By Ian Lavis, Praxity
Is cloud-based accounting really as good as it sounds?
Advances in technology have made cloud-based accounting more comprehensive and accessible than ever for small businesses.
But the decision to shift data onto the ‘cloud’ and carry out accounting and other tasks via the Internet isn’t one to be taken lightly.
The concept makes sense. Instead of accessing accounting software on individual desktops connected to an old server in the office, users simply connect to the Internet.
This effectively does away with the need to install, maintain and upgrade accounting software at individual workstations. Moreover, users can access the same data at the same time from different devices, which has significant potential cost savings.
Latest cloud-based services allow small businesses to access a ‘dashboard’ which gives a real-time view of how their business is performing, from their cash position to trends in web traffic. In theory, this should help start-ups and SMEs work faster, better and smarter.
Only it’s not that simple.
There are several important factors to weigh up before deciding whether cloud-based services are right for your firm, including your existing accounting procedures, IT system and security.
Paul Hutchison, Associate atSpringfords, a participant firm in Praxity Global Alliance, says while cloud-based accounting can work well for some businesses, is by no means for everyone.
“Using a remote server allows us to access data at the same time as the client, and it’s very useful for start-up businesses who do not have a capital cost in setting it up to begin with, but where we have to be a bit careful is a cloud system is not always a step up. There are some concerns that are frequently not adequately addressed.”
These concerns include the speed of a client’s internet connection and the fact that web browsers are not necessarily designed to handle vast amounts of data. For some firms, it could be quicker to input day-to-day entries using desktop software.
“It’s down to the technology being used. If a client is using an on-premises solution like Sage, for example, the internet connection is maybe not so crucial. If a client moves to an online system, the connection becomes much more important,” Paul explains.
There are also concerns over back-up, especially if the hosting company goes out of business. Similarly, if the client stops trading, who pays to keep records stored on remote servers?
Paul adds: “For some businesses it’s is a perfect fit, and small techie start-ups love it. I would advise clients not to switch to a remote server just because it’s a cloud service. There needs to be an advantage when you have offset factors such as records, back-up, processing speeds and internet connection.
According to Gary Farrar, Chief Innovation and Technology Officer at Praxity participant firmBKD, LLP, the cloud has evolved and will continue to do so. “Just a few years ago the cloud was touted as the solution to all problems. A lot of early adopters learned painful lessons, and some of the hype subsided. Now we’re starting to see who the winners and losers will be. I believe cloud is here to stay, but clearly it is not the best solution in all situations.”
Dangers of DIY
Another factor to consider is a client’s willingness and capability to use accounting software effectively. Cloud computing is aimed primarily at small businesses who often view accounting as a burden which gets in the way of running an enterprise. Some 40% of small business owners say bookkeeping and taxes are the single worst part of owning a business, according to SCORE, a small business mentoring organisation. If the cloud system is based on the same DIY model as traditional, on-site, or self-install accounting systems, it won’t solve inherent problems with data and accounting procedures.
One way round this is to move away from the DIY model to a more sophisticated hosting solution where most if not all bookkeeping and accounting tasks are carried out on remote servers and where accounting firms have a more proactive role.
BKD’s Gary Farrar emphasizes that the capabilities of the software are more important than whether it is cloud-based or not. “Having an accounting system in the cloud certainly has advantages, especially for some types of businesses. However, at the end of the day, the functionality of the software is the most important consideration; the fact that is or isn’t in the cloud is secondary. If the software doesn’t meet business needs, then it’s not a good solution, even if it cloud-based. Fortunately, cloud-based systems are offering more functionality, but any business should thoroughly understand what a system can and cannot do before implementing it.”
Cloud specialists are now offering new features and functionality including full customisation, trial balance and snapshot capabilities, and comprehensive dashboards and alerts.
Large accounting firms are beginning to invest heavily in cloud-based service offerings which combine functions such as record keeping and analytics. The new dashboards allow clients to monitor metrics such as business growth, gross profit and sales on a daily basis, as well as non-financial data to get a more accurate picture of business performance.
The advantage of this type of solution is that it allows the accounting firm to perform tasks previously carried out by clients only faster and more effectively, such as paying bills, recording transactions, performing trail balance work, creating financials and managing clients’ cash flow and business finances.
The best type of system will be flexible enough to enable different levels of engagement by the client. Some business owners will want to carry out some accounting work. For clients that wish to continue writing manual cheques, for example, automatic bank feeds can cut data entry time significantly. Some systems claim to reduce write-up time by up to 70%.
Whether you decide to opt for a cloud-based system or not, and whether you go for core accounting or something more comprehensive, security should be paramount.
Advocates of the cloud point out that it removes the risk of a company computer or laptop with critical financial information being lost or stolen. Access to data in the cloud is encrypted and password protected, while cloud providers should normally have backup servers in two or more locations, rather than on-premises and at risk of being destroyed or damaged by fire or natural disaster.
However, the 2016 Global Cloud Data Security Study, compiled for digital security company Gemalto by the Ponemon Institute, reveals security is lacking. More than half of companies surveyed do not have a proactive approach for compliance with privacy and security regulations for data in cloud environments while only a third of confidential data held on cloud-based systems is encrypted.
BKD’s Gary Farrar adds: “Anyone considering using the cloud should look for independent assurance that the system is secure. Reputable providers will have third-party security audits of their systems and will comply with industry security standards.”