One of the most exciting changes in the accounting industry is cloud accounting. The concept is easy to grasp: cloud accounting simply puts your accounting system in a private space online so that it is fully accessible to you via a browser or a secure remote connection.
For most businesses, there are many benefits to moving your accounting system to the cloud. Many small business owners have valid concerns about the new method as well.
In this educational report, we’ll provide you with an overview of cloud accounting, its benefits and drawbacks, how to get started, and where to find more information so that you can make an informed decision about whether it’s right for your business.
What Is Cloud Accounting?
Cloud accounting is a general term for several types of accounting solutions, all of which have in common one thing: The accounting system is accessible via a remote server that is connected to the internet, but in a private, secure space that only authorized users can access.
In the past, accounting systems software programs such as Intuit QuickBooks® have been located on a small business owner’s own private PC or a private server within the small business. This allowed one or more employees within the same physical location access to the accounting software.
Access to a “desktop accounting system” was limited, especially if the small business added additional business locations and/or needed outside consultants such as bookkeepers, tax preparers, or auditors to be able to access the system.
Cloud accounting solves the limited access problem because you can access a cloud accounting system via an Internet browser or a remote desktop connection that accesses the system through a private connection.
The benefits of moving to cloud accounting will vary for each small business and should be considered in two steps. First, we’ll present the most common benefits of cloud accounting. Second, you’ll want to select the benefits that apply to your situation and determine the value each one will bring to your bottom line.
Here are the reasons many small businesses are moving to the cloud.
Anywhere, anytime access to your accounting system.
As our workforce becomes more mobile, cloud accounting provides a tremendous convenience by allowing users to access the accounting system from any computer connected to the internet. If you have any of the following situations, you will benefit from this feature:
- You work in multiple locations, such as your home and office, and you use different computers.
- Any of your employees work at home or a different location from you.
- You don’t have a server that connects PCs.
- Your bookkeeper, tax preparer, or CPA needs periodic access to your files and works in a different location.
- Your bookkeeper, tax preparer, or CPA now travels to your location and charges for travel time or has an increased onsite rate that would be reduced if they had internet access.
Because every company only has one accounting file, when you move that file from a private PC to cloud accounting where it can be accessed simultaneously by multiple people, then you can save a lot of labor and frustration for your team. Correspondingly, if you are the only person that needs to access your accounting file, you will not benefit from this feature.
“You can save a lot of labor and frustration for your team.”
Access via all different kinds of computers and devices
If you prefer a Mac and your accountant prefers a PC, cloud accounting systems are happy to cooperate because they are “operating system-agnostic.” Since you’re accessing the system via a browser, the cloud system does not care what operating system or device you’re on. You can also easily have someone on Windows 7 and another on Windows 8 without a problem.
Want to do accounting on your iPad? Some cloud accounting systems have mobile device functionality, meaning there’s an app for that. Cloud accounting allows for access via smartphones and tablets as well as computers; however, not all accounting software programs have this feature, so check with the specific brand of software to see what it has available.
No more software updates or version upgrades
Your cloud accounting provider gets to worry about this now. How much time will you save from not having to install upgrades?
Yes, that’s right. Your data is more secure in cloud accounting than it is on your PC. That’s because the data centers that provide cloud accounting follow strict security procedures. Some of the security features include:
- Physical security including limiting building access and computer room access with James Bond-like features such as retina and fingerprint scans
- Data security including firewalls, multiple layers of password management, employee training, and much more
- Redundancy of computers and data for disaster recovery
- 24/7 network monitoring
The data centers typically have multiple state-of-the-art data security controls and must pass a rigid audit, which is far more protection than any small business can afford to provide for their own data.
Look for a data center that has hired a firm to produce a SOC2 report that evaluates the organization’s controls for security, availability, processing integrity, confidentiality or privacy. It’s beyond the scope of this paper to discuss this assurance service in any further detail. However, if you’d like to find out more about SOC2 compliance, you can go here.
Built-in offsite backup
If your accounting files are on your PC and something happens to it – it crashes, gets stolen, or there is a weather catastrophe or fire – then your file is gone if you don’t have a backup. With cloud accounting your file is safely located on a remote computer.
No more file version errors
When you need to provide your accountant with access to your desktop accounting file, you must take a backup, send the file to them, and in some cases, stop working on the file. The accountant must restore it, make the changes, take a backup, and send it back to you. You must then restore it. All of this has to be dome perfectly with no errors, which is not all that easy to do.
Those are the major benefits of cloud accounting. To determine the benefits that are applicable to your company, review the list again and place a dollar value on each of the items above. You can do that by multiplying hours saved by your or your employees’ hourly loaded rates.
You can also place an intangible value on any of the intangible benefits above. For example, it’s hard to quantify what doing accounting on your iPad might be worth. But if it means you can get home one hour earlier each day to be with your kids, then that’s pretty priceless.
Is Cloud Accounting Right for Your Business?
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An online survey of small and mid-sized accounting firms was conducted in late 2013, asking them about barriers to adoption of cloud accounting. Security topped the list with 73 percent of respondents saying security was the top barrier to cloud adoption.
We’ve found that security is very much an issue, but it’s an emotional one, not a rational one based on the facts. Because it’s an emotional issue, it makes it that much more important to address.
The reason it’s an emotional issue is because small business owners – and accountants – do not like giving up control of something as private as their financial information. With cloud accounting, you must in essence, turn over your accounting file to another company to keep it safe, while before you’ve had it on your own PC all this time, seemingly safe and sound because it’s simply closer to you. With cloud accounting, you end up transferring control of your files to the data center. You must trust both your accountant and this new data center with your files.
If you feel comfortable doing that, then cloud accounting may be right for you.
If you do not feel comfortable turning over your data, then no amount of benefits, convenience, and savings are going to sway you. You should not implement cloud accounting if you do not feel comfortable with this aspect of it. Please feel free to communicate to us if you are in this category. We will understand, and we will not force the issue on you.
The second biggest concern is cost. When it comes to costs, the most important thing to look at is return on investment. Will the time you save be of greater value to you than the costs of cloud accounting? That answer varies for each client, and if you are ready to find out how much it might cost, we will be happy to prepare an estimate for you.
But first, let’s talk about the two primary ways you can have your accounting system in the cloud.
Two Ways to Be in the Clouds
There are primarily two ways to have your accounting system in the cloud.
First, your current desktop software may be able to be “hosted” or moved to the cloud and accessed via a remote connection. This means that the current software you are using on your desktop, such as QuickBooks® or Sage, does not change. Neither does your company file.
The only thing you do differently once it’s set up is click a different icon to start the software. When you log in, most everything else is the same. There are a couple of differences in printer access, Microsoft Excel® access, and some of the other interfaces, but it’s essentially the same experience.
So if it’s the same, why would you want to move to the cloud? Because it completely eliminates the passing back and forth of the file among you, your CPA, your bookkeeper, and anyone else that needs to update or access your accounting file. No more restores. No more DropBox or YouSendIt downloads.
Hosting saves a ton of time because the people you grant access to can login to your file from anywhere.
And the best benefit is that there is very little training because you already know your software.
The drawback to hosting your current software is the cost. You have to continue paying for your current software, plus you have to pay a hosting company. In some cases, you may need to get additional licenses for your software. This type of cloud accounting is the most expensive cost-wise, but very economical when you consider the labor saved.
This first option may be the only viable cloud option for companies that need a full-featured accounting software solution with a large number of reports, extra features like job costing, and advanced capabilities such as inventory management. There are two exceptions to this, which we’ll explain after we discuss the second way.
The second way to have your accounting system in the clouds is to switch to an online accounting system. In industry jargon, this is called SaaS, which stands for Software as a Service. Examples of online accounting systems include QuickBooks Online, Xero, Intacct, and LessAccounting. These systems have fewer features and will only be right for a client with a need for a simpler accounting system.
However, many of the cloud solutions offer add-on software that extends the functionality of the accounting software, so as these add-ons become more robust, more companies will be able to use this option. Companies can also consider a higher-end SaaS solution, such as Intacct, which is quite powerful with many features and flexibility.
When you switch from desktop accounting software to SaaS, it will likely require conversion, setup, and training. Pricing for SaaS is an ongoing subscription fee.
The costs of a cloud accounting solution will vary depending on the following factors:
- The accounting software you choose
- Whether you choose to host a desktop software or choose a SaaS
- How many users need access to your software
- What features you need, and whether you can get them in the core software or an add-on
Some accountants will include your software, hosting, and other technology requirements in a comprehensive price that includes bookkeeping, payroll, controller review, and tax compliance. In these cases, the accountant will likely deal with the cloud accounting vendor and you will not have to manage that relationship.
In other cases, the accountant may simply pass on some references to you and leave you to work with the vendor directly.
Before deciding on a cloud solution, make sure your accountant or cloud vendor lays out all of the costs so that you can make an informed decision that will last. Unfortunately, we’ve seen many companies implement cloud accounting and then decide to return to their original accounting solution.
We believe this happens for two reasons:
1) The decision is rushed or made on the fly, and all the costs are not fully presented or understood, and
2) Small business owners ignore the emotional side hoping it will work out.
Why Is It Called Cloud?
Most sources say that it came from the cloud shape that was drawn on diagrams representing a subset of the Internet. If you’re curious, you can read more about the source of the word “cloud” in this 2012 IT World article. (The trends and statistics in this article are out of date, so be careful about drawing any conclusions about cloud adoption from this article.)
How to Get Started
We hope this educational report answered a lot of questions that you have about the cloud. Frankly, we’re pretty excited about the possibilities and results we’ve seen with the implementations we’ve done. But we’re also cautious; cloud accounting is not necessarily right for every business. We’d love to hear your thoughts and concerns about the topic.
If we’ve piqued your curiosity about cloud accounting, please feel free to reach out so we can continue the conversation. We can share any specific current success stories of clients we have successfully moved to the cloud, and we can discuss our recommendations and costs for a proposed move for your business.
Feel free to give us a call or send us an email to start the conversation.