The short answer? Yes, accounting software is worth it and, when it comes to types of accounting software, cloud is the best.
Here’s an analysis of everything cloud accounting to give you the insights you need for effective financial management and constructive stakeholder dialogues, including:
- The evolution of cloud accounting
- Financial implications
- Key benefits
- Potential risks
- What migrating to the cloud looks like
- A step-by-step transition guide
- The future of cloud accounting
Let's jump in to find out why, exactly, 48% of CFOs are actively looking to invest in cloud technology over the next five years.
The Evolution Of Cloud Accounting: From Ledger To Cloud
Accounting is no longer just bookkeeping entries in ledgers. Since the late '90s, sophisticated cloud-based accounting software has been revolutionizing how companies store, manage, and access financial data on remote servers instead of on-premise hard drives.
Conventional accounting software is out—and cloud accounting is taking its place.
Cloud Advantages Over Traditional Accounting
The AICPA states that almost 80% of businesses today are utilizing cloud-based accounting software to handle their day-to-day financial activities. Why? This technology makes the whole accounting process better, rendering it more efficient and less prone to errors.
Integrating cloud technology and accounting tasks creates a streamlined system that goes far beyond traditional accounting software to provide users with:
- Accounting process automation
- Centralized accounting systems
- Real-time data
- Cost-effective solutions
- Security and Compliance
And my personal favorite? Integrations. Combine your cloud computing power with project management software, and you’ll be looking at optimal efficiency in no time.
That’s all well and good, but let’s get back to the core question. Is it worth it?
The Financial Impact Of Implementing Cloud Accounting
Being able to do a bunch of stuff is fine, but first, we need to know if it’ll create a direct financial impact on your business. So, with that in mind, let's break it down.
Cloud accounting services, like any tool, come with a price tag, so you need to make sure there’s going to be an ROI - I get it.
According to Gartner, cloud accounting software adoption has been linked to a 25% improvement in operational efficiency—considering this is measured by the numbers, the ROI is clearly there. Plus, the benefit of having real-time financial reporting at your fingertips can't be overstated.
Short-Term & Long-Term ROI
The initial setup cost of cloud solutions is often lower than that of an on-premise software solution, and in the long run, a cloud accounting system is more cost-effective for all but the biggest businesses. Reduced time on data entry and less reliance on in-house data storage equates to ongoing savings.
Impact on Stakeholder Communication
Whether it's you, your investors, or your internal team, people want data and they want it now. With online accounting, you can pull up any financial metric instantly. No more "I'll get back to you on that."
As you can see, it’s becoming pretty clear why I think cloud accounting software is more beneficial, but we still need to analyze the risks and benefits.
The Benefits Of Cloud Accounting
Accounting Process Automation
There are many gains from process automation, including increased productivity, reduced errors, decreased workload, boosted job satisfaction and morale, and lower staff turnover… to name a few.
Automation ensures that employees' skills and capabilities are used on higher-level tasks that provide a more significant benefit to the business.
By centralizing accounting data and functions, your team members and other departments can work from a central source simultaneously with confidence, knowing they’re looking at a single source of truth.
- Better company-wide visibility
- Improved efficiencies
- Improved financial management
- Elevated levels of trust across the board
Real-Time Data Accessibility
One of the most significant benefits of cloud accounting is the ability to access your financial data in real-time, especially when maintaining accurate cash flow and accounts receivable, crucial metrics for any business. No more wasting precious time manually updating spreadsheets.
If you want a more striking example, the real-time data and automation help you create better free cash flow management, ensuring any liquidity issues are seen far in advance.
I covered this a bit already, but there’s a bit more to it.
The older on-premise accounting solution model has historically been capital-intensive. Cloud accounting creates a more cost-effective accounting model than its traditional counterparts, but you’re never going to “own” the accounting tool outright; the pricing model for cloud-based accounting tools is usually subscription-based, with your access terminated as soon as you stop paying.
Scalability: Grow with Your Business
The best cloud accounting software can scale with you; start with a basic solution and get more complex as your operations become more intricate.
Cloud-based accounting software can adapt to your company's changing needs, handling multiple currencies and entities with ease and integrating with other systems like CRM and ERP, allowing your accounting team to quickly and easily scale as your company's needs evolve.
Ensuring Security and Compliance
With seemingly never-ending risks in compliance and other areas, cloud software providers tend to prioritize advanced security to protect your financial information.
Regular backups and compliance audits address various regulations and are standard features of most cloud accounting software. This greatly reduces the risks to your organization without the need for manual, high-cost IT security team intervention.
There are many other benefits of cloud accounting software, like improving analytics and forecasting capabilities, that enable business operators to allocate resources more effectively, but you also need to know the risks.
Understanding The Risks Of Cloud Accounting Software
Cloud accounting software offers a plethora of benefits, but it comes with some risks. Let’s talk about them.
Data Security Concerns
Reputable cloud accounting software providers implement robust security measures, but no system can guarantee 100% protection against all breaches. Yes, your financial information stored on remote servers is generally secure, but there are always inherent risks of hacking and unauthorized access.
Dependence on Internet Connectivity
Accessing your financial data and accounting services is contingent on a stable Internet connection. In areas where internet connectivity is unreliable, this could pose a significant problem.
Cloud accounting systems usually offer straightforward subscription-based pricing, but there could be hidden fees like charges for additional features, data storage costs, and high per-seat variable costs.
These could add up over time. Read every contract detail thoroughly, understand the 'all-in' costs, and consider involving a legal team if the contract value is high enough to be sure you’re avoiding all surprises.
Data Ownership Questions
The question of data ownership shouldn’t be complicated but sometimes it can be.
Your data is from your business, of course, but it’s stored on servers owned by the service providers. It's essential to understand their policies regarding data ownership, how and where your data is stored and treated, at rest and during transfer, and especially if you decide to switch platforms.
Limited Customization and Control
Cloud-based accounting software is designed to cater to a broad audience. While this ensures a relatively standardized, user-friendly experience that works for a majority of clients, it may limit the degree to which your company can customize the software.
Whether today or down the line, you may find this annoying for fitting your specific business needs. That being said, this is the case with any software, on-premises or cloud, except cloud software makes it easier to choose a different provider if your needs aren’t being met.
System Maintenance and Downtime
Even cloud services need downtime for maintenance or unexpected outages. While this is generally rare, short-lived, and announced in the future, it can affect your ability to access crucial financial information when required. Make sure to ask about the service levels, maintenance, downtime schedule, and frequency, and how it might impact your business.
Cloud Accounting Migration Processes
The Onboarding Process
Vendors set up your cloud accounting software (or help you set up your software) through an onboarding process, which is usually straightforward and intuitive. They configure your software based on your company's needs before importing its existing financial data, connecting bank accounts, and providing permission-level-based access to dashboards.
Daily Workflows and Operations
Your daily workflows are significantly less time-consuming with cloud accounting. You can automate various daily accounting modules and some aspects of financial reporting, which can typically be monitored and managed from the same role-based dashboards that were set up during onboarding.
Comprehensive Financial Reporting
Cloud accounting systems like QuickBooks Online, Xero, and Zoho Books offer robust financial reporting modules. These allow you to quickly generate and analyze reports that help with business planning and decision-making.
Ready to transition to the cloud? Out with the old—and in with the new and improved!
Transitioning To The Cloud: A Step-By-Step Guide
Working for many years in accounting and finance and as a certified project management professional, implementing accounting and financial reporting systems, I've learned a lot about accounting systems.
Like what, you ask? Careful planning and following the right steps to transition are the keys to getting the long-term benefits of cloud accounting (and far outweigh the challenges of setting it up).
These are the steps to consider when looking to move to a cloud accounting system:
- Identify what drives your migration to the cloud
- Build a business case
- Gather business requirements
- Develop a vendor evaluation and selection process
- Conduct contract negotiations
- Establish a project team using relevant stakeholders (ie members of all groups that will be affected)
- Onboard the cloud solution
- Migrate and test all data
- Train each user
- Ensure ongoing software maintenance
3 High-level Phases For A Smooth Transition To The Cloud
Fortunately, most service providers offer support during these phases to ensure a smooth transition. Covering your bases and following these three high-level phases will help everything flow nicely.
1. Preparation Phase
Before even choosing software, take inventory of your current accounting tasks. Are you dealing with convoluted spreadsheets? Is your financial data scattered across various desktop computers? Knowing your starting point will inform your choices.
2. Migration Phase
Most providers offer tutorials, and some even provide data migration services. Make use of them.
3. Post-Implementation Review
Once everything's up and running, don't just set it and forget it. Regularly assess the software's performance. Is it delivering on the promise of real-time insights? Are workflows streamlined? If not, you may need to tweak settings or consider additional modules.
Remember to identify and develop a plan to address potential implementation hurdles like the ones I’m about to discuss.
When transitioning to cloud-based accounting software, there are always internal and external hurdles like these that might impact the success of a cloud migration.
- Resistance to change
- Limited resources
- Incorrect information
- Ineffective project management
- Compliance (regulatory framework, data privacy, audit preparedness)
- Inexperienced vendors
This list isn’t exhaustive, but in my experience, these are going to be the big issues you encounter. To help with the last item on that list, you can learn which cloud accounting software vendors made the grade in our 2023 roundup.
So, should you have your head in the cloud when it comes to accounting?
The Future Of Cloud Accounting
As with most technology, cloud accounting isn't static; it's evolving. An estimated 67% of accounting firms believe cloud computing will help them carry out their roles in the future. In other words, if you choose to use convoluted accounting systems, you’re likely going to hire accountants who are using cloud accounting software anyway.
But there’s more to it. For example…
AI and Automation
AI is poised to revolutionize how accounting works. From automatic time tracking to predictive cash flow analysis, the future is automated. It's not just about doing things faster; it's about doing them smarter (and error-free).
Automation will play an increasingly larger role in how accounting works. With the need for financial compliance here to stay and a shrinking accounting workforce, proper accounting software is going to play a big role in the future.
Integration with Blockchain
I know what you’re thinking, but wait, hear me out; I’m not talking about cryptocurrencies.
Blockchain’s use case as the creator of immutable, transparent ledgers can further enhance the integrity of cloud accounting systems. Instead of you worrying about fraud draining your company’s lifeblood, let your software providers worry for you (and then, of course, solve the problems).
Future versions of cloud accounting software will use predictive analytics, based on market information and your historical data, to help you foresee financial trends and prepare accordingly.
Cloud Accounting: Undeniable Benefits
From real-time data access to automation to scalability to security, cloud accounting offers undeniable benefits for small business owners and financial managers in larger organizations.
Put simply, feature-rich cloud accounting systems are a smart choice for modern financial management.
Remember to subscribe to The CFO Club’s newsletter for more useful tips on everything accounting and finance!