The selection of the type of accounting system is a very important decision that a business has to make in this modern world of increasing digital options. Most firms are faced with alternatives between cloud accounting and traditional computing accounting. Each one of them has unique benefits. Understanding the difference between cloud computing and traditional computing accounting helps you in making the most appropriate system choice. This article breaks down cloud and non-cloud-based accounting software, outlines the key differences, and gives some guidance on options that might work best for your company.
What is Cloud Accounting?
Cloud accounting is a practice that provides access to financial data from any place with internet access to perform financial management. Data is stored on remote servers accessed through a secure website or application. Cloud accounting has based its operation on subscription software provided by an accounting software company, maintaining IT support, security, and updates.
What is Traditional Accounting?
Traditional accounting generally means locally installed desktop software and paper-based approaches. It’s also called “desktop” or “desktop-based because the data is housed on computers or servers owned by the business and needs to keep particular hardware and IT support for maintenance. Traditional computing systems give businesses more control over where the data is stored. Updates and maintenance fall under the business’s responsibility, typically entailing an in-house IT team.
Traditional Accounting vs. Cloud Accounting Computing – Key Differences
Flexibility and Accessibility
Cloud accounting software can allow users to access their financial information anywhere with an internet connection. This is perfect for any company that has remote teams or hybrid teams, allowing employees to collaborate in groups from various locations and devices, including mobile phones and tablets. You have the ability to log in from any device, making real-time data sharing simpler and increasing team collaboration.
On the other side, the traditional accounting systems could only be accessed by on-site computers. Since the software would be installed at a site physically, access to data may be done only from that site, forcing employees to work in the office in order to view or manage financial information. This is a disadvantage for those businesses with remote employees or who have to access financial data very frequently on the road.
IT Infrastructure and Support
In cloud accounting, the service provider manages the IT infrastructure. There is no investment in on-site servers. All updates, backups, and security all become external activities. This reduces the maintenance cost and IT overhead since the cloud provider ensures security, updates, and smooth operation of the system.
Most cloud accounting software companies offer 24/7 customer support. So, if you have a software problem, you can work with technical support online or via phone calls.
Traditional accounting requires companies to establish and maintain IT infrastructure themselves, which means servers, storage capacity, and personal IT personnel to support the system. It requires higher investment. This could be a nonfactor in bigger companies that have a full-fledged IT department; however, for smaller businesses, it might be a burden because they will need IT infrastructure.
Integration
Cloud accounting software eases the workload of your accountant by automating various processes by integrating with other accounting systems.
Traditional accounting systems do not allow easy integration with everyday business tools. They are designed to work individually, independent of other software, and with very few program compatibilities. This complicates a business’s effort to organize everything in one place.
Automatic Updates
With cloud accounting systems, automatic updating means that users can always have immediate access to the latest features, security patches, and compliance measures. The process of automatic updating keeps the software running smoothly and with vulnerabilities in security at a minimum. For example, accounting firms using these cloud computing services can enjoy up-to-the-minute tools and protections without using resources and time on manual upgrades.
Conventional accounting software requires additional hardware updates that are manual and need general IT support to manage and maintain installations, checking their compatibility with the existing system. This calls for more operational work and may be somewhat costly in terms of IT support and maintenance.
Collaboration
Cloud computing accounting has been designed to be collaborative. Many users can log in at one time and work on shared financial data, enabling real-time collaboration across departments or even across geographical boundaries. It is helpful for companies with remote teams of departments that need to collaborate on financial matters by streamlining workflows and promoting productivity.
The options for collaboration on accounting software that is not cloud-based are minimal. This means that many times, it allows access to only one user, though there might be some that may allow multi-user access depending on certain configurations. This would significantly slow your work process, especially when you’re working in an environment where multiple employees would need to access data from it at the same time. For fast-moving businesses, this can be quite a considerable drawback.
Data Security and Control
Cloud accounting software companies employ a robust set of security measures used to ensure security for financial data against cyber threats: encryption, firewalls, and regular security updates. However, some businesses are still apprehensive about housing key data off-site or over the Internet. Data security is in the hands of the cloud provider, and companies are dependent on that provider’s protocols and practices in maintaining security.
Traditional accounting relies upon passwords instead of encryption and real-time updates. This is a very outdated security feature that can result in businesses being left wide open to potential cyber-attacks. The local storage calls for commitment in terms of the maintenance of the robust security measures, protocols, and systems, which have regular updates so that vulnerabilities can be avoided.
Reliability and Data Storage
Cloud accounting is available 24/7 from anywhere with internet access. This makes it more reliable and suited for accessing sensitive information. Many cloud suppliers do offer uptimes that are very high.
Cloud accounting also has a huge data storage efficiency, which means that you won’t have to worry about running out of storage space.
In traditional computing and accounting, information is held locally. But this means you should back up the information regularly. If your desktop software happens to crash and corrupt data, it can be very time-consuming to recover information and expensive.
Cost
Generally, cloud computing for accounting is cheaper for a small to medium-sized company. It is subscription-based and often gained through a series of small, regular payments rather than large upfront investments. Costs usually include updates, IT support, and storage in the subscription fee that may easily be budgeted into a company’s accounting software.
While traditional accounting requires a huge upfront investment in hardware, software licenses, and IT infrastructure, subscription fees are not perpetually incurred in the future, making this approach more attractive for companies that favor investing in fixed costs on a one-off basis. Therefore, companies should consider immediate and long-term costs when comparing cost effectiveness of these two approaches.
Adaptation for Staff
Cloud accounting would require some training for employees, especially for those who have never worked with digital tools. On the other hand, many cloud platforms are very user-friendly and, hence, easier to transition to because of intuitive interfaces. Such real-time collaboration and remote access are being ensured easily, and it is easy for employees to adapt to traditional computing environments.
Traditional accounting systems might be easier for the staff who are more used to dealing with traditional computing relies and in-house software. For companies with minimal digital needs or employees without any prior experience with online tools, traditional accounting feels more intuitive and at ease. This ease of adaptation works out well for companies wanting a more straightforward setup.
Factors to Consider When Choosing Between Cloud and Traditional Accounting Software
First of all, when making your choice between cloud and traditional accounting, you will want to take into consideration what works best for your company’s particular needs and structure:
- Company type and structure: Companies with distributed or remote teams may especially appreciate the flexibility of cloud accounting, while companies with one location or a small number of employees might find traditional accounting just fine.
- Security Requirements: Companies that have substantial data security requirements would likely be more interested in traditional accounting for the reason that data is retained locally. Although cloud providers are very secure, the data resides elsewhere.
- Internet Accessibility: This involves dependable internet access. In areas where this may be less than reliable, traditional accounting offers stability and continuity.
- Budget: While the subscription-based model of cloud accounting spreads the cost, traditional accounting will need higher upfront licensing sales. Long-term budgeting considerations should be a factor that influences the decision.
- Compliance and Regulatory Requirements: Many industries do have particular requirements on data location. Traditional accounting allows businesses to store data in-house. However, cloud providers are compliant with industry standards, thus suitable for compliance in online storage.
Conclusion
The choice between cloud accounting and traditional accounting is a question that solely depends on what best suits the needs of your business. Cloud accounting software provides flexibility, ease of collaboration with employees, and affordable subscription plans, hence ideal for those businesses that have remote teams or dynamic growth. Traditional accounting is better suited to organizations with very strict security requirements or to those firms where access to good levels of internet connectivity is problematic.
Choose all that best fits your company structure, security needs, and budget. The right accounting system will keep track of your finances, facilitate access to information, and let your business grow.
*This information was prepared based on the article Cloud Accounting vs Traditional Accounting: Which One Is Right for Your Business?
