Should you put your small business accounts in the cloud?

Businesses of all kinds are storing content and data and accessing software applications via the global network of computer servers known as the "cloud". IT analysts Gartner recently predicted that the total value of cloud-based systems would reach $210bn a year by 2016.

But just how safe is it to post your financial data to a server that is owned, maintained and secured by someone else, somewhere else? Well, most of us are happily conducting day-to-day banking over the internet and, as Daniel Rissen of chartered accountants businessorchard.com points out, "the security issues are the same as with locally hosted systems – unless your business doesn't have an internet connection. Any system can be hacked and it's always wise to take proper precautions."

That includes carrying out due diligence on potential providers and assessing their openness about the issues. Checking standard terms and conditions and finding out what, if any, service level agreements are on offer would be wise, as well as asking pertinent questions about how your data is separated from that of other businesses on the same servers – and what would happen to your data if the company goes bust or is sold.

And while the global, virtual nature of the cloud is key to its appeal, it's advisable to know the physical location of the provider because that may affect data protection requirements.

On cloud nine

Once you're satisfied with security, the benefits are apparent. The ability to manage your finances anytime, anywhere, from pretty much any web-enabled device offers greater control over your time and significant cost savings.

Joe Taylor, managing director of content marketing agency Fat Joe, says that by using cloud-based accounts service FreeAgent his company saves "in the region of two days' manual work per month in raising invoices and chasing payments". Fellow user Julia Graham, who runs a translation services agency, agrees: "With features that let me reconcile money in and out by linking to my bank account, and that let me convert estimates to invoices in one click, I have more time to dedicate to doing my job."

However, paying a monthly subscription to a cloud-based system may not remove the need for a friendly accountant, whether on or off site, to help you get the most from the product. Daniel Rissen recommends specific cloud-based systems to clients and works with them throughout the year, including providing training.

"We can log in at the same time as our clients to streamline accountancy services, working together on everything from bank reconciliation to VAT returns," he says. "This simplifies the end-of-year process too, saving time and therefore money."

That's not to say you can't go it alone. Cloud systems are built to be user friendly, with on-screen help and dedicated back-up (but do check for compatibility with your local operating system, such as Windows, Mac OS and Linux). It's also worth checking if there are user forums for the product you're considering. Overall, the ability to check reputations through testimonials and ratings online should give you confidence in your choice of supplier, and the subscription model makes it relatively easy to "switch and ditch" if necessary. Many providers, such as QuickBooks and NetSuite, will offer a free trial or demo, so you can try before you buy.

Suppliers of traditional accounts software are rapidly increasing their cloud offering, too. "Speaking to our customers we are seeing a growing appetite for the cloud," says Nick Goode, head of Sage One, Sage's online accounts and payroll product. "The advantages of heading into the cloud are huge – as well as flexible working, it gives businesses a chance to update ageing systems without having to make a big capital investment."

Don't cloud your judgement

That doesn't mean it's right for everyone though, and Goode acknowledges that "there are a large number of businesses that are not yet ready for the cloud", so it's important to be able to make an informed choice. And that hints at a deeper issue – with the power of cloud-based systems, is there a risk of the tail wagging the dog?

According to Dr Gerhard Kristandl, senior lecturer in management accounting at the University of Greenwich Business School, "cloud technology is an enabling technology – it should not govern how you do your business, but it should support your business".

Kristandl and his colleagues are researching the impact of cloud systems on the role of the management accountant. They recently conducted an online survey with Irish companies that found that managers who have access to anytime, anywhere financial information tended to circumvent the accountant in decision-making processes.

When business managers are out and about meeting with customers they can access data through all manner of devices. The small screen of an iPhone, for instance, limits the amount of data visible at any one time, which in turn can influence decision making. Kristandl suggests that "there needs to be a protocol on how much to condense so that the manager does not make a wrong decision. But it always comes down to human judgement. If the manager knows the customer, knows the history, that's one thing, but once you get bigger and lose touch with that overview, decisions on the go might become more problematic."

Sandra Jones of online accounts firm click4bookkeeping.com concurs: "A human can pick up things that software can't. It all comes down to the level of understanding of the end user."

As Kristandl notes, while extreme events could interrupt internet or even basic electricity services, responsible providers and clients will have contingency plans in place. Meanwhile, cloud-based accounting services can liberate significant amounts of time for core business tasks and even, says Joe Taylor, make book keeping and general accounting fun.

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