How to “Cloud Accounting” for Tax: Intro


In the wake of tax practices all over the world having to shut down due to Covid-19, I have received many questions from practitioners regarding cloud accounting. It would have been much easier to close the doors to the physical office and responsibly social distance if firms had adopted this technology before the enforced shut-down. The comfortable practice with stacks of tax files was just thrown into a very uncomfortable position. I will dig into the actual how-to of creating a firm that can operate remotely in this multi-part series.

This introduction will be more of a definition of terms so we start with the same vocabulary. I will then give you the first steps to take in the transition. I know many firms will be somewhere on the spectrum of adoption, so each article will address specific pieces to allow for you to pick and choose the parts that are applicable.

What is the cloud?

The cloud is distributed servers accessed through the Internet. Cloud Software, or Software as a Service (SaaS), hosts their software in server farms that can be all over the world. Many of these companies host their platform with Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Hosting. End users access the software via a portal online and all of the processing for the software occurs on a distant server farm that end-users do not have to maintain. This is the gold standard for virtual firms as the cost of upgrade and maintenance is built into the software fees. These software fees are traditionally paid monthly, quarterly or annually.

What is hosted software?

Many IT companies are selling service space to host your server-based programs. Hosted software is accessed through the Internet as well. Hosted software mimics cloud software but is fundamentally different. When companies are building software, the architecture is different for server-based versus cloud-native technology. Additionally, you are still responsible for installing updates and maintaining the server that it is installed on. It is much more expensive to the end user to buy a software and pay for server space to host it, rather than using a cloud-native SaaS solution.

The unfortunate situation we are in as tax accountants, is that there are no great cloud-based tax technologies. There have been mediocre attempts, however, that work well for very small tax returns but nothing complicated. The demand has not been high enough to warrant these companies focusing on building truly cloud tax software. Instead, they have built programs to host the server-based technology for you. We will examine those options in another article.

Now, on to the fun stuff! HOW on Earth do we actually take a traditional paper-based firm and move it through paperless adoption onto cloud accessible programs with the ability to work from anywhere with Internet?

Step 1: Say it out loud.

We all know the first step to making a change is admitting there is a change needed. Say your intention to your team, tell your partner, tell your significant other, tell your clients, and reassure yourself. This is the right decision and the more you practice saying your intentions out loud, the easier it will be to accept the change.

Step 2: Make a change management plan.

My next article will go through how to build a comprehensive change management plan. For now, let’s practice telling people our intentions. Communication is one of the three pillars of a good change management plan. Communicating early and often is important. It is okay to tell everyone you are currently building the plan, the timeline, and the multi-phased approach. When your plan is complete, you will be able to show it to everyone and they will be expecting it and more receptive than if you sent them a giant plan for a change they had no idea was in the works.

Step 3: Start scanning everything.

If you are coming from a paper-based firm, you can get a jump start by digitizing all of your records. Create a digital file-room (this can be done on a cheap external hard-drive to start) with folders for each of your clients, subfolders for each year. Hire your kid, a high school student, an intern, or even your neighbor’s 30-year-old kid that sleeps on their couch. Scanning files is an easy way to get a jump start on transitioning your firm.

The process of converting a firm from paper-based to cloud will be a long and painful journey, I am not going to lie. However, it will give you the freedom and the confidence to move into the future with grace. An added benefit is that cloud firms sell for higher multiples than traditional paper-based firms, so you will be adding value to your company as well. We are all in this together, and I promise to make this series of how-to’s as easy to digest and follow as possible.

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Liz Mason is a serial entrepreneur, a giant nerd, and an involved accounting vanguard. She is the Founder of High Rock Accounting, Rebel Rock Accounting, TheDepartment.Tax, and a few other related brands. Liz speaks on a national stage, guests stars on podcasts, and writes frequently. To further her passion for the advancement of the accounting profession, Liz currently serves as a Xero National Ambassador and as the Content Strategist for Tax Practice News. Liz started her career in tax at Grant Thornton (at 20) and automated a portion of her job landing her in the national tax practice. She spent a decade in large public accounting firms working on highly technical tax consulting before branching off on her own. Liz utilizes her creativity and passion at her company to uproot traditional practices and replace them with innovative concepts. She finds joy in efficient technology and her core belief is that everyone and everything can continuously improve (she says "be better" too often). When Liz isn't planning world domination in accounting, she is a die-hard skier, down for any adventure, plays the ukulele, reads everything, and has a good sense of humor. If you're looking for her, you can find her traveling the world and enjoying new food and cultures with her young son. Follow Liz and High Rock Accounting on Twitter at @LizzyNorMa and @HighRockCPAs.