Why Cloud Accounting?

By Monika Konrad

July 24, 2022

Cloud accounting – or online accounting – has all the functionality of desktop accounting but moves the process to the cloud and expands it, similar to other Software as a Service (SaaS) business models. With cloud accounting, the computer or laptop is no longer the central hub and frees businesses from having to install and maintain software on individual desktop computers. Just like internet banking, the cloud makes data and software accessible online anytime, anywhere, and from any device with Wi-Fi or network access. Powerful, efficient, flexible and cost efficient, cloud accounting is now the default for businesses big and small.  

Research shows that online accounting reduced operating expenses up to 50% (Flexi, 2021) and 78% of small businesses depend on cloud-based accounting solutions (Sage Practice of Now, 2020). The global accounting software market is expected to be worth about £3.6 billion by the end of 2023.

At its most basic, accounting software helps businesses record and manage their financial transactions and offers a wide range of features to make accounting easier and more efficient for both businesses and accounting professionals. Most systems come with tools for quoting, invoicing, managing bills, reporting, payroll and more. Online accounting systems simplify data entry and can improve the accuracy of financial reports.

How it works

Once users subscribe to an online accounting software platform and move their books to the cloud, they can access their accounts from any web browser or phone app. Most users connect the software to their business bank account so banking transactions flow automatically from the bank to their accounts, saving a lot of data entry.

Advantages

Cloud accounting offers many advantages to traditional, on-site accounting software.

  • It frees the business from having to install and maintain software on individual computers
  • Sales, income and purchase data can flow directly from your back to your books, saving time in transcribing them
  • It allows staff to access the same data and the same version of software – from wherever they are located
  • If offers real-time reporting and visibility throughout your business
  • You can integrate the software with other business tools and departments, making multi-user collaboration easier
  • All your data is backed-up automatically

Making Tax Digital (MTD)

In an effort to simplify and streamline the tax system, HM Revenue and Customs (HMRC) has begun to roll out a programme called Making Tax Digital (MTD), which digitises the tax system for VAT, income tax self assessment and corporation tax for both businesses and individuals. To comply, you will need compatible software and will have to keep digital accounting records for every business transaction; paper records or those stored in files will no longer be accepted. You will also submit tax returns through the software.

HMRC has published a list of software products, including free solutions, which are compatible with its new Making Tax Digital (MTD) rules coming into force in less than one month. Most cloud accounting software providers will now include this in their systems and you will want to ensure that yours does.

Disadvantages – or not?

If that sounds too good to be true, it’s not; however,  there are issues to consider, with security and cost at the top of the list. 

Security

Like with other cloud-based software, transmitting sensitive and private data to the cloud can open a business to security breaches such as phishing scams (that are designed to fool a client), malware, criminal activity, insider threats or human error.  

However, cloud companies have robust cybersecurity measures to protect your sensitive data – likely more secure than your business can provide. Cloud providers also usually have back-up servers in more than one location, so if one server goes down, your business will still have access to its data. Should your business be caught in a natural disaster or fire, your data remains safe and secure online.  And, as your data is not stored on computers and shared with USBs, it is not at risk of being lost or stolen as it would be with traditional software. Access and information are protected by encryption and passwords and if you invite users to view your data, you can control the level of access.

Cost

Cloud accounting is generally considered more cost-effective than traditional accounting software. The price of your package will be influenced by the amount of data storage, number of users and functionality. With more use as your company grows, your costs may increase incrementally. You will need to compare pricing and functions to determine the exact costs for your business.

Businesses pay a monthly fee that provides them with full access to their data. The use of cloud accounting requires less initial server infrastructure to store data than traditional accounting software and IT staff is freed from maintenance and updates because the online system does it automatically. Less overhead expenses and no new software purchases, means savings for businesses. 

Providers

Cloud accounting software is a booming business, with the global market size expected to reach £3.25 billion by the end of 2023, according to Flexi. As you would expect, there are many players in the market which can quickly become overwhelming. When faced with so many choices, “Don’t panic” is the advice from Neil Robertson, Executive Chair of Compleat. Do your homework when choosing a provider:  weighing costs and functionality and ensuring your data will be secure and make sure that if you want to change your provider in the future that it will be simple to move data across platforms. Don’t forget to create a digital adoption plan for you and your staff to learn the new software.  

These are some of the top providers in the UK, in no particular order.

Intuit QuickBooks

Xero

Sage

Fresh Books

Zoho

Kashflow

FreeAgent

Conclusion

The question of whether to move to the cloud for your accountancy needs is now settled. There are many benefits to cloud accounting software and many options from which to choose. At this point the worst thing that you can do is nothing, because waiting for the perfect decision is costing you both time and money.