Consumer Confidence in Cloud-Based Accounting
IndustryView | 2014
Small businesses been slower to adopt cloud-based solutions for accounting than for other business operations. Indeed, our research at Software Advice shows a lower-than-average preference for cloud-based deployment among accounting software buyers from small businesses (those with $100 million or less in annual revenue). And outside reports reflect even lower percentages: A recent survey showed that only one-quarter of chief financial officers (CFOs) plan to adopt cloud-based accounting software within the next five years.
We recently conducted an online survey of small businesses to gauge the level of confidence in cloud accounting, the likelihood of adopting a cloud-based solution and what the major concerns regarding this move were. Finally, we interviewed Doug Sleeter, CEO of The Sleeter Group—a firm that educates small businesses on accounting best practices and software—to get his tips for a secure and effective transition to cloud-based accounting.
First, we asked our survey respondents what their current accounting methods were at their small business. As it turns out, the most common current method respondents reported was on-premise accounting software, meaning software installed on the company’s own servers (46 percent).
*Chart values are rounded to the nearest whole number.
A smaller number of respondents (20 percent) were using manual methods such as pen, paper and spreadsheets for their accounting, while 18 percent reported that they outsource their accounting needs.
Finally, the number who reported already using cloud-based accounting software was 16 percent: a relatively small percentage. Less than one percent of respondents specified "other" methods, such as an in-house accounting system.
We were surprised to see a degree of confidence in cloud accounting among survey respondents that was actually higher than current rates of adoption. The majority (51 percent) expressed moderate to high levels of confidence in the reliability and safety of cloud-based accounting software, with the highest number of respondents reporting they are “moderately confident” (32 percent) and another 19 percent saying they are “very confident.”
However, a significant number still had their doubts: 22 percent indicated they were “minimally confident,” 16 percent said they were “not at all confident” and 12 percent were “not sure.” Thus, confidence in the reliability and safety of cloud-based software is approximately a 50-50 split between those who are confident, and those who are not confident or are unsure.
Further supporting that small-business preferences straddle cloud-based and on-premise deployments, when we polled respondents on the likelihood of choosing a cloud-based accounting solution, we once more found a nearly even split. Just over half were amenable, with 32 percent of respondents saying they were “moderately likely” to move to the cloud and another 16 percent saying they were “very likely” (not to mention the 5 percent who chose “not applicable” because they were already using cloud-based software).
As for the remaining 47 percent of respondents, they were either “minimally likely” to adopt a cloud-based solution (21 percent) or “not at all likely” (26 percent).
Sleeter says the abiding preference for on-premise deployment may have to do with the maturity of desktop accounting software. Indeed, recent research at The Sleeter Group suggests a correlation between low adoption of cloud-based solutions and high satisfaction with current software. In other words, businesses are sticking with what they already know they like.
What they may not know, Sleeter adds, is that despite being newer technology, cloud-based accounting solutions offer some benefits on-premise systems cannot—for example, a reduced need for IT infrastructure and staffing (since support and updates are handled by the software vendor) and, despite common perceptions, enhanced security.
It’s highly relevant that experts such as Sleeter see enhanced security as a benefit of cloud accounting. Many small businesses haven’t moved to the cloud precisely due to concerns about security. In fact, 46 percent of our respondents say that security would be their top concern when facing the possibility of adopting cloud-based software for accounting.
Nineteen percent said the cost of cloud software was a top concern. Thirteen percent were concerned about training staff to use a cloud-based solution, and 10 percent thought usability could be a problem. Finally, since many small businesses need their accounting software to integrate with other applications, such as point-of-sale (POS) or invoicing systems, 10 percent mentioned that this was their top concern.
As for concerns about security, Sleeter says that—contrary to the beliefs of many in our sample—cloud-based accounting solutions are generally more secure than on-premise solutions. That’s because the software vendors dedicate significant resources to protect against Internet hacks, virus attacks, malware and other security breaches.
“There’s no way that a small business that has a local desktop server environment can match the skills and ongoing maintenance [of a reputable cloud provider],” says Sleeter.
Sleeter also offers suggestions for businesses that are moving their accounting to the cloud, but are concerned about security.
First, he says that “knowing the vendors and how they operate” is important when you’re moving to a cloud-based accounting software. The best way to select a reputable vendor is to check whether it has the proper certifications.
American Institute of CPAs (AICPA) reports are the gold standard when it comes to verifying this. They involve auditing service companies, using what are known as the Statement on Standards for Attestation Engagements (SSAE) No. 16 and Service Organization Control (SOC) reports. These audits indicate that vendors are compliant in maintaining their network, taking into account such things as internal controls for storage and access of data. Sleeter says you should ask any vendors you evaluate: “Have you been through an audit for SAEE 16: SOC 1 and SOC 2?”
To further ensure security when working in the cloud, Sleeter says you should enforce that all employees use unique, complex passwords for every site they visit. To help them remember these passwords, Sleeter recommends browser add-ins such as LastPass, RoboForm and ZohoVault, which can generate random passwords for each site and store the passwords in an encrypted database. He adds that users should never use the “remember me” function, since that stores passwords in the browser—potentially giving all websites you visit access to your credentials.
In conclusion, our study confirms that the cloud-based accounting landscape remains a transitional space caught between an on-premise past and the almost-certain future of ubiquitous cloud-based accounting. Not only is user adoption low for cloud-based accounting software, our study finds that attitudes, too, are split down the middle, with respondents divided evenly on issues of confidence and security.
Current adoption rates and consumer sentiments about cloud-based accounting amongst our sample illustrate (as some have argued) that the small-business accounting software market has great potential for growth. What’s more, we feel that the mixed attitudes of those from small businesses may be quickly influenced as the cloud accounting software market matures. For example, while our study reveals that security is a top concern, experts advise that cloud-based accounting is often a more secure solution; the issue seems to be merely one of communication.
Thus, the real question is not if, but when the attitudes of small-business accounting software buyers will shift towards cloud at the rates of other markets.
To find the data in this report, we administered an online survey with a qualifying question identifying small-business employees who were involved in, or highly knowledgeable about, the company’s accounting. This resulted in 151 unique respondents, a sample size that allowed us a 95 percent confidence level—and a confidence interval of 8—when taking into consideration the total number of U.S. employees with a role in accounting. We worded the questions to ensure that each respondent fully understood their meaning and the topic at hand.
To further discuss this report, or obtain access to any of the charts above, feel free to contact me at email@example.com.