Technology developer Christian Huitema once said, “We now have a new checklist item before going out to dinner: We make sure that none of us is carrying a phone.” This statement summarizes our current relationship with technology, as it has penetrated almost all aspects of our lives, from personal and social to work and businesses.
Various companies from industries across the board have now incorporated new technologies in their business management efforts, including ones for their accounting functions. In fact, 89% of all companies have already integrated digital technology into their operations and noted a 40% increase in operational efficiencies.
An innovative technology introduced lately in the market is cloud accounting, the more advanced version of on-premise accounting. But if companies see digital tools as highly effective, what keeps some businesses from transitioning to digitalized operations?
What sets cloud accounting apart from traditional on-premise accounting, and what makes one better than the other? If you want these questions answered, here’s a comprehensive guide to on-premise vs. cloud accounting.
What is On-Premise Accounting?
On-premise accounting refers to the process of conducting and maintaining accounting operations within the bounds of your company. It may also involve staffing to do the accounting operations. You may opt to use accounting software, but all your data are stored in servers located within your office.
On-premise accounting entails managing all your security and maintenance costs and procedures, meaning you own and have overall control over your company data.
Benefits and Drawbacks of On-Premise Accounting
What it offers
- Improved security: You can better secure your data from cyberattacks or breaches since these are physically stored within your company.
- Total control: If your company must comply with government protocols or other regulatory standards on data management, you can easily tend to this since you have full ownership and control over your data with on-prem accounting.
- Better customization: You can better customize your accounting operations and data management since you have the physical copies and storage of your data.
- Option to work offline: Your on-premise accounting operations don’t rely on internet connectivity. Although you’re using accounting software, your employees operate these on desktop and offline. So in terms of in-house accessibility, on-premise accounting is a better option.
What might concern you
- High upfront cost: Operating in-house requires staffing, equipment, space, and maintenance measures, which can take up a significant portion of your company’s budget.
- High-maintenance equipment: Aside from the initial costs to purchase a complete set of equipment for your accounting needs, you’ll also need to spend on upgrading or fixing concerns now and then.
- Inefficient scaling: It may be challenging to scale your business operations with in-house accounting, as it requires more staff, equipment, and a bigger space from your organization.
- Inaccessible to remote employees: Having your accounting operations and data within your company restricts access from your remote workers.
What is Cloud Accounting?
Cloud accounting uses internet-based operations and data management in your company’s workflows. You need a third-party cloud service provider where you can purchase a package to utilize accounting tools for your business.
While on-premise accounting relies on on-site staffing to provide technical support and maintain accounting operations, cloud accounting offers a web-based landscape to work on all your accounting operations. Plus, the cloud service provider takes care of your data storage, technical support, and maintenance for you.
Benefits and Drawbacks of Cloud Accounting
What it offers
- More scalable: Cloud accounting is easier to scale once your company expands. You can add more tools or features to your package to accommodate your growth.
- Cost-efficient: You only pay your package and the subsequent costs if you ever need to upgrade or customize your digital tools. Your service provider takes care of technical support and maintenance, leaving you with one less thing to worry about.
- Highly accessible: Cloud accounting is accessible to everyone working on-site and remotely in your company. If one breaks down, data is stored in servers with backups for continuous operations.
- Improved work efficiency: Digital tools with cloud accounting features can reduce the hassle of manual accounting, create a network that transfers data faster, and conduct accurate computations quicker.
What might concern you
- High-risk security: Since most of your tools and data are on the internet, cloud accounting is more prone to breaches and hacking if not maintained and managed properly.
- Internet-reliant: Cloud accounting requires internet access to be utilized, which poses great concern during internet connectivity downtime or power interruptions.
- Prone to compliance issues: Certain industries are bound to comply with specific regulatory protocols on data management. It can become an issue given that you entrust your data storage with a third party which can be a target for breaching threats.
- Less flexible: While easily accessible, cloud accounting only allows you to work with your cloud provider’s existing packages and features.
8 Factors to Consider When Choosing an Accounting Software
The market for accounting software is becoming more competitive as the demand for digital tools increases. From your end, you need to identify your needs and preferences and account for these when choosing the right accounting software for your business.
Here are factors you can consider when selecting an upgrade for your accounting team:
On-premise. Compare existing ones in the market and find software worth the features they offer. Make sure to determine whether it’s a one-time payment or per subscription basis, with additional customization fees. Look for hidden charges and consider the extra security and maintenance costs.
Cloud. Cloud accounting is established as the more cost-efficient option. Still, choose one with the tools you require and with minimal need for an upgrade.
Remember that limited features may require third-party augmentations, which can incur additional fees from your initial software. Moreover, find a program that updates without any extra charge.
On-premise. Most on-premise accounting software is individually installed on computers and is only limited to several installations.
Because of this, you have to maximize the available features to tend to your priority tasks. Ensure you have the functions for basic accounting processes, such as the computation and issuance of financial statements, bills, and invoices.
Cloud. Find a cloud accounting software that can scale up or down anytime and conveniently. Ensure the software tools cover all your accounting tasks and allow your employees to work in one virtual space without needing third-party augmentation.
Working online also means you’re immediately connected to necessary company compliances, such as online filing your annual financial statements.
3. Collaborative features
On-premise. You may not have all the necessary tools to cover your tasks. In addition, limited software installations require you to manually sync all your data from different datasets generated from various processes.
To optimize these restraints, choose a program with more than one license installation so your employees can work with better collaboration, albeit from different computers.
Furthermore, pick one that grants the integration of third-party systems or providers to augment your needs. These services can range from financial reporting services to security services.
Cloud. Collaboration in cloud accounting means that your software allows simultaneous work and direct links among your employees, processes, and existing tools with minimal to no barriers.
For instance, cloud servers with chat features eliminate the need for time-consuming back-and-forth emails. It’s highly important when doing critical business processes, such as audit preparations, on top of your regular business tasks.
On-premise. Make the most of the free trial to get a good feel of the software. Also, find one that offers more installations than those that only allow one computer user. While this remains limited, you still get to maximize your user accessibility.
Cloud. Accessibility in cloud accounting is an already established advantage. When looking for the best cloud accounting software, make sure you settle with one that allows a comprehensive system of access from top to bottom, permitting entry to all your authorized employees to perform their tasks wherever they’re working.
On-premise. Check reviews of the accounting software and whether it can be installed with third-party security, such as firewalls, strong passwords, and security software.
Cloud. It’s an essential factor when choosing cloud accounting software. Extra security measures, such as encryption, two-factor authentication, and regular automated backups, should be in place. Since your data is at risk of breaches being stored online, select a provider that has complete and up-to-date security certifications.
On-premise. Choose a system easy for your employees to understand, learn, and work with to simplify your processes. Consider the solution’s overall feel and assess if it’s something you want to incorporate into your daily operations.
Cloud. A user-friendly cloud accounting software is tailored to your company’s needs and preferences and utilizes simple visuals to augment processes. Your employees are already managing big chunks of data regularly, so they need as minimal visual chaos as possible.
7. Customer service
On-premise. It may be harder to get hold of customer service or tech support with on-premise software. That’s why you need in-house IT support staff. However, this doesn’t mean you can’t demand help from your license provider.
Choose one that has the most responsive and easily accessible customer service and tech support. It’s best to have them available in multiple means of communication, such as via email, website, or social media.
Cloud. Ensure that your selected provider has top-notch customer service and tech support that’s responsive and receptive. Remember that not all your employees are accountants or IT professionals, so they need extra help navigating and troubleshooting the system.
On-premise. Look for offline accounting software that’s reactive in fixing bugs and system issues and one that implements regular updates to keep you at par with industry standards. Aside from these, an excellent maintenance feature includes preventive measures to avoid future issues with the software.
Cloud. Cloud accounting software is at an advantage when it comes to proactive, regular updates, especially when it comes to critical functions, such as data storage. So, look for a provider with a responsive customer and tech support team.
Traditionally On-Ground or Elevated in the Clouds?
Accounting for your business can take up a significant amount of time you and your employees can use to do more important things in your daily operations, especially if you’re a startup or an SME.
Accounting software takes over these manual tasks and allows you to scale your business further, either on-premise or cloud-based.
Each has its advantages and disadvantages over the other; thus, the on-premise vs. cloud debate. But, it all comes down to choosing which ones appear suitable for your business in terms of cost, functionality, security, and adaptability, to name a few.
Any way you choose, you can start elevating your accounting game and scaling your business further with CloudCfo! CloudCfo is a cloud accounting firm for startups and SMEs in the Philippines that can help you with your accounting functions and more! Talk to our industry experts today and launch a newer and better system.