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Big Savings or Ponzi Cloud?

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While the offer of up to a 30 percent reduction in some cloud service provider fees may sound attractive, firms need to consider the risks that may be at play here and ask the right questions.

For one, can you get your money back if the provider doesn’t deliver on promised service levels? You need to first read the service level agreement to make sure it provides guarantees on service levels that matter. Also, make sure there’s a way to get your money back if not.

Another thing to find out from your cloud provider is if the SLAs provides an “uptime” guarantee of your applications or just for the servers they run on. Know that there’s a huge difference between the two. Who cares if the server is up if you can’t run your tax program?

Next, find out what experience your peers have had in working with the cloud provider.

Check those references and, more importantly, be sure to speak with at least two of their similarly sized clients who run the same tax, audit, document management, and practice management applications as your firm.

Here are some specific references to ask for:

  • A firm that has renewed an annual or multi-year contract with the cloud provider,
  • A firm that has transitioned into their cloud environment within the last 60 days;
  • A client who has had a rough time in the cloud. If they are hesitant in answering this, it may be an indication they are hiding something. After all, we’ve all had a client where things didn’t go well.

Moving on, find out how does the provider uses those upfront fees. Ideally your funds should be are squirreled away with your name on them so that the provider has operating capital available when it becomes necessary to upgrade the backend of your environment; SANs, servers, and people are expensive.

Let’s face it, building a business on-the-come has a certain Vegas ring to it doesn’t it?. Sure, it sounds exciting until the snowball quits rolling. When new sales slow down the cost of running the day to day hosting operations does not.

For most cloud service providers, breaking even comes more than a year into a service contract, which means that the business must be well capitalized in order to bring on new business. So while 12 months of payments in advance would certainly enable the provider to grow more rapidly, it also comes with the responsibility of integrity and discipline to ensure long-term business viability and sustainability.

Moving your firm to the cloud could be the single most positive and impactful technology and cultural change your firm has ever experienced. Doing some sound diligence will make sure you’re not signing up with a provider that ends up folding like a house of cards.

Trey James is the co-founder and CEO of Xcentric, which specializes in cloud computing and IT consulting for CPA firms. He can be reached at tjames@xcentric.com. 

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