Cloud Accounting vs. On-Premise Software: Which Is Best For Small Business Owners?

Whether you handle your bookkeeping, invoicing, and paying bills on your own or with the help of an accountant, you likely rely on some software. Accounting software can vary depending on the complexity of your business processes. Some small businesses manage everything in Excel spreadsheets, while large companies invest in full-fledged Enterprise Resource Planning (ERP) systems that connect everything from accounting to procurement, project management, and human resources.

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Wherever your business falls on that spectrum, you can choose between cloud accounting software and on-premise accounting software.

Today, most businesses—no matter their size—recognize the benefits of cloud accounting. But if you already use on-premise accounting software, you may hesitate to consider switching to the cloud. Or, if you're just starting, you may wonder if cloud technology is secure.

In this article, we'll provide an overview of the differences between traditional accounting software and cloud-based accounting software so you can determine which is right for your business.

Cloud Accounting vs. On-Premises Accounting: What's the Difference?

The primary difference between cloud and on-premises accounting is where the server and infrastructure are stored. 

On-premises accounting requires an in-house server that people within the organization can access or software installed on each applicable team member's computer. It usually requires an IT team to manage and offers little or no integration with other company systems.

Cloud accounting doesn't require an in-house server or accounting software installed on individual devices. The server is hosted off-site at a secure data center. Anyone with the appropriate access credentials can log into the cloud accounting system and see financial data in real time.

Benefits of Cloud Accounting Software

Cloud accounting software includes all standard accounting functions, including invoicing, expense tracking, accounts payable, accounts receivable, and report generation. However, it also offers the following benefits.

Security

Security is a concern for accounting in any format. With on-premise accounting software, data security is your responsibility. If you don't back up data regularly, a server crash can mean losing weeks or months of data. If a break-in occurs or hackers access your account information, they can hold your data for ransom or sell your and that of your customers.

Many people mistakenly assume the risks are greater in the cloud, but it's typically more secure if you work with a reliable solution provider. A cloud application service provider must have multiple layers of security—security measures that may not be feasible with on-premise accounting unless you have a robust IT team and a huge budget.

Scalability

Cloud accounting is better able to scale with a company's growth. When you hire additional members of your internal accounting team, you can add additional software licenses.

You don't have to worry about installing software on another device, which is especially helpful when a company adds new locations, offices, and subsidiaries.

Cost-effectiveness

The upfront cost of purchasing and installing servers and software is considerable, and you must continue to budget for upgrades and maintenance to your server hardware and software. Cloud accounting software doesn't require this type of investment. You don't need to purchase servers or databases. All you need is a device to access the cloud-based software, an internet connection, and a subscription to the cloud platform.

Plus, using accounting in the cloud allows you to take advantage of cost savings due to economies of scale.

Accessibility

Running a successful business today requires flexibility. Whether employees work from the office, a client's location, at home, or while traveling, they need access to cloud solutions to be productive and ensure the company's financial data is always up-to-date and accurate.

 Before 2020, remote access might be a "nice to have," but the pandemic quickly changed it into a necessity. Companies that had already moved to cloud-based accounting systems could seamlessly shift to fully remote work. Those who used on-premise accounting software didn't have it quite as easy—they either needed to continue having team members come to the office or quickly find a technological solution to enable employees to continue working.

Pandemic-related shutdowns may be over, but remote and hybrid work are here to stay. A cloud accounting solution ensures your team members have access to the financial information they need to work in the office or on the go.

Automated updates

Accounting rules and laws change often, which means upgrades are necessary. With on-premise accounting systems, this requires manual upgrades, which usually means downtime while your IT team installs updates across multiple workstations.

Cloud accounting automatically handles the upgrades, pushing them out to every user in real-time. You don't have to request the updates; they are completed automatically, usually at least a few times annually.

This translates into lower overhead costs for your organization and turns variable expenses into predictable costs. It also ensures your accounting software is always up-to-date, which is essential for maintaining data security.

Collaboration

On-premise accounting makes collaborating with your accountants, tax-preparers, and other external advisors much more time-consuming than cloud accounting. Under those conditions, collaboration usually requires emailing back and forth or uploading multiple reports to a secure portal.

When you work in the cloud, everyone has access to the same accounting data simultaneously. You can collaborate in real time, looking at the same information even if you are thousands of miles apart.

Is Cloud-Based Accounting Safe?

Your information is safe when you work with reputable cloud accounting providers. Cloud-based accounting software providers ensure your data is secure. Cloud accounting software isn't a stretch if you already use internet banking.

Of course, not all cloud accounting solutions are created equal. To ensure the validity and safety of your financial information, work with a software provider that encrypts your accounting data using bank-level security.

Your financial records won't be impacted by a fire, natural disaster, or break-in because there is no downtime. All the data is stored on remote servers, and your cloud provider is responsible for disaster recovery.

Cloud providers typically keep servers in multiple locations to reduce the risk of data loss due to fires, natural disasters, and other security threats.

Is It Difficult to Switch From On-Premise to the Cloud?

Switching to a cloud solution should be simple as long as you work with a reputable cloud accounting firm. Your accountant can recommend software that is secure, reliable, and integrates with other apps you already use—or those that could provide benefits.

No matter the cloud accounting system you choose, consider these steps: 

• Create a plan. Planning for the transition is critical. Set a date for implementation, allowing enough time to train your staff and transfer your legacy data into the new system.

• Clean and back up your data. You know the saying "garbage in, garbage out?" Many companies have incomplete information or errors in their accounting software—especially if they've been DIY-ing their bookkeeping. Cleaning up that data before migrating to the cloud makes the migration easier and helps you get the most from your new accounting software package. Ensure you have backups of all existing data to access critical data if something goes wrong during the migration process.

• Get support. Work with your accountant and the cloud provider when migrating your data, training your team, and using your new cloud software. They can help you with any problems and provide tips for taking advantage of automation features that can free up your time to work on more strategic tasks.

Select the Right Cloud Accounting Software with Slate

If you're still using on-premises accounting software, it's time to switch. Cloud accounting is the future and provides several advantages over traditional accounting software. While it may feel 'safer' to have your information housed at your place of business, the security precautions offered by cloud service providers are nearly always far more sophisticated and advanced than those of any small business.

If you need help selecting the right technology stack, migrating your financial information, or updating your business processes to incorporate new technologies, schedule a call with Slate. Our team of experts can help you select best-in-class, cloud-based applications to meet your business needs and ensure you achieve the desired results.