As we outlined in last week’s blog post, cloud accounting is one of the key components of getting results and making informed business decisions. In today’s article, we’ll take a closer look at how cloud accounting works and what its most important benefits are. Because no technology is perfect, we’ll also consider the potential pitfalls of using cloud-based accounting software and what you can do to minimise these risks.
What is cloud accounting and what are its benefits?
Cloud accounting simply refers to accounting software that is stored on remote servers – the cloud – and accessed via an internet browser by its users. This is in contrast with traditional accounting software that is installed on individual endpoints. We’ve spent a great deal on this blog in the past talking about the many benefits of cloud computing, and many of these are similar to those related to cloud accounting, too. Read on to discover the biggest perks of cloud accounting.
1. Cheaper and easier to get started
When you use software that needs to be installed on individual computers, there are associated fees and time involved in getting these up and running. You’ll have to purchase the license outright and potentially even invest in additional hardware like servers. This means you have to commit to your accounting software for a long time and jump through hoops when you grow and need to give more people access to your records.
In contrast, cloud-based software is flexible and the pricing structure is simpler. First of all, you’ll be charged for a monthly or annual fee instead of a high upfront licensing fee. This means you aren’t locked into a long term commitment. You can also easily grant new people access to your records without having to install the software on their computer or buy even more licenses and/or hardware. All this means that cloud accounting is also usually the more affordable road to take.
2. Saving time
One of the biggest advantages for cloud-based accounting software is the fact it helps to automate much of the tedious, repetitive data entry typical to traditional bookkeeping. With cloud-based accounting, the software automatically updates your client information and it’s much faster to draft up, send and track the payment of invoices.
3. Staying up to date
With a SaaS accounting suite, there’s no need to download software updates since you access your records via the internet. This means you’re always working with the latest, and therefore safest, iteration of the software. This is significant since so many people fail to regularly update software installed onto their work computers.
Because cloud accounting software is updated in real-time, you’ll also always have the very latest figures in front of you. This will allow you to have the clearest possible view of your company’s financial standing and you can make accurate business decisions accordingly.
4. Working from anywhere
As we’ve talked about on this blog numerous times, cloud computing and flexible work go hand in hand, allowing your staff to have access to the information they need anywhere they are. This also makes collaboration between office-based and remote team members much easier.
Similarly, cloud accounting makes sharing financial information with all relevant parties much more straightforward. There’s no need to download data to pass onto them and for them to then upload it before they can view it. Instead, you can give everyone who needs it their own login details to the online suite so they can see the necessary figures in real-time.
5. Work with a good level of cybersercurity
Another upside to working with cloud-based accounting software is the better cybersecurity it offers. With traditional accounting software installed onto individual computers, your financial data would be compromised as soon as that computer fell into the wrong hands. In contrast, cloud accounting suites have more layers of cybersecurity as you’ll have to log in to get access to the accounts and because they utilise additional safety measures like encryption, anti-malware and firewalls. You’ll also benefit from the automatic data backups cloud accounting suites offer.
6. Stay compliant with Making Tax Digital requirements
As of April 2019, most companies have been legally required to submit their tax returns digitally. This means you can no longer manually input the required information using the HMRC self-service portal. Instead, information is sent automatically via digital tools, leading to greater accuracy.
This means keeping your records digitally and using accounting software to send these to the HMRC for all companies with an annual turnover higher than £85,000. Cloud accounting makes the whole process easier by automating much of the work, making updating your records from anywhere easy and giving access to anyone who needs it.
What are some of the risks of cloud accounting?
As we mentioned at the start of this article, no technology is perfect, and cloud accounting is no different. The first potential pitfall of cloud computing is the fact that you need an internet connection to access your accounting suite. While this means you can usually access files from anywhere, this is only true when you have a good connection. The way to deal with this is to have a good plan in place of what to do if you can’t access your accounting tools on any given day.
Arguably the biggest concern people have about moving key parts of their business into the cloud is that this means their business intelligence is in the hands of another company. This poses two potential threats: first, that your vendor disappears, and secondly, that they can’t keep your data safe from cybercrime aimed towards them.
To prepare for the unlikely event that your vendor disappears overnight, you should have a contingency plan in place that addresses getting access to your data. As for the security of cloud software providers, there’s usually no need to worry: large providers of cloud accounting software are able to invest in cybersecurity measures more sophisticated than those afforded by small businesses.
That being said, a data breach is always possible when your data lives on the internet. However, when you compare this to the security risk posed by lost and stolen computers with accounting software installed onto them, a truly successful data breach targeting an accounting software provider seems much less likely.
All in all, cloud accounting software is the safest and easiest option.