Last year, Software Advice surveyed buyers from small businesses (those with $100 million or less in annual revenue) to gauge their level of confidence in cloud-based accounting solutions.
While most were moderately confident in these systems overall, many buyers were concerned about security, and nearly half were unlikely to adopt a cloud-based accounting solution in the future.
With 2014’s tepid sentiments in mind, Software Advice conducted a follow-up survey to gauge how attitudes have changed in 2015. We also asked those currently using cloud accounting solutions about the benefits they’ve experienced.
This report will help guide small-business buyers considering cloud accounting solutions as they navigate the rapidly expanding marketplace.
- The largest percentage of respondents use on-premise accounting software (43 percent)—but the number of respondents using a cloud-based platform has nearly doubled since last year (from 16 percent to 30 percent).
- The top benefits cited by users of cloud-based systems include easier access to the system (33 percent), security and safety of data (28 percent) and ease of use (24 percent).
- Security remains the chief concern with cloud-based accounting, cited by 28 percent of respondents. But this number is down from last year’s 46 percent, showing that overall, small-business concerns about data security are dwindling.
- Nearly half (49 percent) of respondents are “extremely” or “very confident” in the reliability of cloud-based software, while 46 percent are “extremely” or “very confident” in the security and safety of their offsite accounting data.
- Seventy percent of respondents are “moderately” to “extremely likely” to invest in cloud-based accounting solutions in the future. Only 30 percent say they are “minimally” or “not at all likely” to invest, down from nearly 50 percent in 2014.
When industry giants like Sony, Target and even JPMorgan Chase get hacked, small businesses may wonder whether to place their trust in cloud-based accounting solutions.
However, according to Gartner’s rundown of the top myths surrounding the cloud, the belief that cloud software is less secure than on-premise systems is false: Cloud providers that have demonstrated their offerings are secure should be trusted.
But myths are difficult to dispel. As Software Advice discovered in a previous report, the security of cloud-based accounting solutions was a top concern for small businesses in 2014.
To better understand how market perceptions have changed over the last year, Software Advice surveyed small businesses about their concerns, confidences and plans for future investments in cloud-based platforms.
This report shows that, despite initial misgivings, more small businesses are adopting cloud-based accounting software. Current users also report several benefits—including improved data safety.
Use of Cloud Accounting Software Nearly Doubled in 2015
We first asked respondents about their current accounting methods, and found that
- The largest percentage of small businesses use on-premise software (43 percent)
- 30 percent use cloud-based accounting solutions
- 22 percent use manual methods (e.g., spreadsheets, pen and paper)
Respondents’ Current Accounting Methods: 2015
Respondents’ Accounting Methods: 2014 vs. 2015
This is a remarkable difference compared to last year’s data: The number of cloud-based users has nearly doubled, from 16 percent in 2014 to 30 percent in 2015.
Dave Brockman is co-founder and managing partner for BCG & Company, a Certified Public Accounting firm specializing in tax, accounting and business services consulting. He explains that many small businesses and startups are investing in cloud solutions to minimize their initial capital expenditure.
The vendor can roll out automatic updates more frequently to all customers in real-time, so users are always working on the most up-to-date version of the accounting program.
“If you have an in-house solution, you’ll get a major update maybe once every year or two,” Brockman says.
“If you’re in the cloud, you’ll probably get a significant update every six months, and it’s going to be done automatically for you, so it reduces your cost of ownership,” he continues, referring to the fact that with on-premise systems, updates typically require an additional fee.
Moreover, Brockman says, cloud solutions provide small businesses and startups with a degree of scalability and flexibility they wouldn’t otherwise get with on-premise software packages.
With on-premise systems, customizations often require a significant investment of time and money. While cloud systems themselves tend to be less customizable, they can easily integrate with a vast online marketplace of add-ons.
What’s more, most cloud solutions are broken down by feature set and sold in tiers.
- Basic tier package: Includes basic functionality such as core accounting, billing and invoicing and some standard financial reports such as profit and loss statements (P&L)
- Mid-tier package: Might add such functionality as payroll or inventory
- Top-tier package: Might include capabilities for invoicing and reconciling accounts in multiple currencies as well as creating and sending purchase orders
This pricing structure makes it easier for businesses to increase or decrease their investment according to their needs. Additionally, most cloud-based products, such as , are designed to integrate with add-on business applications that increase the versatility of the product according to the unique needs of that business.
Ease of Access Is Top Benefit for Cloud Accounting Users
We were interested in how the 30 percent of current cloud accounting users interact with and profit from their solutions, so we asked respondents to name the top benefits they’ve experienced:
33 percent report “ease of access” as the biggest benefit
28 percent cite better security and safety of their data
24 percent most benefit from “ease of use”
Most Significant Benefits of Cloud Accounting Software
Cloud solutions can be accessed via a Web browser on any device with a compatible operating system. Additionally, most vendors offer Android or iOS native apps, allowing users to more seamlessly access the solution from their mobile devices.
Amy Vetter, global vice president of education and head of accounting at Xero USA (a small-business cloud accounting provider) says that customers often multi-task on different devices according to their needs at the time.
For example, a user may complete a bank reconciliation from their mobile device while waiting in line at a store, but may use a laptop as their main device.
“Businesses want the flexibility to complete tasks from wherever they are and not be tied to their office computer,” Vetter explains.
The fact that “security” is both the main concern and a key benefit of using a cloud-based accounting solution among respondents is indicative of the “cloud is less secure” myth explained by Gartner.
This is because vendors go to extreme lengths to ensure the protection of user data, using encryption, firewalls, network access controls, intrusion prevention systems (to monitor network traffic) and routers (more on security in the next section).
One current cloud accounting user notes the benefits of these extra measures:
“[There is] no hassle of dealing with our own servers or hard drives, or paper for that matter. Everything is backed up and we won’t lose it.”
Ease of use is another key benefit cited by 24 percent of users. Ease of use refers to the user-friendliness of the system: the intuitiveness of the interface and the simplicity of data input and output.
Often, ease-of-use is indicative of how quickly users are able to learn a new system. Indeed, in this survey, one user states that their cloud system is “simpler, easier to use, which means easier to train,” than previous accounting methods.
An additional “ease of use” consideration is that cloud-based systems allow for real-time data transfer between small businesses and their accountants/bookkeepers, making it easy for businesses to connect and interact with their financial advisors.
According to Vetter, this real-time data transfer and the automation of tasks that were previously very labor intensive is a major benefit associated with cloud-platforms.
For accountants, specifically, this frees up much of their time to provide additional value-added services as advisors—rather than being bogged down by data entry and having no time for analysis.
Security Still A Concern—but Dropped By Nearly 20%
This year, “security of data” remains respondents’ top concern about adopting cloud-based accounting solutions, cited by 28 percent.
However, this number is down nearly 20 percent from last year’s study, where 46 percent of respondents named security as their main concern.
This decrease shows us that there is a marked decline in the fear and mistrust surrounding cloud-based accounting. Small-business buyers are growing more confident in the security of data hosted in the cloud.
Top Concerns With Cloud Accounting Software
According to Xero’s Vetter, the reduced concern surrounding cloud security is indicative of a much larger generational shift:
“As more and more millennials make up a greater percentage of the workforce, they do not have the same concerns as professionals that did not grow up with the cloud. This generation is used to everything being mobile and accessible, their point of reference is different which changes their fear factor of data being in the cloud.”
Amy Vetter, global vice president of education and head of accounting at Xero USA
BCG & Company’s Brockman says that, as consumers start to get more comfortable using the cloud to handle sensitive data in their personal lives (such as with online banking), they’re also starting to get more comfortable hosting business accounting in the cloud.
Brockman adds that his firm tries to educate clients on how cloud-based vendors can afford to provide significantly more, from a security standpoint, than what a small business can do for itself.
“It’s economically almost impossible to build the same kind of infrastructure and have the same kind of security in place, and then to maintain that from a cost standpoint for a small business,” he explains.
As previously mentioned, cloud providers use multi-level data encryption, numerous firewalls and are diligent in staying current with legislation surrounding data security. What’s more, vendors typically have intricate disaster recovery procedures in place, where they can utilize offsite backups and redundant systems ensuring maximum uptime and reliability.
In this way, small businesses with more limited financial means are better off relying on the security, backups and data-recovery abilities provided by cloud vendors.
After security, 21 percent of respondents say “ease of use” is a main concern, while 16 percent worry about learning a new system. However, Brockman counters that these concerns aren’t specific to cloud systems, but rather apply to any system overhaul—including systems that are deployed on-premise.
Prior to purchasing a new system, buyers are encouraged to demo accounting products to make sure they like the interface and read user reviews to see what others are saying about its ease of use and support options.
As vendors typically offer multiple options for support (phone, online case submission, user forums and FAQs), prospective buyers can vet products and choose a platform with support options to match their individual business needs.
Additionally, Brockman advises small businesses considering changing their accounting platform to work closely with consultants and implementation specialists who are familiar both with the software and with the needs of the business. This can provide the best possible support for businesses moving to the cloud.
High Confidence in Security, Reliability of Cloud Solutions
Drilling deeper into buyers’ perspectives, we asked respondents to rank their levels of confidence in the security, safety and reliability of hosting their accounting data in the cloud.
- 46 percent are “very” to “extremely confident” in the security and safety of data hosted in the cloud.
- 49 percent are “very” to “extremely confident” in the reliability of cloud-based accounting software.
- The largest percentage of respondents report having “moderate” confidence in both the reliability (37 percent) and security (35 percent) of a cloud-based platform.
Security of Cloud Accounting Software: SMB Confidence Levels
Reliability of Cloud Accounting Software: SMB Confidence Levels
The numbers of respondents with little or no confidence fell since last year’s study, as well. (Note that in this survey, we broke “reliability” and “safety” into two separate questions).
In 2014, roughly 40 percent, combined, were minimally or “not at all confident” in the reliability and safety of cloud systems.
In 2015, this number has dropped by nearly half: Less than 20 percent of respondents, combined, report low levels of confidence in the safety and reliability of cloud-based accounting software.
Most Would Consider Future Investment in Cloud Accounting
In 2015, respondents are much more inclined to consider future investments in cloud-based accounting software than they were in 2014:
- 36 percent are “very” to “extremely likely” (compared to just 16 percent in 2014)
- 34 percent say they are “moderately likely” to move to the cloud
- 30 percent say they are “minimally” or “not at all likely” to use cloud solutions in the future (down from 47 percent in 2014)
Likelihood of Adopting Cloud Accounting Software
These findings show that the tide is turning: There is huge potential in the small-business cloud accounting software market as user adoption rates continue to increase.
Indeed, even industry leaders such as Intuit and Microsoft recently made significant proclamations regarding their cloud-based offerings:
- Intuit reports that, for the first time, more new customers chose QuickBooks Online over Quickbooks Desktop.
- Microsoft announces that its upcoming release of Microsoft Dynamics AX (an ERP offering with strong accounting capabilities) will be solely offered as a cloud-based solution.
Brockman notes that, while business needs will vary, in many cases it is more cost-effective and efficient for small businesses to opt for a cloud vs. an on-premise option.
“When you look at all the potential costs—not just the initial upfront costs, but the ongoing costs and expenses in especially the infrastructure—it probably makes more sense to go with the cloud version. Especially for small businesses, you can get a lot more bang for your buck.”
Dave Brockman, Co-founder and managing partner for BCG & Company
The results of our survey suggest that small businesses are increasingly investing in and benefiting from cloud-based accounting solutions.
While data security remains a chief concern, in many cases it appears unjustified. Small businesses using cloud-based accounting solutions actually report an increase in the safety and security of their data, over other accounting methods.
Small businesses considering a cloud-based accounting platform should keep the following benefits in mind:
- The scalability and flexibility of cloud-based solutions
- The upfront cost savings associated with subscription licensing
- Real-time data transfer, security and support
We screened our sample to only include respondents who work for small businesses (with $100 million or less in annual revenue) and who are actively involved in the day-to-day accounting/bookkeeping needs of the business.
Among respondents, 53 percent work for businesses with 50 or less employees. The largest percentage of respondents work for businesses making less than $1 million in annual revenue.
By Number of Employees: Respondents’ Business Size
By Annual Revenue: Respondents’ Business Size
Additionally, the majority of respondents are employed full-time (76 percent), with 16 percent of respondents being self-employed. The largest percentage of respondents are between the ages of 26 and 35 (54 percent).
Respondents By Employment Status
Respondents By Age
The detailed methodology for this report can be found here.
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