Understanding Cloud Accounting For Small Businesses

• 5 comments
• Updated on: Mar 4, 2019
• Posted by: Chelsea Krause

Gone are the days when the cloud was just fluffy, white masses of condensation that sometimes made cool shapes in the sky. Now, the cloud is the basis of our technological world — including accounting software.

But what exactly is cloud accounting and is it the right choice for your business?

In this post, we’ll explain cloud accounting, the benefits of using cloud-based accounting software, and the key differences between cloud-based and locally-installed accounting software. Don’t worry, it will all make sense in no time.

What Is Cloud Accounting?

The term cloud accounting (or cloud-based accounting software) refers to accounting software that is operated entirely in the cloud — a.k.a. on the internet.

Traditionally, accounting software (like QuickBooks Desktop Pro) was downloaded and installed onto a single computer and hosted on that computer’s server. With cloud accounting, software is hosted on remote servers, allowing you to access the software anywhere, from nearly any device, anytime — so long as you have an internet connection.

Benefits Of Cloud Accounting

Cloud accounting offers many advantages over traditionally-installed software. Here are some of the benefits of cloud accounting:

• Mobility: Cloud-based accounting software grants mobility to business owners. You can access the software anywhere at any time so long as you have an internet connection. To make the deal even sweeter, most cloud-based software offers mobile apps so you can access your data even when you don’t have your laptop in front of you.
• Device Friendly: Because data is stored in the cloud and accessed through the internet, most cloud-based accounting software is compatible with nearly any major browser on any device (PC or Mac).
• Access For Multiple Users: Most cloud-based accounting programs allow for multiple users and offer user permissions. With the cloud, multiple users can access your business’s accounting software at the same time from different locations.
• Ease Of Use: Most cloud-based accounting software is easy to use and offers modern UIs.
• Affordable Monthly Payments: Generally, cloud-based accounting software uses the SaaS (software as a service) model and offers affordable monthly payments to users.
• Built-In Security: Cloud accounting providers like Xero and QuickBooks Online handle the security of your data for you. You still should use the best internet cybersecurity practices but things like data intrusion detection, firewalls, and data encryption are taken care of for you.
• Automatic Data Backups: In addition to built-in security, another perk of the cloud is automatic data backups.

How Much Does Cloud Accounting Cost?

Now that you know the benefits of cloud accounting, you’re probably wondering, how much is cloud accounting going to cost me? And is the cost worth it?

Most cloud-based accounting software uses the SaaS model and breaks your accounting costs into affordable monthly payments. Of course, the actual cost will vary depending on your business’s size and needs. That said, here’s a chart to give you a general idea of what to expect in terms of pricing:

If you are a small business owner in need of advanced features like inventory, project management, and time tracking, the price may be closer to $60/month depending on which software you choose. Take a look at our best small business accounting software options to get a better idea of what you can get for your money.

Cloud-Based VS Locally-Installed Accounting Software

There are two main types of accounting software: cloud-based accounting software and locally-installed accounting software.

1. Cloud-based accounting software operates in the cloud and is hosted on remote servers. It is accessed via the internet and offers key benefits like mobility.
2. Locally-installed accounting software is downloaded onto a specific computer and is hosted on that computer’s server, meaning that you can only access the software on the device it’s downloaded on. (Granted, there are some hosting options for installed programs, but that’s a whole other blog post.)

Believe it or not, even in the modern era of the internet, locally-installed software still has its perks. While cloud accounting is becoming the more popular choice, both types of accounting software have their advantages and can be beneficial depending on your business’s specific needs. Here are the pros and cons of cloud-based and locally-installed accounting software:

Top 6 Differences Between Cloud-Based & Locally-Installed Software

Let’s dive a little deeper into the main differences between cloud-based accounting software and locally-installed accounting software. There are six main differences that you should understand before choosing which type of software is right for you.

1. Accessibility

Because locally-installed software is downloaded onto a single computer (or computers), accessibility to your accounting data is limited. With cloud-based accounting software, you can access your device from nearly any device and any browser so long as you’re connected to the internet. Your users can also access the software from any device in multiple locations.

2. Mobility

Because of the added accessibility, cloud-based software is far more mobile. You can check your business’s books, get an overview of your finances, and run key accounting reports from anywhere. Cloud-based software almost always comes with mobile apps as well, so you aren’t strapped down to a single computer and can run your business on the go.

3. Online/Offline Access

One advantage of locally-installed software is that the accounting program runs without internet. So even if your wifi goes down, your business accounting doesn’t. Most cloud-based accounting programs won’t work if your internet is down or you are away from wifi.

4. Ease Of Use

Cloud-based accounting software is almost always easier to use than locally-installed software. It usually is simpler to navigate and has a more modern UI, whereas locally-installed software like QuickBooks or Sage often comes with a steep learning curve.

However, locally-installed accounting software is generally more difficult to use — not because it’s poorly designed, but because it is far more complex and feature-rich. The tradeoff for advanced, well-developed features is that it takes a little longer to learn what the software is capable of. The majority of installed accounting software programs are also designed to reflect traditional accounting practices, in contrast to most cloud-accounting software apps, which puts double-entry accounting and journal entries behind the scenes.

Some business owners in need of complex bookkeeping or with previous accounting experience may prefer the capabilities of locally-installed software over the cloud-based alternatives that often are designed for those with little to no previous accounting experience.

5. Pricing Model

Generally, purchasing cloud accounting means paying a small monthly fee. To use installed accounting software, you often must buy a license or a yearly subscription in order to download the software.

If you are going to use the same locally-installed accounting software for a long time, this could be a more cost-effective option since you won’t have to purchase the software every month or every year. However, before buying locally-installed software, be sure to check how long the license lasts. Companies like QuickBooks phase out software licenses after three years. Also be sure to check how much extra features like additional users, live bank feeds, and customer support cost as these can quickly add up, making the software more expensive than a cloud-based alternative.

6. Security

Since cloud-based software is hosted on remote servers, the accounting software provider is responsible for security measures. This means a good accounting software program will come with built-in security features. However, as with anything on the internet, no software is completely safeguarded from the threat of a data breach.

With locally-installed software, you are responsible for your software’s security. This could be a good or a bad thing.

If you take the property measures to secure your computer and its server, your accounting software has the potential to be far safer than cloud-based software. But, if you don’t want to or can’t take the time and effort to learn how to protect your locally-installed software, a cloud-based alternative that has built-in security already handled for you would be a safer bet.

Should I Use Cloud-Based Or Locally-Installed Accounting Software?

Cloud-based accounting software and locally-installed software each have their advantages, so which path is right for your small business?

Choosing the perfect type of accounting software is going to depend on your business size, needs, and how much X-Files you’ve watched — okay, not really, but if you are highly skeptical of the internet and trust no one, this will play a role into your decision. To figure out if your business should choose cloud accounting or traditional downloaded accounting software, ask yourself the following questions:

• How important is mobility to my business? Do I need to be able to run my business on the go?
• Do I need access for multiple users in different locations?
• How much accounting experience do I have? Am I comfortable with a steep learning curve or do I need something more intuitive?
• How much feature depth and complexity does my business need?
• Do I need to be able to access my data offline?
• Do I want built-in security? Do I have the time and expertise to secure my own data?

The answers to these questions will help you learn your business’s priorities and clarify which type of accounting software would benefit you the most.

The Best Cloud Accounting Software

There are tons of cloud-based accounting programs on the market, making it difficult to know which are reliable and worth your time. We’d made the hunt for the perfect accounting software a bit easier by presenting you with the top five best cloud accounting software programs. Read our complete accounting reviews to learn more about these great options.

The Best Locally-Installed Accounting Software

If you’re leaning toward traditional accounting software, here are the best locally-installed accounting programs on the market. Read our complete accounting reviews to learn more and find the perfect accounting solution for your business.

How To Choose Cloud Accounting Software

So you’ve decided that cloud accounting is the way to go. With so many advantages, including mobility, accessibility, ease of use, and price, it’s easy to see why cloud accounting is such a great option for so many small businesses. Now that you’ve chosen the right type of accounting software for your business, how do you choose which accounting program is best? Especially when there are so many cloud accounting options out there. Here are four simple steps to choosing the perfect cloud-based accounting software.

Step #1: Know What Features You Need

Grab a cup of joe, sit down, and reflect on your current accounting process. What’s working about your current process, and what isn’t? If you are currently using accounting software, which features do you have that are absolute musts, and which do you wish you could have? If you don’t have accounting software or an accounting process, here are some of the common features found in small business accounting programs:

• Invoicing
• Customizable invoice templates
• Estimates & proposals
• Contact management
• Expense tracking
• Accounts payable (aka bill management)
• Reporting
• Multiple currency support

Some more advanced features include:

• Inventory
• Project management
• Time tracking
• Budgeting
• Cash flow management
• Tax support
• International invoicing

Knowing which features your business needs is key to finding the right accounting software, and pinpointing what works and doesn’t work about your current accounting process can help you identify what problems your accounting software will need to solve or streamline.

Step #2: Set A Budget

Take a look at the numbers and decide how much your business can afford to spend on accounting software. The goal of accounting software is to manage your business’s finances. Breaking the bank in the process isn’t going to help, which is why it’s important to work accounting software into your business’s budget.

Most small business accounting software is broken into affordable monthly payments, but if you’ve been putting off purchasing accounting software because you think you can’t afford it, free accounting software like Wave is a great, full-featured cloud accounting option for businesses on a tight budget.

Step #3: Start Shopping

Once you know your budget and what features you’re looking for, it’s time to start shopping! Our Best Accounting Software For Small Businesses post is a great place to get started. Or, if you run a larger business, check out the Best Accounting Software For Larger Businesses.

Step #4: Do Your Research

Once you’ve found an app that looks promising, be sure to do your research. Our comprehensive accounting reviews are chock full of details, but don’t just take our word for it — do your own research.

Research the software and the features it offers. Test the company’s customer support by asking any questions you might have and combing through their support resources. See what other users have to say on popular customer review sites like ConsumerAffairs, TrustRadius, Capterra, and the Better Business Bureau. And most importantly, don’t forget to take advantage of free trials.

Almost every cloud accounting software program offers a free trial with no credit card required (if they require a credit card number, run and find yourself a new software contender). Use the trial to get a feel for the software. See you like how it’s laid out and test if the features meet your needs so you can make a confident decision about the right accounting software for your business.

If you need extra help deciding, read our Complete Guide To Choosing Online Accounting Software and our post on the 20 Questions To Ask When Choosing Accounting Software.

Is Cloud Accounting Secure?

Accounting software stores sensitive information about your business and its finances and about your clients and their personal details. This leaves many people wondering, is my accounting data safe in the cloud?

In this case, the answer isn’t a straightforward “yes” or “no.”

Good cloud accounting software providers take strong security measures in order to protect their customer’s data. Security practices like data encryption, firewalls, and intrusion detection and prevention all help to ensure your data is safe. However, cloud accounting software data breaches — though very rare — aren’t unheard of.

Additionally, you play a larger role in your software’s security than you may realize. Creating secure, safeguarded passwords, using two-factor authentication, and knowing how to spot phishing attacks are some of the biggest keys to ensuring that your data is safe in the cloud. To learn more tips and tricks about how to safeguard your accounting data read our post on How To Keep Your Accounting Data Secure In The Cloud.

If you do your research on your accounting software’ security measures and take the personal steps to secure your data, the chances are you won’t have any issues with cloud security.

Is The Cloud Really The Future of Accounting?

It’s hard to avoid assuming that the cloud is the future of accounting at this point. But while cloud accounting is incredibly popular, traditional, installed software like QuickBooks Desktop Pro is still alive and kicking.

Time can only tell if the cloud truly is the future of accounting in general —  but the cloud could certainly be the future of accounting for you. Cloud accounting is affordable, easy to use, and offer numerous benefits to businesses, including the ability to run your business on the go. Popular cloud accounting programs like QuickBooks Online and Wave have a ton to offer business in terms of features, usability, and mobility. Read our full accounting reviews to learn more or check out the best cloud-based accounting software programs below.

• Bio
• Twitter
• LinkedIn
• Latest Posts

Chelsea Krause

Managing Editor - Accounting

Chelsea Krause is a writer who has specialized in accounting for two years and is a QuickBooks Certified User. She has a BA in English & Creative Writing from George Fox University and studied at the University of Oxford as well. She has been quoted in Forbes and her work appears in Startup Nation, Small Business Bonfire, and Women on Business.

@AccountingMage

Latest posts by Chelsea Krause (see all)

• Understanding Cloud Accounting For Small Businesses - March 4, 2019
• Best Accounting Software For Freelancers - February 28, 2019
• Top 5 Alternatives To Xero - February 26, 2019
• Best Accounting Software For Macs - February 22, 2019
• Top 10 Tax Deductions For Freelancers - February 20, 2019

5 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

Adam January 8, 2019 at 12:23 pm

My main concern with a cloud based solution is that that you are putting ALL of your financial information on a server that you have no control over. What if that server gets hacked? You could lose EVERYTHING. Granted, everything on the server is encrypted but you don’t have control over that encryption key which is also stored on that server. I know over time people have become much more willing to trust their information online, but this is not a risk I am willing to take.

Reply
Jack Wolford November 23, 2018 at 3:39 pm

Are there no accounting PROGRAMS left besides QUICKEN WHICH HAS GONE DOWN HILL? Can you direct me to any?

Reply

Chelsea Krause November 26, 2018 at 8:35 am

Hi Jack,

I’m sorry to hear you’ve had a poor experience with Quicken. Luckily, there are plenty of other great accounting software options. If you were using Quicken for your personal accounting, I would recommend taking a look at Mint as an alternative. If you were using Quicken to manage a business, you can compare our top accounting software solutions. If you have any more questions, we’d love to help!

Best wishes,

-Chelsea Krause

Reply
Bhavesh K November 27, 2017 at 4:53 am

Cloud-based accounting software does have some drawbacks. It may take a little more time to load Internet-based applications than it does to load programs installed on your company server. Some cloud accounting system is not as robust as their software counterparts, which means you could lose the ability to run custom reports or use features you rely on to make financial decisions.

Reply
Caleb September 16, 2016 at 6:47 am

What about the fact that all your (extremely important data) is locked up in some server somewhere? I use quickbooks and for the most part it’s adequate for my business, but I began to think about how all that data is captive. What if I wanted to switch, I don’t even know if I can download and convert the file. The certainly give me an option to import, but know obvious link to export. I’ve used the local version of QB at my previous company for years and it would be just like them to ransom that out.

Reply