Cloud Accounting Software vs. Traditional Accounting Software

8 min read

May 29th, 2024

Accounting software is integral to every business's operations, management, and financial health. Business owners must select the right accounting software to support their operating strategy, facilitate performance evaluation, and provide invaluable insights that can be used to maximize efficiency and profits.

When it comes to accounting software, there are endless products available and even more features and customizations to choose from. While the task of selecting accounting software can be a daunting job, business owners can significantly narrow down the list of possibilities by first determining whether traditional accounting software or cloud accounting software is right for the business.

What Is Traditional Accounting Software?

Also known as desktop accounting software, traditional accounting software is based on a business computer's hard drive. The software is purchased and downloaded onto a computer where it is stored, run, and used to perform a wide range of financial management, bookkeeping, and accounting functions. The associated data is stored on the computer's hard drive along with the accounting software program.

Read More: The Pros and Cons of Outsourced Accounting Services for Businesses

What Is Cloud Accounting Software?

Cloud accounting software is based in the cloud (a global network of servers that house software and data that are accessible through an internet connection). Cloud-based accounting software and associated data are stored in the cloud. The software provides basic and advanced bookkeeping, accounting, and financial management functions and is accessible from any device with internet access.

How Does Cloud Accounting Software Compare to Traditional Accounting Software? 7 Key Differences

While both traditional and cloud accounting software can perform core and advanced accounting functions, they do have several key differences that impact budgeting and the way businesses can use the software.

1. Accessibility

Accessibility is clearly one of the most impactful differences between cloud and desktop-based accounting software solutions. Traditional accounting software can only be accessed and used on a particular computer. This means that only one individual can use the software at a time and users need to be physically present to access the software.

Cloud accounting software can be accessed at any time by any user from any device with an internet connection. As a result, cloud-based accounting software is much more accessible, supports multiple simultaneous users, facilitates remote work, and makes collaboration with outsourced accounting providers possible.

2. Cost and Pricing Structure

Costs and pricing structures for both types of accounting software vary from developer to developer. Generally, however, cloud-based accounting software is available with a subscription. The rate varies based on the features and benefits included with the selected software package.

Desktop accounting software is generally purchased with the initial cost of the software license (in addition to the computer on which it will be loaded and operated). Additional costs will typically include ongoing maintenance for the computer.

Read More: Oracle NetSuite vs. Sage Intacct: Which Is the Better Accounting Software for Your Business?

3. Accounting Software Updates

It's important to note that cloud-based accounting software undergoes updates automatically which means users never have to worry about remembering to download and install updates on their own. Users of cloud-based accounting software will always be on the latest, most secure, and most compliant version of the software.

Desktop software, however, must be manually updated. Businesses with traditional accounting software must check for updates regularly. Failing to keep the software up-to-date could put the business's financial data at risk. Plus, outdated versions of accounting software might no longer support the most current compliance requirements.\

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4. Collaboration

Traditional accounting software is not designed to facilitate collaborative back-office work. These programs tend to allow significantly fewer unique users. Additionally, it can only be accessed by one user at a time. As a result, this can make it difficult for multiple members of a back-office team to complete their work in an efficient manner. It also makes it more difficult to work with independent contractors or outsourced accounting service providers.

On the other hand, cloud-based accounting software is designed to accommodate collaborative back-office teams. These types of accounting software typically support multiple users and also allow simultaneous logins. Additionally, cloud-based software typically offers several levels of user access customization so that business leaders can set various user permissions to prevent mistakes, reduce errors, and improve internal security and controls.

5. Scalability and Flexibility

Cloud-based accounting software solutions tend to be highly flexible and easily scalable. With a subscription-based pricing structure, businesses can easily adjust software packages or purchase different features and add-ons to accommodate their growing and changing needs.

With desktop-based software, it is more difficult to adjust your software's capabilities to meet changing needs. Once you've reached the limits of traditional accounting software, you must purchase and download a new product and migrate your previous data to the new system.

6. Data Security

Data security is the primary concern of most cloud accounting software users because their financial data is not stored on a physical hard drive in their physically secure office. Instead, data is stored in the cloud.

Despite these concerns, cloud accounting software providers are aware of cybersecurity risks and are on the leading edge of online security and protection. These software providers ensure protection against cybersecurity breaches and hackers. Additionally, security protocols are routinely and automatically updated, ensuring users are always logged into the most secure version of the software.

With traditional accounting software, businesses are almost entirely responsible for ensuring the security of their data, and any computer that is connected to the internet is at risk. Traditional accounting software users must remember to routinely download updates for their software in addition to updates for all of their computer's systems. They should be operating with a secure firewall, on a secure internet connection, and limiting physical access to the computer that contains the accounting software and financial data.

7. Real-Time Information

Cloud-based accounting software solutions continuously refresh, update, and integrate data that they are pulling from any number of sources (i.e. manual entry, integrated applications, etc.). As a result, the data you see when you log in is always current and up-to-date.

Desktop accounting software, on the other hand, typically needs to be manually updated with a data save or at the end of a financial period. With a desktop version, you might not always be looking at the most current financial information.

Traditional Accounting Software vs. Cloud Accounting Software: Which Is Right for Your Business?

The right type of accounting software largely depends on your business's individual needs. More and more businesses are turning to cloud-based accounting software solutions due to the many benefits and advantages it offers over traditional, desktop-based accounting software. That being said, desktop-based software might still be the right choice for some smaller businesses or businesses with the capacity to meet their entire back office's needs in-house with a single, physical access point.

If, like many businesses, yours will benefit from the advantages of cloud accounting software, we encourage you to consider the following best practices for cloud-based accounting.

5 Cloud Accounting Best Practices

1. Choose the Right Cloud Accounting Software

Unless you purchase the most basic of core cloud accounting software packages, cloud-based accounting software offers limitless capabilities and features. To choose the right software and package for your business - without getting overwhelmed - it's important to understand your goals and needs.

Consider the following:

• What do you hope to get out of the software?
• What are your short and long-term goals?
• Which metrics do you need to measure and track?
• What processes do you want to automate?
• What must your business do to be compliant?
• How many users does your business need?
• What transaction capacity does your business require?
• How many vendors and clients do you have?
• How computer-savvy are you? What level of customer support do you need?
• Are you working with an outsourced accounting provider or is your team based in-house?

If you have answers to these questions, you'll have a better idea of the features and capabilities you need from a cloud-based accounting software solution. This can help you narrow down the field of options.

During the selection process, you can also look at what other businesses like yours are using. For example, two of the most highly recommended and popular cloud-based accounting software solutions today are Intuit QuickBooks Online and Sage Intacct. QuickBooks Online is usually recommended for smaller businesses while Sage Intacct is an excellent option for fast-growing companies and medium-sized businesses. Intacct is a module-based solution with myriad available integrations that can facilitate enterprise resource planning in addition to meeting your back-office needs. With individually customizable dashboards and reports, Sage Intacct can help set your business up for growth.

2. Set User Permissions and Access Controls

One of the most attractive features of cloud accounting is the ability to have multiple simultaneous users. This capability increases productivity and convenience.

However, you don't want everyone to have access to everything.

For the best experience with cloud accounting software, it's important to establish adequate controls for every user. You want every user to have access to the features they need and only those features. Limiting user access prevents mistakes and errors from occurring while also helping to increase internal controls and security to reduce the risk of internal fraud.

Read More: How Much Do Outsourced CFO Services Cost?

3. Communicate With Your Back-Office Team

Accounting software is not just for compliance, audits, and filing taxes; it is also a robust management tool. Business leaders must communicate their management goals, future vision, and financial data needs with their back-office teams. In order for you to get the information, trends, and reports you need to make data-driven busienss decisions, your back-office team needs to know which metrics to track, which processes to automate, and which reports to provide you easy access to.

4. Strengthen IT Security

Cloud accounting software provides users with built-in security, but it is still important for businesses to have their own cybersecurity controls, policies, and procedures in place. Consider the following:

• Limit and control access
• Only use secure connections
• Strengthen password policies
• Use two-factor authentication
• Implement security training

5. Integrate With Business-Wide Applications

To make the most of your accounting software, leverage the capabilities of fully integrated third-party applications that can centralize your entire operations onto a central platform. Both QuickBooks Online and Sage Intacct Marketplace offer an enormous selection of applications designed to expand your accounting software capabilities.

Outsourced Accounting Services for Businesses on the Cloud: Team, Tools, and Technology

Cloud accounting not only makes it possible for you to access your back office from anywhere, but it also unlocks an entire world of cloud-based, outsourced accounting teams with expertise in your business's industry. Any business can simplify its back office with automated processes, accurate data, customized reporting, reliable financial statements, and more with outsourced cloud accounting services.

An outsourced team will ensure you're using the best cloud accounting software for your business and maximizing its potential with some of the most powerful, fully integrated applications. With the right team, tools, and technology, you can take your back office - and your business - to the next level with data-driven decisions designed to maximize efficiency and profits.