Real-Time Accounting: Everything You Need to Know
Is real-time accounting a good choice for your business? We sat down with CPA and accounting expert Caleb L. Jenkins to discuss the pros and cons.
Imagine this: all your books are caught up, expense reports are reconciled, and P&L reports are ready. You know exactly where your business stands. Life is good. Then…James from sales submits a travel expense report late. You now get to go back and redo those reports. Or, you could just..not, right?
No, no, that's a terrible idea. Obviously.
If only there was a better way. Good news—there is. It's called real-time accounting. Maybe you've heard of it but are a little fuzzy on the details. Maybe you're questioning if it's the right choice for your clients or business.
That's what we're here for. Recently the ClearSpend team sat down with Caleb L. Jenkins, EA, CQP (those letters mean he's an expert accountant 🙌) to talk about all things real-time accounting. Here is what you need to know before making the switch.
Sign up for our newsletter. It’s awesome.
Enter your email below and we’ll let you know first thing when we do cool stuff that saves you money and gives you more control over company spend.
What is real-time accounting?
As the name suggests, real-time accounting is accounting that happens in real-time. Pretty self-explanatory, right? Actually, it's a little more complicated than it might seem at first glance.
Real-time accounting is about tracking expenses, profits, and losses in, well, real-time. Rather than waiting to handle the balance sheet, reconcile expense reports, and enter all that data into your accounting software, real-time accounting gives you access to all that data exactly when you need it. Awesome.
That means no more long hours waiting for data—and your clients are happy because they have the data they need to make crucial business decisions faster.
The power of real-time accounting for expense management:
You get access to data fast. Not 60 days later, not 30 days later after we have closed the books for the previous month. We can do that immediately at the point of purchase or at the point of the expense. -Caleb L. Jenkins, EA, CQP
How is it different from normal methods like after the fact accounting?
Real-time accounting is different from after the fact accounting in one key area—when the accounting occurs. Real-time happens in real-time, while after the fact happens later.
After the fact accounting, sometimes called batch accounting, means the bookkeeper or accountant sits down and processes expense reports, profits, loss, etc. all at one time, in a linear fashion. It takes longer, but also gives you more time to make sure everything is accurate.
Real-time accounting requires inputting data in real-time, then you generate reports, check authorizations, and fix categories on a regular basis. This method is also easier to automate, which can save you time and your clients money. 💸 (Don't worry, this won't put you out of a job; there's still plenty of accounting to do!)
What are the benefits of real-time accounting vs after the fact accounting?
The major benefit of real-time accounting is that it's faster, which is always a good thing. But it's not just about having more time to go play ping-pong in the break room. Faster accounting also means you have access to crucial business insights—like profits, losses, and expenses, a whole lot faster.
That can give your clients a leg up on their competitors who are putting around waiting for the end of the month or quarter to see where they stand. You're also more likely to spot fraud or trends that impact revenue faster because you're tracking everything in real-time.
Here are a few other benefits of real-time accounting:
As you can see, there are pros and cons to both approaches. For example, if you rush through real-time accounting, it can be inaccurate. With after the fact accounting, you risk not having access to data when you need it.
Here's how Caleb explains it:
"Let's say ClearSpend is planning to attend two accounting conferences in an effort to drive more leads. You go to Accounting Web Live Summit in early May and want to learn what you used in another conference called Scaling New Heights in early June.
With after the fact accounting, I can get you an accurate financial statement for ClearSpend for May by July 15th. The problem is all of the insights from May (including the impact from Accounting Web Live Summit) won't be ready before you attend Scaling New Heights.
Maybe I work fast, and I get you a financial statement for May by June 5th (in time for Scaling New Heights), but it is so full of errors due to uncategorized transactions that you end up making the wrong decisions on how to attend Scaling New Heights.
You might totally bungle your sponsorship of Scaling New Heights because of bad data from May."
The bottom line is this: If you do real-time accounting right it is faster, more accurate, and provides access to the data your business needs quickly. If you aren't careful, it can result in inaccurate data. Using integrative tools that share data can solve this issue.
What tools can help you achieve the holy grail of real-time accounting?
Ready to switch to real-time accounting? Don't worry, you won't need to be on call 24/7 to make it happen. There are, however, a number of tools you'll need to build your real-time accounting system.
For starters, you'll need:
- Accounting Software: To get started, you'll need Quickbooks or another similar platform that integrates with other software and can process accounting in real-time. The integration is crucial because it eliminates manual tasks by sharing data directly.
- Reporting automation: To keep your accounting in real-time, you'll want to be able to generate reports fast—and that's where automation comes in handy. Look for a reporting tool that integrates with your accounting software, or use a tool like Zapier, a third-party integration tool, to bring all that sweet, sweet data into one place.
- Expense + receipt collection: Finally, you need a tool to gather, store, and reconcile all those expenses. ClearSpend is a great option, but maybe we're a little biased. 🤷♂️
Once you choose your real-time accounting software and set up the integrations, you’re good to go. Make sure to explain the new process to your team and ensure everyone knows how to enter expenses, categorize purchases, and generate the reports they need.
ClearSpend makes your real-time accounting dreams come true
Real-time accounting software gives businesses access to the critical business data they need to make better business decisions in real-time. ClearSpend is an expense and spend management tool that makes it easy to manage expenses—including approvals—in, you guessed it, real-time.
Here's how it works: Sign up for a free ClearSpend account. (Don't worry; it's not a trial. ClearSpend is always free!) Then, fund the account from your business bank account. We'll give you access to a ClearSpend dashboard where you can:
- Generate virtual or physical cards: The ClearSpend Go card puts you in control. Limit spending by category or amount and turn it off at any time.
- Track expenses in real-time: Employees make approved purchases, upload the receipts, and add categories—in real-time.
- Control spending: Want to give Susan in HR more cash to spend on the weekly lunch or give sales a per diem while they're at a conference? If you generated company cards for them, you can do it all at the click of a button.
Expense reports? Nope. Spending limit requirements to sign up? Nope, none of those either. Secret lair above a wash-and-fold store where we run a spy organization? That we can't confirm or deny.