Cloud Accounting Vs. Traditional Accounting: A Breakdownon 31 January 2022
While the foundational principles of accounting are still applicable, technology has transformed much of the way accountants perform their duties. The transition started with the introduction of traditional, on-premise accounting software (not cloud-based).
Then the cloud was introduced, and this opened the door to new ways of working.
So what is cloud accounting vs. traditional accounting? We asked some accounting and business experts to shed light on this question—and explain why it matters to your business.
Cloud Accounting Vs. Traditional Accounting: What’s the difference?
“Accessibility is the most significant distinction between traditional and cloud accounting,” says Tyler Martin, certified public accountant (CPA) and certified business coach at Think Tyler. Traditional systems are on-premise, which requires users to access financial data from a certain place or on a specific computer. “This may have an impact on your obligations, schedule, and productivity.”
With cloud accounting, users can access data from any allowed device with the appropriate credentials, giving them the freedom to access data from anywhere, anytime. But that isn’t the only reason this type of setup is beneficial. Cloud-based software is also different (in a good way) because:
- It’s capable of updating data sources in real time.
- It ensures secure data backups.
- It reduces the man-hours required for maintenance and upkeep.
Becky Brown, CEO of Shopping Kim, adds that cloud-based accounting is simply a modern approach to accounting and bookkeeping that always works better if you can optimize it for efficiency. “That being said, traditional accounting is still a viable approach as long as your team is comfortable with it.”
What factors should a business consider before deciding between cloud and traditional accounting?
Chelsea Cohen, former accountant and current cofounder of SoStocked, says tech-based small businesses and startups typically work best with cloud accounting software because they have the least amount of historical data to transfer and are better equipped to independently solve issues with their systems.
“Larger companies with outdated workflows have a more challenging time adjusting to modern systems, and the internal resistance could prolong the transition period,” Cohen explains. “These companies typically end up spending far more time and money trying to achieve a smooth integration.”
Brown shares a similar sentiment, noting that it’s important to consider how comfortable your team is with cloud or traditional accounting. “If you have accountants who are comfortable working with more robust accounting apps and services, then there’s no reason to disregard cloud accounting; its features are clearly superior. On the other hand, trying to force cloud accounting when it doesn't fit your team will almost always end unfavorably.”
The more virtual your office is, says Nate Tsang, CEO of WallStreetZen, the more you should consider cloud accounting. Many businesses these days have no physical presence—even companies with dozens or hundreds of staff members may operate this way. “You already have cloud tools available for your workforce to use—why not your accountants as well?”
Tsang says a good cloud accounting platform will have robust APIs that connect to third-party sources, ensuring all your data can be collected for use. “You'll be able to connect with professionals more easily and not have to worry about all the physical equipment that houses your accounting data.”
What are the risks of cloud accounting?
Some companies worry about the security of cloud accounting since the ultimate responsibility of data safekeeping is in the hands of a third party. However, most modern solutions and responsible providers have security features in place that equal or rival that of an on-premise system most companies would own.
“You might consider the expense of a cloud solution as a risk, but it’s typically worth it depending on your circumstances,” says Tsang. “If things are working well and most of your business is on-site, then change for its own sake may not be needed. Consider how your year-end accounting went. If there were delays or confusion in the way you were running the process, cloud accounting may fix that for the future and outweigh the cost of a more modern solution.”
Is cloud-based accounting really safe? Industry experts shed light on this and other commonly asked questions about cloud accounting security.
What scenarios work best for cloud vs. traditional accounting?
“The best option depends on your staff—how receptive they are to learning a new system and potential changes to business processes,” says Cohen. “Not every workforce will accept cloud-based transformation, and that’s an unfortunate reality many businesses now face.”
Regardless, Cohen says even tech-savvy teams may have to delay their integration if their cash flow won’t sustain it in the future. “Cloud-based accounting requires regular maintenance, which companies can either outsource or appoint in-house.”
What actions can you take to keep your accounting function on track for success? Here, business and finance leaders share useful accounting best practices to get you started.
Get A Secure, Cloud-Based Client Portal For Your Accounting Team
The typical scope of accounting software doesn’t fully address collaboration with clients. That’s why one of the most pertinent cloud tools your accounting firm can take advantage of is Glasscubes—it’s a storage solution and client portal in one. And security is a key focus area, with data being protected by SSL encryption and distributed across multiple physical locations across the UK.
Glasscubes streamlines collaboration internally and externally, organises and prioritises workloads, and automates mundane administrative activities accountants deal with day to day.
In addition, our solution helps everyone stay in the loop on the latest updates and share what’s most important—all while keeping work moving efficiently. Use threaded discussions to keep conversations in context, whether discussions deal with client tasks or important project files. Plus, secure file sharing and task management ensure your accountants, auditors, and clients stay on the same page.
If you’d like a demonstration or want to see how other accountancies are using Glasscubes, learn more here.