Wednesday 24 July 2013

Cloud Accounting

Xero is currently the leading cloud accounting software package.  I've recently implemented it for a client.  In this article, I set out the pros and cons of moving accounting into the cloud.  A future article will be a review of Xero specifically.

What is Cloud Accounting?

Since computerised accounting was invented, it has involved buying software, installing it on a computer at your own premises, being responsible for keeping it up to date, backing up data, paying a fee for support and periodically paying out again for upgrades to the software.

Cloud accounting does away with all of these steps.  The business user enters into a contract with a cloud provider, paying a straight monthly fee.  The software is held on the provider's server and accessed over an internet connection.  All the user's data is also stored remotely and the provider is responsible for backups.  Software updates are provided automatically at no additional cost.

To date, it has mainly been developed for small and medium businesses.  As well as Xero,  KashFlow and FreeAgent are well known suppliers.  Package software providers such as Sage and QuickBooks have adapted their offerings for the cloud.  The approach is also moving upscale with solutions becoming available for larger enterprises.

Advantages

The over-riding factor in deciding which accounting software to use is functionality - does it meet the business needs?  This is a far more important factor than where it is hosted.  On the assumption that a cloud solution meets this requirement, the following are the advantages over a conventional packaged software approach:-

Cost.  UK pricing for the three leading providers is a maximum of £25 per month per company, regardless of the number of users or number of transactions.  This compares very favourably with the hundreds or thousands of pounds of up-front cost required for a packaged solution.  Furthermore, there are no hardware costs or further charges when upgrades are required.

Security.  The cloud providers deploy state of the art security methods, which are likely to be far stronger than anything a small or medium business could afford.  There is a much lower risk of data loss than with a packaged solution.

Support and upgrades.  Cloud companies offer unlimited on-line support.  It is therefore in their interests to make the software work as well as possible.  Upgrades to the software are made automatically and for free.

Capacity for growth.  There is no limit on the amount of data storage.  Running out of disk space and upgrading servers are problems for the cloud provider.

Availability.  The system can be accessed from anywhere there is an internet connection, at any time.

Disadvantages

Single point of failure.  If your internet connection goes down, you have no accounting system.  This is a worry if you're in an area where the connection is flaky.  That said, broadband availability is becoming a key utility, rather like water or electricity supply and, in most places, 100% uptime is the norm.

Upgrades.  If you don't like any of the upgrades that the provider has installed, that's hard luck.  There's no possibility of rolling back to a previous version of the software.

Dependence on supplier.  If the supplier goes bust, you lose your accounting data.  A periodic download of data to a local computer is good practice.

Less drastically, with cloud accounting you are locked into the supplier who may start gouging you with price increases.  This is also of course true of packaged software suppliers.  It's important to carry out due diligence on your cloud provider, as you would with any other strategic partner.

Response times.  A slow internet connection may lead to unacceptable response times from the server.  In practice, the software is engineered to minimise loads on the connection and very few users report this as a problem.

Conclusion

When looking for accounting software, the primary consideration is that it meets the business requirements.  If a cloud solution can give a business what it needs, it is likely to find that the advantages strongly outweigh the disadvantages.  Many people have reached this conclusion and use of cloud accounting is currently doubling every year.



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