[IMGCAP(1)]If you haven’t noticed, there’s been an apparent rush to “get to the cloud” but as cloud implementers, we constantly meet clients that are hesitant to move to the cloud for their sales, financial reporting, customer service or a myriad of other functions.

We’ve observed a number of psychological barriers to the cloud. What’s more, these same barriers exist with their advisors, including management consultants, investment bankers, private equity groups, outsourced CFOs and attorneys. Many advisors don’t have a good working knowledge of the cloud, let alone its benefits and risks.

For most, moving to the cloud means that instead of maintaining their own hardware and software programs in-house, they are outsourcing those functions to someone else and accessing them via a Web browser.

As many are aware, cloud computing isn’t new, it’s just being used for more functions these days. I find it interesting how comfortable business owners are using Google Apps, banking online or even sharing intimate details of their personal lives on social networking sites. There’s a ton of sensitive and personal information floating around the Internet, and most business owners don’t give it a second thought. 

But when it comes to business information, the mindset is completely different.  So why is that?

Business owners understand their business decisions impact many individuals, not just themselves, therefore they are more cautious in their approach to the adoption of the cloud for business applications. They want to stick a toe in before making the full leap.

There is also a correlation between the age of the business owner and cloud adoption. Older business owners have more hesitation and doubt than young ones. Members of the Internet generation don’t believe there’s any other way to do business than through the connected life that is possible with their tablets and smartphones.

However, even within the younger demographic, psychological barriers exist, and for good reason.  Migration to the cloud generates as many questions as it does answers, especially in regards to business data:  Who owns it; who has access to it; where is it; and what happens when the relationship with the cloud provider ends?

Clearing the Uncertainty

Without the aid and counsel of a cloud-savvy advisor, a business owner may struggle to overcome the psychological fear factor and risk being left in technology’s dust. Advisors are in a position to help them evaluate cloud vendors and advisors should be familiar with cloud computing issues. 

In general, a good cloud provider:

Will be there the next day. There is little a company can do if a cloud provider closes shop or fails to pay its data center bills. Advisors should ask to review the financial statements of all potential cloud providers, under a Non-Disclosure Agreement if necessary, to determine risk.

Has hundreds, if not thousands, of customers and a track record that can be verified.  Advisors should speak not only with the references provided, but also with other companies that are known to use the service.  These non-vendor-provided references usually  offer a more accurate depiction of how the vendor operates, what it does well and where it needs improvement. 

Effectively handles the outsourced operations. These operations include security, scalability, availability, data replication, backup, disaster recovery, process integrity, compliance and regulatory controls.  A good cloud provider will invest heavily in these areas to prevent potential service issues, security breaches or compliance shortfalls. They will also document and audit these processes and safeguards in the form of a Service Organization Control (SOC) report and other compliance assessments. SOC  1, 2 and 3 reports are prepared by an independent CPA firm and should be readily available for SaaS vendors to provide to prospective customers.  Advisors should ask to review these reports, the absence of which should immediately raise a red flag. Advisors should also closely evaluate reports and advise clients about their quality and adequacy.

Maintains well-defined Terms of Service. Advisors can help their clients gain comfort in migrating to the cloud by reviewing and negotiating a vendor’s Terms of Service (TOS) or Service Level Agreement(SLA). Ensure that key points of importance are put in writing, especially in the following areas:

  • Privacy and data security: This is a primary concern for business owners.  Advisors should review the TOS along with any SOC reports to gain comfort in the vendor’s safeguards.  The TOS should mirror the findings in the SOC reports.  If not, make sure to understand the reason for the discrepancy. 
  • Data ownership:The TOS should spell out clearly who owns the data.
  • Jurisdictional issues:  Advisors should know where their client’s data is stored.  If data is physically stored offshore, can it be seized by a foreign government?  Where is the court of domicile? Answers to these questions need to be clearly defined in the TOS. 
  • Maintenance and support: The TOS should spell out what will happen and when, including when the system will be upgraded to comply with new laws or financial reporting regulations.
  • Availability and reliability: The TOS should define the service level commitments (SLC) and what recourse, if any, the client has if they are not met. Can the client terminate the agreement if the cloud provider is not performing? What assistance, if any, is the cloud provider obligated to provide for the transition?
  • Disaster recovery: Disaster recovery should be covered in the TOS, but it is not always part of the standard agreement. Lots of pop-up cloud providers don’t have secondary data centers and back-up server farm locations. Again, the cloud provider’s TOS should mirror its SOC reports.
  • Exit strategy. The TOS should explain how the exit process will happen.  Who is going to extract data?  How will it be accessed? What format will the data come in and what is the time frame for access?  Who pays for the exit work?

In summary

Many business owners need guidance to navigate a move to the cloud. With sound advice and an understanding that they have already been using the cloud via Facebook, Netflix or bank of choice, they can overcome the barriers both real and psychological and reap the benefits of moving their business data to the cloud. An advisor who understands the questions to ask and terms to negotiate will not only continue to prove their value, but also help ensure the client does not suffer losses to the competition by maintaining the status quo.

About the author

Jeremy King is the national cloud solutions practice leader for Hein & Associates, a full service audit, tax and advisory firm. He specializes in the implementation and support of cloud solutions, for which his broad financial background and hands-on experience as both a CFO and COO offers him a unique, user-driven perspective.  For further questions contact Jeremy at jking@heincpa.com.

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