What Is Cloud-Based Accounting Software?

If your business requires accounting and bookkeeping practices (as nearly all businesses do), you’ve probably considered investing in cloud based accounting software. But to the uninitiated or unfamiliar, this term may seem intimidating. What, exactly, is cloud based accounting software, and do you really need it for your business?

Let’s start by explaining the basics of accounting software, then explain what makes “cloud based” software so advantageous. By the end of this article, you’ll have a thorough understanding of how cloud based accounting software works, and why it might benefit your business.

How Accounting Software Works

Accounting software, regardless of whether it’s cloud based, is any app or program that helps you with the basics of accounting—in other words, keeping track of your financial records.

Software is important because it helps you in the following areas, with fast, convenient technological features:

• Documentation.
• Accounting relies heavily on accurate and consistent documentation, but keeping track of records by hand, or with a basic program like Excel can get complicated. Accounting software simplifies the documentation process, walking you through the important areas of documentation, and in some cases, automating the process.
• Centralization.
• Accounting software also allows you to centralize your accounting. If your business is large enough, you’ll be dealing with thousands of entries from dozens of people; if they’re using different systems, you may end up with redundant, missing, or otherwise inaccurate entries. Good accounting software will make sure your team members are all working in the same way, with a coordinated and consistent effort.
• Speed.
• A good accounting platform should increase the speed at which you are able to post transactions. That’s good for several reasons. First, you’ll reduce the amount of time your employees spend managing debits and credits. Second, you’ll be able to collect data in real-time, enabling better decision making for your business overall.
• Convenience.
• Specialized accounting software tends to be much more convenient than paper-based record keeping or reliance on basic programs. Depending on how they function, you should be able to access them from any digital device.
• Security.
• If you’re storing records digitally, you’ll need to think about cybersecurity, but any digital system is probably inherently more secure than paper-based records. Paper records can easily be stolen or manipulated if not disposed of properly. Because accounting is such a sensitive and data-intensive area, this should be a top priority.

Further reading: Small Business Accounting: Best Accounting Software for Small Business

These perks allow you to conquer the following areas of business accountancy:

• Revenue.
• Tracking revenue is all about understanding and measuring the incoming money of your business. Your team will be responsible for entering invoices, tracking cash register sales, or otherwise accurately measuring sales and income. The right accounting software can automate this process, or at least make it easier. It will also help you manage your accounts receivable ledger.
• Purchasing.
• Accounting software should also help you with the purchasing cycle. This includes creating, sending, and tracking purchase orders, accumulating entries on an accounts payable ledger, and organizing cash disbursements and checks. Accounting software can also help you manage your accounts payable ledger.
• Payroll.
• Depending on the software you use, you can probably use accounting software to organize your payroll data. With it, you can enter new postings into a payroll journal, tying them to cash disbursements and your payroll ledger.
• General Journal.
• Your general ledger is a collection of all the data points from these separate areas. Accounting software will make it easier for you to keep track of all these entries, and understand where they come from.

What Is Cloud Based Software?

The above descriptors apply to nearly any type of accounting software, but what makes cloud based accounting software different?

Cloud computing is a term that refers to a wide range of apps and programs, only some of which are specialized in accounting. Platforms that are available on the cloud rely on online storage that is accessible from anywhere, at any time. Generally, a cloud platform provider has their own mode of data storage (with redundant backups), and these data are accessible to anyone using the platform with the proper login information. Most cloud providers offer multiple levels of redundant backups to ensure data is protected, and cybersecurity standards to protect against potential threats.

Basically, instead of relying on the physical computer hardware and software in your possession, you’ll be accessing an online version of the platform using your device. Instead of selling you a product, cloud platforms are selling you a service, for which you’ll pay a monthly subscription (in most cases), rather than a flat fee.

What Are the Advantages of Cloud Based Accounting Software?

If you’re interested in using accounting software, there are a few major advantages that cloud based accounting software can provide:

• Lower costs.
• For the most part, you’ll pay lower costs for your cloud based accounting software. Because you won’t be purchasing a license upfront and you won’t need to create your own storage servers, you’ll end up paying far less over the course of your accounting software usage. Costs vary depending on what platform you get and how many users you have, so you may have to do some math to see if this works.
• Accessibility.
• One of the biggest benefits of cloud computing is its widespread accessibility. Your information is tied to an account, rather than a specific device or instance of technology. That way, you can access your account 24/7, using any digital device—provided you have the right login credentials. Considering most cloud based accounting platforms now have mobile apps, you can even access your information using a smartphone.
• Flexibility.
• Cloud platforms are incredibly flexible, which means you can use them for a variety of different needs, and change how you use them as your needs evolve. For example, you may start with a basic package and gradually scale up to something more advanced as your business grows. You’ll also be able to start with a handful of accounts, and keep adding new users as you hire more employees.
• Ongoing updates.
• Instead of being stuck with the same version of the software indefinitely, cloud platforms tend to issue updates on a regular basis. This is a service you subscribe to, not a product you buy, so you’ll be entitled to new features, higher security standards, and more as developers continue to refine their product.
• High security.
• Speaking of security, cloud platforms tend to prioritize it. Rather than investing in your own encryption standards or worrying about the integrity of your paper records, you can shop for the best cloud providers and trust them to keep your data safe.
• Environmental friendliness.
• Cloud-based accounting software also allows you to go paperless. You’ll rely almost exclusively on digital platforms, which will reduce your carbon footprint and increase your environmental friendliness (which can also be beneficial to your business’s reputation).
• Collaborative potential.
• Cloud based accounting apps make it easier for multiple people to work on the same projects. Information is updated in real-time, so you don’t end up with redundant entries or people making decisions based on obsolete data.
• Administrative control.
• Most cloud based accounting platforms also give you a great deal of administrative control. You can choose which users have access to your software, as well as how much control or access they have (for security purposes).

Further read: What Types of Tax Software Should Freelance Accountants Use

What to Look for in a Cloud Based Accounting Software

If you’re in the market for cloud based accounting software, you might be overwhelmed with the number of options available to you. There are hundreds of companies competing with each other to sell you the latest and greatest in cloud accounting technology, so how can you know which platform is most appropriate for your business?

These are a few of the most important points to consider:

• Basic functions.
• First, make sure the platform can handle all your daily accounting responsibilities. Most accounting platforms will offer options like entering and keeping track of invoices, purchase orders, and payroll, but different platforms will have different reporting options and possibly, automated functions. Choose the platform that’s best capable of serving your needs.
• Design, intuitiveness, and learnability.
• You should also choose a platform with a good design—not just for aesthetic purposes, but because well-designed platforms are much easier to learn and use regularly.
• You and your employees will be able to learn a well-designed platform much faster, and you’ll have fewer hiccups when you use it on a regular basis.
• Price.
• Of course, you’ll also have to consider the price of the platform. Most cloud based accounting software programs require a monthly subscription, either at a flat rate or a per-user rate. Consider what you’re getting for this rate, and compare it to other platforms. Is it worth it?
• Update schedule.
• Good cloud based accounting software will be updated on a regular basis. Pay attention to the development and release schedule to get a good idea of how much this company cares about its product.
• Security features.
• How can you be sure you and your clients’ data are safe? Most cloud based accounting platforms will have multiple layers of built-in security, but it’s a good idea to independently verify these.
• Integration potential.
• Does this platform integrate with other systems you might use? For example, you might want your cloud based accounting software to integrate with your POS system, or your order tracking system, to make things easier on multiple departments.
• Administrative controls.
• How much control do you have over the users of your system? Can you create multiple levels of accessibility? Can you quickly and easily revoke permissions? Is it easy for people to manage their own accounts and keep them secure?

If you’re interested in getting started with a cloud based software platform to make your accounting easier, sign up for Taxfyle today! With Taxfyle, you can outsource your tax preparation needs, reliably scaling your business and relieving some of your workload at the same time.