Do you know that 38% of European organizations use cloud-based financial solutions? In fact, it has been reported that 42% of Australian companies are using paid cloud computing to operate their business transactions. In particular, the United States ranks as the most important public cloud market with an estimated spending of $124.6 billion in 2019.
Having given you an insight with these statistics, you may be wondering: what is cloud accounting? In the rest of this article, we will be expounding the concept of cloud accounting in full details, as well as its relevance to businesses in today’s competitive market.
What is Cloud Accounting?
Cloud accounting is a solution that allows employees in different departments, remote or branch locations to have access to the same data and the same version of the software, as well as performing all application functions off-site instead of on the company’s desktop. Cloud accounting software is hosted on remote servers, just like the SaaS (Software as a Service) business midweek. Accounting data is sent into “the cloud,” where it is processed and transferred back to the user.
Why cloud accounting
The are several reasons why businesses need to consider cloud accounting. Below, we have highlighted 4 major reasons why cloud accounting is beneficial.
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The automation of several manual bookkeeping and accounting processes
For starters, cloud accounting comes with automation capabilities that allow bookkeepers or accountants, as well as their clients to maximize efficiency and save more time, enabling them to devote more time and resources to the growth of the business.
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Easy scalability to meet growing business demands
Let’s assume your business currently executes 50 – 500 transactions per month, but then it experiences a skyrocketing surge that causes this number to greatly increase to about 50,000+ transactions per month. How will you handle this growth? It would be much easier to manage and sustain the growth when you have effective cloud accounting systems.
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It eliminates a ‘paper’ environment
Cloud accounting facilitates a paperless environment that does not require any physical store or managing of paper documents. The benefit of this is not only a cost and office space advantage, but it is also ideal for a smooth working environment.
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Integration and upgrades
Unlike traditional accounting, cloud accounting can be upgraded. This is because it has the ability to integrate with other cloud solutions, which will enhance the power and improve the efficiency of your cloud accounting technology stack.
Difference Between Cloud Accounting and Traditional Accounting
| Cloud Accounting | Traditional accounting |
|---|---|
| It provides real-time financial reporting. | It lacks real-time financial reporting. |
| It automatically updates financial data. | Traditional accounting requires updating financial information manually. |
| Engaged employees are motivated to work every day and do everything in their will and power to help the company achieve its goals. | Satisfied employees are those that handle their job responsibilities well and decently but do not go above and beyond that. |
| Account balances are typically accurate and fewer errors are present. | There is the possibility of inaccurate account balances and several errors in financial data. |
| Cloud accounting software are also better able to efficiently manage multi-company and multi-currency transactions. | Traditional accounting can not efficiently handle multi-company and multi-currency transactions. |
| With cloud computing, firms are not stuck with permanent and costly licenses and equipment. Even when the business experiences little expansion, there is no massive increase in costs. | Every time a company grows in the on-premise world, they encounter new fees for database, fresh licenses, greater maintenance costs, as well as higher software license. They may even need to make capital purchases of new, expensive hardware, like servers. |
| Overall, less maintenance is required for cloud accounting. This is because updates happen automatically, the cloud provider handles the backups, and no additional software is required to be installed or downloaded on a business computer. | High maintenance is typically an issue with traditional accounting. |
| Sharing data is also less stressful. Two parties simply need access permission to the same system with their respective passwords. | Usually, traditional methods use flash drives to transport data, which could be stolen or lost. |
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Benefits of Cloud Accounting
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Access your accounts anywhere
With cloud accounting, you have 24/7 access to your vital business numbers, from anywhere you can get internet connection. This consequently nullifies the need to carry out your job from a single central computer located in the office.
All you have to do is log in through a web browser from your computer or make use of the mobile app of your provider to enable accessibility from your tablet or phone.
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Access to real-time information
It becomes easier for you to realize real-time reporting when your bank reconciliation and bookkeeping are up to date. Cloud accounting provides you with an instant overview of the present financial state of your company, instead of you going through past reports that are out of date by days, weeks or even months.
The essence of this real-time overview will be observed when making significant strategic and financial decisions as a management team, budgeting for future expenditures, and evaluating your cash position.
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Access to the app ecosystem
The essence of open APIs is for you to be able to incorporate a variety of third-party tools and applications so as to expand your essential business process. There are market-specific project management tools, online invoicing apps, cash flow forecasting applications, and so many other practical solutions to consider.
Generally, these tools allow you to alleviate the pain and burden of unnecessary administration, in addition to proactively identifying problems, reducing costs of resourcing, and further saving time.
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Live bank feeds
A lot of cloud accounting platforms provide live feeds to your bank accounts, which gives you the opportunity to link your banking directly with your accounting. Thus, a live feed transmits your bank information directly into your accounts, instead of you having to manually key in each bank statement line or upload a .CSV file that you downloaded from your online banking portal. As a result, this provides you with a better accurate view of your bank statement and accelerates bank reconciliation.
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Always working with the latest software version
Another thing is that you will always be using the most recent software version anytime you sign in to your accounting platform on the cloud. You won’t have to go through the costly and time-consuming updates – all you have to do is log in and begin working. In addition, your software provider will also automatically take care of every security fixes, so you don’t have to worry about that.
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Secure sharing of data
With cloud accounting software, it is very easy for you to permit access to your accounts when you’re working with your bank, advisers, or accountant. You won’t have to resort to USB memory sticks or sending emails every now and then. Basically, your accounting team has real-time, safe access to all your financial data.
This is not only safer and quicker, but also provides your advisers with the data required to advise and support you, progressively.
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Connected online payment
Do you know that a number of payment applications can be linked to your invoices and online accounting? Yes, and this allows customers to automatically pay you, thereby fast-tracking payment times and relieving the stress of admin duty on you or your workforce.
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Reduce costs
Unlike traditional software, cloud-based software does not require you to spend on certain things such as system administration, upgrades, maintenance, and other related costs.
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Provide automatic updates
Cloud-based software are characterized with automatic updates that enable you to increase security and further enhance the functionality of the app.
Challenges
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Security threats
One of the top concerns of cloud computing as a whole is the increasing security threats. Cloud computing is faced with security issues such as account hijacking, hacked APIs and interfaces, broken authentication, compromised credentials, and data breaches. By implication, it makes it difficult to trust a third party with sensitive and vital data.
To handle the issue of security risks, we recommend that you adopt a secure BI cloud tool that can leverage adequate security measures such as access control mechanisms, authentication, and verification of SaaS provider’s secure user identity management.
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Insufficient availability of resources/expertise
The lack of resources and/or expertise is another cloud challenge being faced by businesses today. As a result of the increasing workload being stored in the cloud, it becomes necessary for businesses to provide additional training for IT and development staff.
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Cost management
Costs are another challenging factor with cloud accounting. Yes, cloud accounting can save you some money to a certain extent. In the cloud, you can easily ramp up your business processing capabilities without having to spend big on new hardware, thanks to pay-as-you-go models from public cloud providers. However, it can sometimes be hard to define and predict costs and quantities because of the scalable and on-demand nature of cloud computing services. To tackle this issue, you would have to optimize costs by conducting proper financial analytics and reporting, as well as policy automation for governance.
Example of cloud accounting
Are you looking for a good cloud accounting software? Below are some good examples of cloud accounting software:
- QuickBooks Online (QBO)
- Xero
- MYOB
- Reckon
- Zoho corporation
- Sage 50cloud
- FreeAgent
- ZipBooks
- NetSuite
- Wave Financial
- FreshBooks
Cloud accounting for small business
Cloud accounting is not only for the big businesses. In fact, small businesses need cloud accounting as much as large ones do too. This is why we have highlighted 3 reasons why a small business needs cloud accounting:
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Convenience
In this digital age, almost everyone is using a smartphone or tablet to carry out certain business processes/transactions. Thus, by using cloud accounting it is very convenient for you to access your finances from your home, office, on the go, and from any remote location. You can get instant updates on the transactions completed and the ones that are still pending. The cherry on top of the cake is that you also have to deal with less paperwork. With a few clicks, you can easily manage your business finances.
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Easy access
Cloud accounting solutions also saves you the stress of moving files from one desktop to the other. Every concerned staff or associates can easily access useful information whenever they need it. This relieves you of the time-consuming process of spending hours to distribute data to your employees or having to run around with folders bursting with invoices and receipts.
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Safe and Secure
Unlike storing your core financial data on your own system (which is susceptible to theft, loss or damage), cloud accounting is more reliable and safer. Information in cloud accounting are stored on secure servers and delivered over the web. This is in addition to regular backups.
Is the cloud accounting secure?
The security of cloud based accounting is rather subjective. First of all, considering how sensitive the data associated with cloud accounting applications is (e.g., financial data and banking), security is a very vital issue in the cloud accounting sphere.
However, when we also consider traditional computer accounting software, which poses the threat of serious problem if a business desktop is damaged, lost or stolen, then cloud accounting is relatively very secure.
Generally, most cloud accounting solutions utilize innovative approaches like encryption and multi-factor authentication, which guarantees the security of sensitive data. In addition, cloud providers typically position backup servers in two or more sites. This means you would still have access to your data even if one server network malfunctions.
Hence data in cloud accounting is relatively very secure unlike information kept just on-premises, which could be damaged or destroyed in a fire, flood, accident or any natural disaster, and may never be recovered.
Emerging trends
The concept of cloud computing is still being properly developed. Chief technology officers have been a propelling force in the development of cloud computing as they seek to reduce the risk of internal outages and alleviate the complexities of computing hardware in-house and housing network. Every year, top cloud technology organizations pump in investments worth billions of dollars for the research and development of cloud computing.
For instance, Microsoft diverted 90% of its $9.6 billion R&D budget to its cloud, in 2011. The trends appear to be growing as reports from Centaur Partners, announced towards the ending of 2015, had forecasted that SaaS revenue would spike from $13.5 billion as at 2011 to a whopping $32.8 billion in 2016.
Conclusion
In essence, cloud accounting is the new hot cake for businesses whose objective is to manage their business finances in a convenient, efficient, and secure environment. An excellent example to use here is internet banking – people were initially reluctant, but now everyone is embracing it. It’s in fact the safest way to bank. In the same manner, cloud accounting is going to contribute greatly to small and large businesses, as the world continues to go digital. Don’t be left behind!
