Unlike traditional accounting systems tethered to a specific computer, cloud accounting uses the internet to provide access to your business’s finances anytime, anywhere. This approach unlocks a plethora of benefits, including real-time data access, multi-user collaboration, and more sophisticated security protocols than individual businesses could implement themselves.
If you’re operating traditional accounting software, it might be time to consider a switch to the cloud. Read on to learn how cloud accounting can help your business thrive in the digital age.
What is cloud accounting?
Cloud-based accounting, also known as online accounting, uses remote servers, hosted and accessed via web-based software, to manage your company’s financial data. It’s similar to online banking, where you log in through a website or app to manage your bank accounts rather than having your bank’s data stored and software installed on your computer. Some examples of cloud accounting software include QuickBooks Online, Xero, FreshBooks, and Zoho Books.
Cloud computing shifts how your financial information is handled. Instead of your data residing on a single computer or local server, it’s securely stored on remote servers maintained by specialized service providers. You interact with this data and the cloud based accounting systems through a web browser or a dedicated mobile application. This creates benefits in terms of accessibility, collaboration, and efficiency that traditional accounting practices can’t match.
Cloud accounting vs. on-premise accounting: What are the key differences?
With cloud technology, you can access software and your business’s financial data from any device with an internet connection. Cloud accounting typically uses a subscription-based model, where you pay a regular fee for access to the software and services. Updates and maintenance are handled by the cloud provider. You have instant access to all recent features and improvements without needing to manually update the software. Security measures are also implemented by the cloud provider, including data encryption, regular backups, and access control.
On-premise accounting software is installed and runs on your own computer or local internal network. All data and software files are stored there and access is limited to the specific devices on which the software is installed. It generally involves a one-time purchase of a software license, but many desktop software providers also now require annual subscriptions. Maintenance tasks, such as data backups and security updates, are your responsibility, as is updating the software on your local machines. You also need to implement your own security measures, such as firewalls and antivirus software, to protect your key data.
Benefits of cloud accounting
Cloud computing offers several benefits which can transform how you manage your business’s finances:
Accessibility
With cloud accounting, your general ledger resides on secure, remote servers, you can retrieve it through any device with an internet connection. This includes your laptop at home, a tablet when you’re on the go, or even your smartphone. This accessibility offers flexibility for small business owners and their finance teams, letting them manage their finances outside of traditional office hours and locations. It’s helpful for businesses with remote teams or those requiring on-the-go financial management.
Cost efficiency
Traditional accounting software often involves a significant upfront investment in licenses, plus regular costs for IT support, server maintenance, and software upgrades. Cloud computing typically operates on a subscription-based model, which translates to lower initial costs and predictable monthly or annual fees. You’re essentially renting the software applications and infrastructure. This eliminates the need for expensive hardware and dedicated IT staff to manage it. This can be particularly beneficial for small businesses managing startup costs with limited capital.
Collaboration
Cloud-based software offers seamless collaboration among multiple users, including internal team members, external accountants, and business advisers, who often work in multiple locations. Cloud solutions enable them to access the same financial data simultaneously (with appropriate permissions). This creates seamless collaboration on tasks and allows for real-time communication about financial matters.
You can enable accountant access in order to receive timely advice and support, even when your accountant works in a different location. And if your accountant manages your data for you, you can log in and view it in real time—rather than waiting for them to generate financial statements from traditional software and email it over to you for review.
Automatic updates
Forget the hassle of manually downloading and installing software updates. Cloud accounting providers handle all updates, maintenance, and bug fixes. This means you always have instant access to the latest features, security enhancements, and performance improvements without disruption to your workflow. You can focus on running your business, knowing your cloud based accounting software is up to date.
Scalability
Cloud accounting software is designed to scale as your business grows. It lets you easily add more users, features, and data storage without the need for significant infrastructure changes or new software applications. Also, most modern cloud accounting platforms offer seamless integration with a wide range of other business applications, such as customer relationship management (CRM) systems, ecommerce platforms, payment gateways, and payroll or accounting services. This creates a connected ecosystem streamlining business processes and providing a comprehensive view of your financial operations.
Whether you’re just starting out or a rapidly expanding business, your cloud software can adapt to changes without significant disruption or costly upgrades.
The ability to connect with other business tools boosts efficiency by automating the flow of information between cloud platforms. This integration helps you see your business performance clearly. You can easily track sales, customer interactions, and financial results in one digital environment.
Security
Trusting your financial data to the cloud might seem daunting. However, cloud accounting providers focus on security. Their infrastructure and protocols often exceed what individual businesses can do on local devices or servers—like advanced data encryption and multifactor authentication to prevent unauthorized access. They also perform regular and automated data backups to prevent key data loss and ensure the physical security of their data centers. These measures ensure the confidentiality and availability of your critical financial information.
Automation
Time is money, and cloud accounting software is designed to save you both via automations. Cloud accounting platforms take advantage of the automation features often included with cloud infrastructure. Additionally, many have open APIs to integrate with third-party automation software.
Accounting automations eliminate routine and time-consuming tasks, like importing bank transactions, reconciling bank accounts, generating and sending invoices, setting up recurring payments, and tracking expenses. Automating these accounting processes reduces the risk of manual errors, freeing up valuable time for you and your team to focus on core business activities.
An example of time saving is seen with cloud accounting software like QuickBooks Online and Xero. These popular cloud accounting solutions offer powerful automation features, from automatically categorizing bank feeds to scheduling recurring invoices and payment reminders. These features help businesses reduce the administrative burden associated with financial management. This saves valuable time, letting companies focus on more sales, customer service, and product development.
Cloud accounting FAQ
How is cloud accounting different from traditional accounting?
Cloud accounting uses remote servers hosted and accessed by the internet to store financial data and operate software. Traditional accounting relies on locally installed software applications and accounting data.
How safe is cloud accounting?
Because of its robust measures like multifactor authentication, encryption, and regular backups, cloud accounting can be considered highly secure. While no system is foolproof, a reputable cloud application service provider often has stronger security than individual businesses can implement.
Is cloud accounting expensive?
Cloud accounting costs vary based on the software, number of users, and features. The service typically is offered as a subscription with different price tiers. Cloud solutions often prove cost-effective compared to traditional methods because of lower upfront costs, reduced IT overhead, and scalability.
