The advantages and limitations of cloud accounting

The advantages and limitations of cloud accounting

Over the past five years or so, online accounting software or ‘cloud accounting’ has seen a huge rise in popularity. A recent survey commissioned by the Federation of Small Businesses found that 37% of respondents used cloud-based accounting solutions. Cloud accounting has become the way many businesses record their financial transactions and the way forward for their effective financial management.
In part, this is due to accountants encouraging small businesses to make the move to cloud accounting. But is working in the cloud the right replacement for desk-based computer systems, or even traditional paper-based systems in some cases?

In short, is cloud accounting right for your particular business? We’ve highlighted the main benefits (and some of the limitations) of cloud accounting so you can decide for yourself whether online accounting is the way to go.

The advantages of cloud accounting

Let’s start by looking at how using online accounting can bring some unique benefits and advantages to your financial management.

  1. You work in the cloud through your web browser, so there’s no local software on your hard drive. And this means both you and your accountant can view the same data, at any time, from any device.
  2. There are no large up-front costs in acquiring the software or any licenses – most cloud accounting providers charge a monthly subscription instead.
  3. For many small businesses, your accountant will include the cost of the software within a fixed fee package – so there are no hidden costs.
  4. There’s no need to update the program, or buy expensive new versions of the software, as this is all done automatically – you’re always using the most up-to-date version of the software through your web browser or mobile app.
  5. Bank feeds are available which automatically feed data into the system from your online business banking account. So bank reconciliations become far easier and you always know the cash you have in the bank.
  6. Depending on the particular cloud software used, there are a growing number of standard plug-in software applications that expand the functionality of your business system. For example, you can add the ability to the process receipts and expenses at the entry-level or to enable financial forecasting at the output level. It’s also far easier for specific software to be written for these programs.
  7. There are no back-up problems. Your financial and business data is all saved securely in the cloud, not on your local drive. So there’s no need for expensive, in-house servers and onerous back-up procedures.

The potential limitations of cloud accounting

So far, so rosy! But there are limitations and potential considerations to take into accountant before you jump headfirst into signing up for a cloud accounting solution.

  1. Not everywhere in the UK (or further afield) has the Internet speeds required to use these programs. If you’re running a business in an area with poor broadband or non-existent 4G mobile reception, you may not have the bandwidth to use your online accounting software to it’s true potential.
  2. Using a cloud accounting program doesn’t immediately solve all your accounting problems. It still requires you to do your bookkeeping, your bank reconciliations and to keep the relevant records. It can be quicker to carry out these tasks, but if your business isn’t great at financial management then using cloud accounting software won’t solve this issue.
  3. For the novice, some of the available cloud accounting software has quite a complicated look to it. This can be off-putting if you’re not used to software applications, and particularly if you’re used to traditional paper-based accounting systems.

Is cloud accounting for you?

So, do the advantages of cloud accounting outweigh the potential limitations for some small businesses?

Undoubtedly, cloud accounting is here to stay and will grow in use over time – especially as younger, more tech-savvy business owners become the norm. There’s also the need to comply with HMRC’s new digital filing requirements, which will see all businesses having their own digital tax accounts by 2020.

So, the wind of change is certainly blowing in cloud accounting’s direction and most, if not all, businesses will find themselves having to make the move to online software systems over the course of time.

Whether you make the move sooner, or later, is down to the needs of your business, but we’d be happy to talk you through more of the advantages of cloud accounting.

Get in touch with us if you’d like to see how online accounting could work for you.