Data is power, and accounting has been empowering businesses with financial data since the start of the trade. As the business evolved, so did accounting. Entrepreneurs are embracing cloud accounting to keep pace with the changing business dynamics the internet and information technology have brought. The many benefits of cloud accounting outweigh its drawbacks. If you are looking to use cloud accounting, here is a quick guide answering some common questions to help you with decision-making.
What is cloud accounting?
You might have heard about cloud computing. It has removed the dependence on hardware and made data storing and sharing easy and convenient. It is what made remote working a reality. If you work on Office 365, save your work on Dropbox, or use Slack for messaging, you use cloud computing to perform business operations.
Cloud accounting is just like your desktop accounting but on the internet. It allows you to store and back up your accounting data on the internet, run software applications, and streamline information sharing. It helps you remain updated with your tax filings, do bank reconciliation, store invoices, access documents, and know your financial position anywhere and anytime.
It has revolutionized financial administration. All you need is login credentials, and you and your accountant can access and update your book of accounts in real-time.
What is the difference between cloud accounting and traditional accounting software?
The traditional accounting software is installed on your desktop and is dependent on hardware. It takes up your computer’s hard drive space. Moreover, you have to manually update the software and take back up your financial data. If your PC or backup hard drive crashes, you could lose your data. It also makes information sharing a hassle with an exchange of emails and USB. And you don’t even have the latest financial data.
Cloud accounting removes all the above drawbacks of updates, storage, and access. It puts your traditional accounting software on the internet. Moreover, it is cost-efficient as you don’t need dedicated hardware for accounting. A subscription to cloud accounting software is cheaper, and you get the updated version whenever you log in. Even if your desktop crashes, the data is stored in a distant public cloud server from where it can be easily retrieved.
In the fast-paced business environment, cloud computing overtakes traditional accounting software and keeps you ahead in the game.
Why do small businesses need cloud accounting?
Cloud accounting is ideal for small businesses with resource, space, and budget constraints. In cloud accounting, you can link your bank account with the software. The software will automatically update the books of accounts, do bank reconciliation, and provide you with a real-time overview of your cash position. This automation cuts down on accounting workload so you can focus on growing the business.
Most startups and small businesses fail as they overspend and are out of cash before payments arrive. But cloud accounting provides you real-time insights into your cash position, keeping you in check with your finances to make informed decisions. In addition, you can access your financial statement anywhere with the internet and a device (laptop, tablet, mobile phone), whether on the field or office or home.
Cloud accounting also makes tax filing a less taxing job as you have all the necessary documents and financial statements updated and at your fingertip. This is the kind of optimization and solutions small businesses and startups need as most of them work from home or on the go.
How is cloud accounting used? Is your data secure with cloud services?
You need to subscribe to a cloud accounting service to access cloud accounting. Once you have selected the service provider, your accountant can help you upload earlier financial statements. You can also link your bank statements to benefit from automated bookkeeping.
While all this improves cost efficiency and optimizes space and resource requirements, your crucial financial data is stored in a third-party server. Therefore, security is of paramount importance in a business. Hence, when deciding on cloud accounting, look at the below three options and match them with your data security requirement.
The public cloud is an offsite service with a shared infrastructure, where everything from security, maintenance and resources are shared. The provider stores your data on its server, where it also stores other clients’ data. While it is cost-effective and providers have encryption and firewall, it is not as safe as a private cloud.
The private cloud is more like the traditional software where the data is stored on your server and hardware, and your IT team maintains it. As a result, the security risk is comparatively low, but it is expensive.
As it is a trade-off between cost and security, many companies use a hybrid solution. They store sensitive data on a private cloud and generic and less-sensitive data on a public cloud.
How to choose the right cloud service provider?
Now that you have determined your cloud accounting requirements, it is time to choose the provider. While doing so, consider cost, services offered, and security. Some providers offer free tiers where there is a limit on storage and time. In addition, you can take a free trial to understand if the service meets your requirement. If satisfied, providers have monthly rentals as well as pay-as-you-go options.
You can skim through the various packages. But do not make cost the deciding factor if security is at stake. When selecting a provider, look for a reputed company with necessary security certifications and compliance with current security protocols. Also, ensure your provider has a robust contingency plan to protect and restore your data in a cyberattack or a crash.
Cloud accounting has many merits. Embrace this technology and let the computer do the accounting while you focus on strategizing.