'Cloud' computing is all silver lining for small businesses (and their accountants, too)

It's been a 30-plus-year technology evolution from the accounting machines made popular by such companies as NCR and Burroughs, to the debut of the PC and, ultimately, to this decade's rising popularity of remotely hosted applications.

That approach goes by a number of acronyms, including ASP (application service provider), SaaS (software as a service) and, most recently, cloud computing. While all three involve using an application remotely, there are subtle, but real, differences.

Cloud-based computing is an extension of SaaS. Rather than hosting the client and their data on a specific fixed server, the application provider often has multiple servers in multiple locations, and a user can be actually operating on different computers every time they call.

According to Dr. Chandra Bhansali, chief executive of Hauppauge, N.Y.-based AccountantsWorld, one of the earliest providers of Web-based accountant-oriented applications, "This is the time where accountants are starting to see the promise of cloud computing. The most important benefit the Internet brings is collaboration. There is no other profession where the client works so closely with the service provider."

A FIT FOR SMALL BIZ

The burgeoning remote trend has become especially appealing to small businesses that often lack the IT resources of their larger counterparts.

For Penny Banker-Mertz, EA, proprietor of Penny Banker Tax & Financial in Bay City, Texas, being able to work remotely, and with clients that also sometimes need the same remote capability, is a big plus. She uses AccountantsWorld's Accounting Relief product. "I can review accounting from anywhere I have a high-speed connection. I don't have to be tied to my office. Some of my clients who are also self-employed like this feature as well."

Randy Johnston, executive vice president at technology consultancy K2 Enterprises, described computing in the cloud as essentially running the application on a virtual machine. "It doesn't much matter exactly where the computer is located." he explained. "It could be running on an in-house server or on one located half-way across the planet. To the person using the accounting application, there's no way to tell; the application runs exactly the same."

This accessibility is important to many small business users. For example, Phil Phifer, president and chief executive of fast-growing TireVan, a tire installer in Sterling, Va., has a staff that needs to access their accounting system from multiple locations. One of the reasons that TireVan went with NetSuite was that ability. "It has just made it so much easier for us, that we can access [NetSuite] from many different places."

Gil Cabrera, Esq., of San Diego-based The Cabrera Firm, also likes the freedom of not having to be in the office to perform accounting functions. "The biggest benefit is being able to access all of my books from any location. That is a huge time-saver and I can input expenses or deposits immediately."

That's one of the attractions of cloud-based accounting, according to Daniel Druker, senior vice president of marketing and business development at online applications provider Intacct: "A small business can always stay on top of their financials - which is particularly important in the downturn."

Accessibility, while important, is far from the only attraction that computing in the cloud provides. Scalability, savings on infrastructure, and security are also frequently cited among the benefits of this approach.

COMPLIANCE CONCERNS

Compliance can also weigh heavily when pondering a move to cloud-based accounting.

Cover-All Technologies Inc., a software developer for the property and casualty insurance market based in Fairfield, N.J., switched from Great Plains to NetSuite. "We are publicly held, so we also needed to address the issue of SOX compliance and internal controls," said chief financial officer Ann Massey.

Because vendors such as Intacct, NetSuite, MySAS, and others have some very large public companies as clients, and these companies need to be compliant with a variety of compliance requirements, including Sarbanes-Oxley and COBRA, some Internet-based accounting systems are actually as or more secure and have equal or better internal controls than similar in-house based software.

Savings on infrastructure is another large benefit. Richard Oppenheim, CPA, CITP, and a principal of Columbine. Colo.-based consulting firm The Oppenheim Group, said, "The real advantage [is that] the computing power is available, when, if and as needed. You don't have to have all of the hardware, software, electrical outlets, air conditioning and required space."

SECURITY BENEFITS

James C. Bourke, CPA, CITP and a partner at WithumSmith+Brown pointed out that cloud accounting can offer some real security benefits. Many small and midsized businesses don't really know how, or have the resources, to implement and maintain good physical and access security. Bourke feels that the major Internet application providers offer higher levels of security. "I believe that these vendors have the resources. These vendors are in this business - that is what they do."

Oppenheim agreed. "I think there is more security in a cloud environment than there is in any accountant's personal server farm. [The Internet application provider] will have better IT people at every level, from the coders, programmers and operators, to the managers."

CAUTION SIGNALS

Loss of ownership of client and company data head the list of potential downsides to cloud computing.

However, K2's Johnston has a solution. "Instead of backing up into the cloud, why not simply perform the backup to an in-house server or PC as well?"

TireVan's Phifer has another concern, though he admits it isn't enough to sour him on using his Internet-based provider. "The one material disadvantage to cloud-based computing is the way it's priced. Almost all the vendors are doing seat-based pricing ... . The problem with this approach is that the value to the business is not the same, seat to seat to seat. It's very valuable for an accounting professional doing payables and receivables to have access to the accounting system. But for a customer order person or an outside salesman, who does not need to access the application very much, it might not be worth as much for me to pay for his seat. But as a smaller business, when we started off with NetSuite, it was a material financial difference having five seats versus 10. So we had to think very clearly about who was (and is) going to get access."

(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.

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