Cloud/online accounting is the way that most small and medium-sized organisations manage their bills, receipts, invoices and accounts today.
Accounting software has increasingly becoming cloud-based over the past decade. It’s the most significant development since accounting first started becoming computerised in the mid-1980s.
In this article, we’ll explain:
- What the cloud is.
- The major advantages of cloud/online accounting software.
- The major disadvantages of cloud/online accounting software.
- The major cloud/online accounting software service providers.
- What you should look for in cloud/accounting software.
- How cloud/online accounting software can connect to your other business systems.
- When you should set up a cloud/online accounting system.
What is the cloud?
The cloud is basically an online platform where your data and software can be accessible anywhere and anytime from any internet-enabled device. It can replace your computer’s hard drive as the central hub for updating and storing your information.
You’ve probably used the cloud before without even realising it. For example, when you use internet banking services, you’re using a cloud-based accounting platform.
What are the advantages of cloud accounting?
There are many potential advantages of cloud/online accounting systems, including:
- Access to your business’s financial information anywhere and at any time (provided you have an Internet connection). This is becoming increasingly important as we become more mobile in terms of when and where we work. You’ll no longer be tied to your computer. Traditional desktop accounting software on the other hand can usually only be accessed on the computer it is installed on.
- Allowing you to easily share your business’s financial information with appropriate internal and external third parties (e.g. your accountant or the Australian Taxation Office). This will save you time with your monthly or quarterly BAS statement preparation, as well as your annual tax return. You no longer need to visit your accountant or email large and confidential files. They can access all the information they need via your cloud/online accounting system.
- A monthly subscription fee, rather than a large upfront license fee.
- A range of products and pricing plans.
- Lower set up costs (both for the accounting software and the computer infrastructure needed within your own organisation).
- Lower computer system maintenance costs within your own organisation.
- The ability to more seamlessly connect with your other business software and financial services by automatically feeding data to compatible systems. This reduces the amount of tedious administrative work that you need to do.
- Allowing you to keep your business’s financial information as accurate and up-to-date as possible. This should help you to make quicker and better business decisions.
- No need to have your own computer security and information backup systems.
- The ability for multiple people in different locations to access the software at the same time for different purposes. Unique users can have their own unique passwords.
- Automatic software upgrades and enhancements. There is no need for you to manually update your software like you must do with traditional accounting software products.
- No need to install and run large accounting software applications on your computer system.
- The ability to scale the software as your business grows.
- The availability of specialist technical support from the cloud/online accounting software provider. You won’t need any (or as many) IT staff in your own organisation.
- Potential ease of use. Most cloud/online accounting systems are designed to be as user-friendly as possible.
What are the disadvantages of cloud accounting?
The potential disadvantages of cloud/online accounting systems include:
- Information security. This is an issue for any system, whether it is cloud-based or not. But many people mistakenly assume that cloud-based systems are more secure. Your data is stored on remote, external servers. They probably will be as (or more) secure than your own organisation’s accounting system, but that’s not necessarily the case. Cloud/online accounting systems are potentially vulnerable to hackers. Data can be stolen, just like it could be if you were using a traditional accounting system and your laptop containing your files was stolen. If you use cloud/online accounting software, it will contain a lot of sensitive information. For example, the contact and financial details of your staff and customers. It’s crucial that your organisation keeps that information safe. It’s a legal requirement under the Privacy Act in Australia. So, make sure that your cloud/online accounting software provider has world class security systems. Do your research on what information security practices they use, before you commit your organisation to buying and using their product. If there are any information security breaches, there will inevitably be damage to the reputation of your organisation, not just to the reputation of your cloud/online accounting software provider.
- Although there are lower set up costs for cloud/online accounting systems, there can potentially be high ongoing costs. The price of your software will be influenced by the amount of data storage you need and use, as well as the number of users you have and the functionality you require. Your costs will increase incrementally the more storage, users and functionality you have with your cloud/online accounting software.
- This is the amount of data that can transferred during any given period. Cloud/online accounting software usually has bandwidth thresholds. If your business exceeds these thresholds, you are likely to be up for additional costs. You might also have slower speeds of transferring the information, which can be very frustrating. It’s worthwhile comparing the bandwidth offered by different cloud/online accounting service providers when making a choice of which product to use.
- The fact that it only works with an Internet connection. If your internet connection goes down, you won’t be able to update or access your data.
- Data backup. Many cloud/online accounting software packages don’t provide a functionality that lets you back up your data on your organisation’s computer system. If you want to change your service provider in the future, you might lose your data and need to manually re-enter it all again with a different service provider.
- Possible sale or use of data to third parties. When you’re using cloud/online accounting software, always remember that your organisation’s data is in the hands of a third party. They can potentially sell or use this data. Make sure you check the information use policy of any cloud/online accounting software service provider before you commit to using any of their products.
- Not being able to customise the software for your business needs. Most cloud/online accounting software providers offer standard accounting packages. Therefore, the software may not do exactly what you want it to do. This can be an issue if you have specific accounting needs for your business. Once again, it’s important to do your research before you buy a cloud/online accounting software subscription to make sure the product will meet all your needs.
- Your software provider’s system can potentially be down. Even if your business system and internet connection is working, that won’t matter if you’re the system of your cloud/online accounting service provider is down for any reason. For example, if they need to do system maintenance.While it’s obviously not in the service providers interest for their system to be down very often or for any significant length of time, it can happen. They may need to do system upgrades or other maintenance to ensure that their service continues to function effectively. You will have no choice over the timing of these upgrades or maintenance when you are using a third-party cloud/online accounting software provider, like you would if you were using your own system. This can potentially be a bigger issue if you are using an overseas-based cloud/online accounting service provider. That’s because of our Australian time zone. Most web-based service providers will schedule their system upgrades and maintenance outside of standard business hours (e.g. at night). The problem with this approach is that Australia is in a vastly different time zone to many other countries, especially those in the northern hemisphere. For example, a UK or US-based cloud/online accounting service provider might schedule their system upgrade and maintenance to occur from midnight to 3am in their own time zone. While that’s fine for businesses that are based in their own countries (which might be most of their customers), it’s likely to be right in the middle of the business day (and therefore very inconvenient) for system users here in Australia.
Who are the major cloud accounting service providers?
The major cloud/online accounting software service providers in the Australia market include:
- Xero is a New Zealand-based organisation that specialises in developing cloud-based accounting software for small and medium-sized businesses. It was founded in 2006 and entered the Australian market in 2008. It now has offices in Sydney, Melbourne, Brisbane, Perth and Canberra. At the end of 2017, Xero had more than 1.2 million global subscribers.
- MYOB is an Australian organisation founded in 1991. It provides a range of tax, accounting and software services to small and medium-sized businesses. Its most popular cloud-based accounting system is currently MYOB Essentials.
- QuickBooks is an accounting software package from Intuit, a US-based business and financial software company that was founded in 1983. Their most popular cloud-based accounting program is currently QuickBooks Online.
- Reckon is an Australian organisation founded in 1987. It provides a range of desktop and cloud-based accounting, business, document and practice management software. Reckon One is its cloud-based accounting program.
- Saasu is an Australian online accounting software provider founded in 2000.
Xero, MYOB and QuickBooks are currently the most commonly used cloud/online accounting software packages in Australia.
What should I look for in cloud accounting software?
Probably the two most important factors to consider when choosing clud/accounting accounting software are:
- The range of apps (programs) offered by each service provider in relation to your needs. Don’t pay for a lot of bells and whistles that you won’t need if you don’t have to. For example, you won’t need a payroll feature if you don’t have staff and you won’t need inventory functionality if you’re in a service business that doesn’t have stock. You can usually add on apps like these later if you need them.
- How well the software will connect with your other business systems and services.
How can cloud accounting software connect to my other business systems?
Cloud/online accounting software can potentially connect with your other business systems via an API (application programming interface).
The more of your business systems that your cloud/accounting software can connect to, the more time it will save you and the more value it will deliver to your business.
For example, your cloud/accounting software may be able to integrate with
your organisational bank account/s, as well as your customer relationship management (CRM), point-of-sale (POS), inventory, e-commerce, or job management systems.
This allows relevant information to be seamlessly transferred. It can all potentially be done online via your desktop computers or mobile devices, ensuring that your business can always have its most accurate and up-to-date financial information available.
When should I set up a cloud accounting system?
The best time to set up cloud/online accounting software is when you start your business. It should be one of the first things you do after you get your ABN (Australian Business Number).
It will become increasingly beneficial as your business grows and your activities potentially become more complex.
However, if you’re already in business, you’ll still be able to take advantage of the benefits of cloud/online accounting software that we outlined earlier in the article if you decide to make the switch.
How we can help
At Bristax, business accounting is one of our specialist areas. Our expert business accountants would be happy to speak or meet with you to discuss your needs. We’ll take the time to understand your circumstances and provide appropriate advice.
You can contact us on 1300 883 597. We have offices in Brisbane, Sydney and Melbourne and provide full tax and accounting services Australia wide via internet, email and phone.