-Exploring features and considerations
This article is a follow-up to our previous discussion on ‘The Role of Cloud Computing in Modern Accounting Practices’, which was published in this column on Monday, June 19, 2023. As we discussed earlier, cloud computing involves storing and accessing data and programmes over the Internet. When it comes to cloud-based accounting software, financial information can be accessed from any Internet-connected device while the actual data is stored on a centralised computer. This sets it apart from traditional accounting software, which is limited to specific computers or systems and lacks easy accessibility from multiple devices.
There is a growing trend toward using cloud-based accounting software to facilitate detailed financial reporting and data analytics. Recent accounting statistics indicate that 53 percent of accounting firms are leveraging cloud technology to enhance project management functions and improve communications. Furthermore, the market share of cloud-based accounting software is projected to increase by US$4.25billion by the end of 2023.
Key features
Understanding the main features of cloud-based accounting software is crucial when considering an investment in this technology. Since cloud accounting software is designed to promote sound financial practices, it’s essential to carefully evaluate the following aspects:
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Software maintenance frequency: Cloud-based accounting software requires fewer software maintenance periods after the initial server set-up. The software provider must be capable of maintaining offsite servers and automating back-ups to ensure users have access to up-to-date software versions. Managing servers can be expensive, so it is important that maintenance is efficient, requiring minimal time and staff resources.
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Data visualisation & real-time reporting: Cloud-based accounting software aims to replace traditional, inefficient accounting processes. Therefore, it should provide real-time access to centralised financial data. The software should include dashboards and built-in analytics tools that transform complex data into easily understandable charts and key performance indicators. Visualising data enables teams to gain insights and quickly identify business-impacting trends, all at a significantly lower cost compared to traditional methods. Cloud-based accounting software also supports budget forecasting and data harmonisation, facilitating effective decision-making. Examples of popular cloud-based accounting software include Cloud Elements and Zapier.
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Scalability: A robust cloud-based accounting software solution should allow for seamless upgrades to accommodate business growth. It should also support the integration of add-ons and software options to customise the accounting solution. Some cloud-based accounting software providers offer a wide range of compatible integrated business applications, ensuring scalability.
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Collaboration: Seamless collaboration among teams is another critical feature to consider when investing in cloud-based accounting software. This capability is achieved by storing all financial data online in a single database or integrating with other applications to automate workflows. With this functionality, multiple users, including employees, can work on the same file from various locations as long as they have reliable Internet connectivity and a device such as a computer, laptop, tablet or smartphone. Cloud-based accounting solutions enable regular collaboration with accountants, ensuring up-to-date financials and simplifying tax filing processes.
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Billing: Cloud-based accounting software providers typically offer subscription-based services, where clients pay based on their usage or access to the system. Subscribers have the option to cancel their subscriptions if they no longer require the services. Additionally, depending on the software, companies can benefit from features – such as predictable software costs, reduced hardware expenses, lower IT overheads, improved disaster recovery, and advanced threat and security monitoring. Automated bank feeds, invoicing, and expense tracking are additional features offered by cloud-based accounting software, streamlining financial management and minimising errors. Live bank feed access enables users to reconcile their accounting data with their bank statements seamlessly.
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Power of multiple functions: Cloud-based accounting software goes beyond basic accounting tasks. It performs multiple functions and can serve as an expert resource for interpreting accounting standards or applying specific principles. For example, if you’re unsure about depreciation methods and which one to apply in a given scenario, cloud-based accounting software can provide all the necessary information and guide you through the process.
Other considerations
Using cloud-based accounting software comes with certain risks and challenges that need to be managed to fully reap its benefits. Consider the following factors:
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Data migration: Migrating data to a cloud-based accounting system requires careful planning to ensure business continuity, data protection, and proper staff training. The process can be time-consuming, and factors like foreign exchange rates in transactions involving multiple currencies can impact accuracy. Therefore, meticulous attention to detail is necessary during the data migration process.
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Multi-tenancy: Cloud service providers often host multiple users on the same hardware through resource pooling and virtualisation. This shared infrastructure introduces the risk of cyber vulnerabilities. To safeguard data security, it is advisable to choose a cloud service provider that stores sensitive data on separate physical hardware. Alternatively, using an Application Programming Interface (API) can keep data onsite while still utilising the benefits of a cloud-based application. Ultimately, users must evaluate whether the security measures in place can effectively handle unexpected events, such as cyber-attacks.
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Proliferation of applications: The cloud-based accounting software market is expanding rapidly, with many developers designing applications to work alongside these platforms. It’s important to not only find an application that meets your requirements, but also ensure its security and reliability before installation. Those considering cloud-based accounting software should familiarise themselves with cloud security basics before starting the migration process and select a reputable provider capable of safeguarding their data in the cloud.
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Risk of vendor lock-in: Some cloud-based accounting software providers make it challenging for subscribers to switch to a different solution, particularly when proprietary data formats are used, which are not easily transferable to other systems. This lack of flexibility can impede businesses from changing providers if they are dissatisfied with the service or wish to explore other options. Both software providers and subscribers should address these concerns before entering into a service agreement or contract.
