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With many clients considering their accounting software options and as online business accounting software is becoming more popular than ever we have provided below an overview of the pros and cons of moving towards a 'cloud' based product and comparisons between the 3 cloud generations available.

General benefits of moving to online accounting products

  • Ability to share the file in real time with your accountant
  • No requirement to send your data files to your accountant at year end
  • No requirement to maintain backups of your company file
  • Access your data file on any computer anywhere anytime*
  • Access your data on mobile devices, for example on the spot invoicing
  • No need for you to upgrade or update the accounting software, all updates are handled by the vendor*

Some of the drawbacks of online accounting

  • Data is stored by and remains the property of the software vendor
  • If you change cloud vendors, extracting data out of a current cloud product is cumbersome
  • Security concerns - assurance that no-one else has access to the data file
  • Data privacy concerns, such as who can access the data without your knowledge (ATO, ASIC, foreign governments etc).

There are 3 major vendors in the Australian accounting software market being MYOB, QuickBooks and Xero. All offer "cloud" or "online" general ledger accounting software. Each vendor's software falls into one of 3 cloud generations and these generations differ very much from each other.

1st Generation

1st generation cloud products are an internet browser only based product. You only need a browser such as Microsoft Internet Explorer or Apple's Safari browser to access the software. Other browsers such as Google's Chrome and Mozilla Firefox also work with 1st generation cloud products. No extra software installation is required and costs are usually based on a monthly subscription. All of your accounting data is held in the cloud and there is no requirement for you to backup or manage an accounting file or handle the process of sending the file to your accountant. The accountant simply logs into your file in the cloud.

Examples of 1st generation cloud products are Xero and MYOB's Live Accounts. Xero offers packages to suit businesses large and small. MYOB Live Accounts is focussed on sole traders or smaller businesses that have outgrown the shoebox.

Advantages of 1st Generation

  • Access to your accounting files from any computer anywhere in the world and at any time
  • Once approved and setup your bank statements can be automatically imported into the file and coded to the correct account
  • All updates to the back-end of the product are performed by the vendor during windows maintenance
  • Multiple users can access the file at the same time and changes are updated in real-time

Disadvantages of 1st Generation

  • Unable to access the accounting file if there is no internet connection
  • Some features may not exist in 1st generation products that may exist in desktop based or full featured products
  • Support is usually business hours only

2nd Generation

2nd generation cloud products are a server based product requiring you to "login" to a remote server and access your file. There is only one vendor with this offering being Reckon with their QuickBooks hosted product. These products also require a browser to access the remote server and a small software installation is required to complete the connection. Costs are usually an upfront annual charge or a monthly subscription. Again all your accounting data is held in the cloud and there is no requirement to backup or manage the accounting file.

Advantages of 2nd Generation

  • You are using the same product you would if you purchased a boxed QuickBooks product off the shelf; it's just that it is hosted for you in the cloud.
  • You gain the speed of desktop installed access (without actually installing the product); all updates to the product are performed by the vendor in the background.

Disadvantages of 2nd Generation

  • As with 1st generation products the major disadvantage is if your internet goes down you do not have access to your file.
  • Only one user can access the file at one time unless you pay for a higher edition of the software. E.g. purchasing QuickBooks's Premier (as it always has been).
  • Support is usually business hours only.

3rd Generation

3rd generation cloud products offer a product that is installed on your computer. A full installation of the product is required and all updates to the product are your responsibility. A browser is required for this model but only for management of your account and is not required to access your file. Costs are usually an upfront cost plus a monthly subscription. All your accounting data is held in the cloud and there is no requirement to backup or manage the accounting file.

MYOB and their AccountRight Live product is the only vendor that has implemented this model for its online solution. Currently AccountRight Live offers Basic, Standard and Plus editions for different sized businesses.

Advantages of 3rd Generation

  • The speed of desktop processing, ability to choose to work online or offline and you do not need constant access to the internet
  • If you lose internet access a 'local' copy of the file is maintained and re-synchronises back to the cloud once internet access has been restored. This also means you can check-out your file and continue to work on it if, for example, you were taking your laptop on holiday with you and know you will not have access to the internet during that time, but still want to access your accounting file.
  • Your bank statements are automatically imported and coded as with 1st generation products.
  • Multiple users can access the file at the same time and changes are updated in real-time.
  • You also benefit from 24/7 vendor support.

Disadvantages of 3rd Generation

  • Desktop software must be installed to use the product
  • Updates to the product are your responsibility.

Cloud products are not for every business. If you currently use MYOB's M-Powered services or AccountRight Premier or Premier Enterprise you cannot upgrade to the cloud products as these editions are still under development, scheduled for release in mid-2013.

If you are a small to medium sized business and are interested in the time saving benefits of online accounting – a cloud product may suit your needs.

If you would like any further information on online accounting please contact our office.


* Excluding 3rd Generation

This article was published in the Summer 2012 Horizon. For a pdf version of the newsletter please click here.