Cloud Accounting – What Is it and Why it May Be Right for Your Business

January 18, 2013 - 9 minute read

You can find just about any service “in the cloud” these days. Do a quick Google search on the term and you’ll get anything from cloud storage to cloud insurance. Most of today’s software giants use some version of the “cloud” term in their product offerings be it Apple’s iCloud, Microsoft’s SkyDrive, Adobe’s Creative Cloud, or Google Cloud Storage. If you’re a Canadian business owner, you’ve probably heard of the term “cloud accounting”.

So what is cloud accounting?

What exactly is cloud accounting?

What exactly is cloud accounting?

Like most cloud services, cloud accounting generally refers to software that is stored “in the cloud.” What does this mean exactly?

Let’s say you’ve just purchased a new copy of Quickbooks 2013 from Business Depot. You take home the CD and install the program on your computer. You then get a little Quickbooks shortcut icon on your desktop which you click on to launch your desktop application each time you want to access your accounting data. Your accounting data is stored on your computer’s hard drive. For this reason, when you close Quickbooks, it asks you if you want to backup your data on an external hard drive. So once a week you update your backup on a separate hard drive.

Now let’s suppose you then decide to go on vacation. While lounging on the beach in Mexico, you receive an email on your Smartphone from  a supplier demanding payment for an outstanding invoice. You’re quite sure you paid the invoice, but you’d like to double check the accounting records just to be sure. Given that your accounting software and data are stored only on your laptop at home (you weren’t supposed to do any work on vacation), you’ll need to call your assistant, friend, or relative to look up the data for you.

Of course there are other ways of accessing your computer remotely (Logmein, GotomyPC) but let’s say you haven’t installed these programs. This leaves you in a somewhat irritating situation where you’re going to have to call someone else and explain to them how to access the data you are looking for. If only you had brought your laptop, you could have looked this up in a minute.

With cloud accounting, your accounting program is web-based. This means you can access your accounting software just as you would access any other web page.

Your accounting data is stored on servers which are generally backed-up on a regular basis. To check if you paid your angry supplier, you would simply visit your cloud-accounting software provider’s website either from your Smartphone or hotel’s computer, log-in with your username and password, then scroll through your payables to see if the invoice was paid.

The advantages of using cloud-accounting software extend well beyond being able to access your data when on holiday.

Since data storage is their business, cloud-service providers generally keep up to data backups of their servers. If you backup your desktop software only once per week and your hard drive crashes, you may lose a few days of data – that is if you bothered to make the backups in the first place.

Cloud-accounting programs can also significantly reduce bookkeeping costs. Most programs allow you to link credit card, Paypal, and bank accounts directly to your accounting software. Rather than desktop software which connects to the web only when you turn on your computer, cloud accounting software is always connected. As such, the program will download all your transactions on a daily basis directly to the software’s interface allowing you simply to group the transactions and saving you or your bookkeeper hours in manual data entry.

Another benefit of the web-based platform is the ability is to give others access to your records .

If have a question for your bookkeeper about an entry, you don’t have to wait until the next time he/she shows up at your office. By granting your staff permission, they can access your books from anywhere. Giving your accountant the books is a breeze and he/she can make adjustments directly into your program saving you the hassle of doing it yourself.

Cloud based accounting programs allow you to access a number of other useful online services. Most programs include some version of online invoicing. Client are sent invoices by email which generally give them the option to pay online. Once paid, the accounting program automatically records the payment as received, saving yet another manual entry step. As well, through online invoicing systems, you can give clients the option of seeing their accounts on a real time basis so they can know what invoices are outstanding or which ones they would like to settle. On the expense side, you can integrate your cloud accounting software with an online receipt scanning service. These services pull data from your receipts and produce digital replicas of them saving more hours of manual data entry and ensuring you never lose a receipt (more on this in the next blog). Using the right combination of web-based tools, you can ensure your accounting system starts working for you and allowing you to spend more time on your business.

But is cloud accounting safe?

Some business owners are apprehensive to the thought of switching to an online system given the sensitivity of accounting data. However, most cloud-based accounting programs have similar security systems in place to that of online banking.  In fact, as most providers know that security is a major concern, huge investment is made in securing your data so it may even be easier to hack into your company’s wireless connection and access your desktop accounting software than to crack into your web based accounting platform. In addition, it’s much more likely that someone will try to empty your savings account before hacking in to see what payables are outstanding. So if you use online banking in any shape or form, you can rely on the same controls to protect your online accounting data. For peace of mind however, always check the security credentials on the cloud based accounting software before selecting a system.

So what’s stopping you?

If you’re using a desktop system, you may be able to free up hours of time by switching your accounting platform. The time investment spent re-examining your software may well pay off in the end. Talk to your accountant and see how you can improve your system and spend more time focusing on your business.