing goods or services on invoice may become more difficult. If you go to the bank to apply for a loan, this entry in the trade register may put an end to all discussions. The same result is faced if you show a balance sheet showing negative equity, even if there is no registration requirement for that. There might also be the risk that board members will be personally liable for damages or other problems the company may have.

The conclusion is very clear: even a small company should avoid negative equity because of the effort and risks involved. However, it does not automatically remove all the conditions for doing business.

Author Mikko Ilves the Chairman of the Board of Digibalance Group

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AutoAccount is compliant with Wise

AutoAccount - Wise

A well functioning payment system is an absolute cornerstone of business operations. Since cash is not a modern option, a bank account has always been a self-evident and crucial tool and also a basis for bookkeeping. In recent years, however, entrepreneurs have increasingly come across a new problem: the bank refuses to open a bank account or closes an account that has been in operation. New solution: AutoAccount is compliant with Wise.

There are several types of problem situations. For example, a startup entrepreneur goes to open an account at a bank branch or an online bank, where he gets to fill out a questionnaire including questions about political activity to difficult details about how many and what types of transactions the bank account will have. The result may be that the entrepreneur is not a welcome customer and the account is not opened. More and more common is the situation where an operating company receives a questionnaire related to the background of beneficial owners. If the form is not returned, the bank will close the account completely after a few warnings. Or despite returning the form, the bank decides to close the account.

The reason why we have drifted into this kind of environment is due to banking regulation, and a considerable share of the banks’ resources goes to various bureaucracies. The biggest reason for an individual company’s problems is probably the KYC (Know Your Customer) requirements, i.e. the bank must show how it assesses the money laundering risks related to its customers, how it identifies its customers and how it knows and monitors its customers’ account transactions. From entrepreneur’s point of view, the effect is clear in many cases: if there is even the slightest uncertainty, the account will not be opened or maintained. Having a foreign background always seems to increase the risk.

If a solution cannot be found in the traditional banking field, there are several fintech companies who’s services can replace a bank account. Among AutoAccount’s wide international client base, we have come across a particularly large number of Wise accounts (formerly Transferwise). There’s already a lot of experience of Wise accounts and basic payments work well. Payments and direct debits have worked in both domestic and international situations. There is also a free Visa debit card available, which of course conveniently connects to the company’s account statement.

Accounting professionals know that getting bank account transactions into accounting is critical. In AutoAccount, we avoid manual recording of transactions as far as possible. Currently, banks produce very functional account data in XML format (CAMT). However, this is not available from international fintechs like Wise. At AutoAccount, we have solved the issue with our subsidiary Digibalance Oy’s own software development, which makes it possible to import account data into bookkeeping. When there are large masses of customers in the care, the efficiency of the process is everything. AutoAccount bookkeeping is now compliant with Wise!

Author Mikko Ilves the Chairman of the Board of Digibalance Group. 

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The silence of Digibalance AutoAccount has ended

Online service for accounting

COVID-19 has not disappeared anywhere in the world, but its effects on working life have gradually diluted. For Digibalance companies, the period of a few years has been very revolutionary and it actually normalized what we had already built years before the corona: an online service for accounting clients, remote meetings, location-independent working. The impact of the pandemic on the visibility of our operations was clear: the rush in the customer process and development projects rose to such a level that our active social media presence withered to almost non-existence. At the same time, especially micro-entrepreneurs, in their own cost pressure, found us more and more often.

As the demand exceeded the delivery capacity, we have had to evaluate our operations from new perspectives. At the beginning of this year, we made a decision that differed from the preparations that had been made for a longer time: we will not bond with venture capitalists. The decision was based on many choices related to values, meaningfulness of work and entrepreneurship in general, but as with all choices, this has both positive and negative sides.

As a long-term entrepreneur, I always see it healthier to run a business where losses do not rise to a significant level. Without large financial buffers, this is also a situation dictated by necessity, and it is clear that it has the effect of slowing down development. The management’s time and energy is spent on ensuring various practical matters, while in a hypothetical position of “never-ending cash”, this energy could be allocated to doing the so-called right things.

The above-mentioned setup can be seen now as an emphasis on profitability alongside a focus on growth. When there is no need to impress the financiers, i.e. to grow at any cost, we have been able to analyze customer profitability and invest in personnel. In practice, for the first time in my entrepreneurial career, I have been driving almost as much customers away than acting as a salesperson. The experience has been partly heart-wrenching for the entrepreneur, but on the other hand, it has also opened my eyes in a new way to the well-being of employees.

The problems of customer profitability in our operations seem to rise mainly from two subjects: 1. a low solvency of client entrepreneurs compared to the need for services 2. additional stress for personnel caused by customer behavior problems.

Solvency problems are easier to understand from these two. When the entrepreneur’s own business has experienced difficulties due to the pandemic, he/she has started looking for more efficient and more affordable solutions. At the same time, however, it is easy to forget that the purchased service model differs from the previous one. Regular coffee breaks, stacks of papers and calls to your own  accountant are not part of the basic service of an online accounting office. Instead the service models are made for a different world. There is certainly still a place for old-fashioned services, but Digibalance companies do not produce such services. We have consistently built affordable digital online bookkeeping services for micro and small entrepreneurs. We combine needed expertise and the ease of use of DigibalanceApp application or online browser service. Almost without exception, a new client for us gradually adapts the new operating model, even if they have been working with their accountant in a different way for years. Effortless and affordable. That’s our unbeatable AutoAccount service combination, but I also feel that it is important to distinguish from “doing bookkeeping is now easy for you” type campaigns that unnecessarily raise the threshold of entrepreneurship. The majority of entrepreneurs would not like to participate in bookkeeping at all, and we emphasize that the applications are only part of our effortless service process for the customer. In AutoAccount sales, the most challenging thing is often to get the entrepreneur to understand how small is the required customer contribution for us to collect the necessary data to produce the books. And the accounting is done by AutoAccount on behalf of the customer.

When analyzing customer profitability, the most surprising thing to me was the fundamental behavior problems in a large customer base, which stress our employees. The phenomenon is the same as what you could read about in the media during the pandemic, for example in supermarkets: various very outrageous insults directed at employees increased when the shouters were able to hide behind a mask. Psychologically, it’s a very interesting topic, which is certainly related to many reasons from difficult times to upbringing and inequality. In practice, remote and online service create the same illusion as a face mask: the feeling that I, as a customer, can communicate however inappropriately. The same phenomenon is well known from social media discussions. On a practical level, it has been quite surprising to have to intervene in individual situations where the customer’s communication to accounting or even to an individual accountant is constantly rude and disrespectful. In some cases, it has been a question of the customer’s inherently aggressive way of communicating. In other cases, there is a misunderstanding where the accountant is seen as an enemy who always does things wrong, whether there was a factual reason for it or not. The customer may have been quite surprised when I brought up such a problem, and often the cooperation has continued in a more positive spirit after that. However, there are individual cases where we have not wanted to continue the service ourselves. It’s good to remember that behind all automation there are important people who make our effortless services possible!

We have had to increase minimally the reimbursements of software suppliers’ increasing customer-specific costs. However, our fight against inflation and price increases continues, and we will not raise our own monthly service charges for the time being!

The silence has ended and you will hear about our activities again through numerous electronic and social media channels in the future. Feel free to comment, share or like our updates😊

Published by Linked on 23/09/2022Digitase Oy - AutoAccount - DigibalanceApp

Author Mikko Ilves is an entrepreneur and the Chairman of the Board of Digibalance companies.

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