Financial Advisory Blog

Armanino’s Financial Advisory blog is your source for thought leadership around cloud ERP and accounting solutions and integrations. Supported by the Cloud Accounting Institute and numerous experts in cloud, finance, reporting, integration, compliance, and technology, Armanino’s Financial Advisory blog features must-read content on what’s happening in the finance industry, case studies, white papers, and much more.

November 26, 2012

Cloud Accounting Brightens the Outlook on a Gloomy Economy

Posted by Lindy Antonelli

Cloud Accounting Fiscal Cliff The end of the fiscal year is approaching—the time when many companies finally pull the trigger on IT purchases from their fiscal year budget.  This year decisions are being made amid the fear, uncertainty, and doubt generated by the “fiscal cliff,” the tax changes and program cuts that will automatically go into effect if Congress and the White House do not reach an agreement on policies for deficit reduction.

According to an article in The Wall Street Journal, “The fiscal cliff would raise taxes roughly by $400 billion and cut spending by roughly $100 billion in 2013 compared with 2012 levels. Several economists say the measures would cause another recession.” The article, aptly titled “Business Leaders Spooked by Fiscal Cliff,” shows that the general uncertainty as to the outcome is already causing many businesses to put investments on hold.

Of course, the prudent thing to do in a potentially recessionary environment is to buy something only if it helps you save or make money. In this case, with the clock ticking both for your own IT budget and for the deficit reduction showdown in Congress, decisions have to be made before the end of the year. So ask yourself: will the accounting or financial management system I am considering eliminate expenses? Will it help me prosper?

Cloud or software-as-a-service (SaaS) solutions help you save money because they have a lower total cost of ownership (TCO) than on-premise solutions.  Let’s look first at the expenses you eliminate with a SaaS solution simply because of the delivery method, compared to an on-premise solution:

  • No upfront capital expenditures; instead, a low usage-based subscription fee
  • No hardware investments required: no servers, storage units, routers, etc. to buy or upgrade; no data center and consequently no data center staffing
  • No long-term software contracts or vendor lock-in
  • No annual maintenance fees
  • Frequent upgrades in functionality without paying a consultant to integrate the upgrades into your existing software set-up. Notably, when the tax rules do change, SaaS vendors will implement the changes with no extra charge to you, and no customizations or new purchases required on your part. Given the complexity of the tax code and the many differences across taxing entities, this is really the least expensive way to remain in compliance, whatever happens.

Other common drivers that cause companies to move from on-premise solutions to the cloud include:

  • The expense, cost and time involved in customizing on-premise applications
  • More timely upgrade cycle for new functionality (~ 2 years for on-premise vendors vs. ~ every quarter for cloud vendors)
  • The need for integration between disparate systems
  • The burden on IT of routine hardware/software maintenance (~7% of the cost of an on-premise solution) and performance tuning
  • The requirement for remote access or mobile deployment. SaaS applications are built for Internet delivery, unlike on-premise solutions

If you are still on QuickBooks or a comparable entry-level desktop system, moving to a cloud-based system also helps you control headcount (and the attendant payroll taxes, healthcare and other benefits). The lack of integration between QuickBooks, for example, and operational systems or databases means that you typically have to pay for:

  • Duplicate data entry and time-consuming manual processes
  • Creation and maintenance of error-prone spreadsheet reports
  • Lengthy consolidations and closing cycles

Such labor-intensive processes keep your staff so busy with routine tasks such as invoicing and reconciliations that they do not have time take on higher-value analyses of your business needs and opportunities. The bigger your business is or the faster you grow, the more headcount you need just to keep up with routine bookkeeping and reporting.

Staying on QuickBooks instead of upgrading may seem like the most prudent choice from a cost perspective because you are not buying anything. However, it means limiting yourself to seeing your business in the rear-view window when you could be looking at a dashboard that provides real-time visibility into operations and real-time tracking and analysis of your key performance indicators. In uncertain times, you need this most of all. It will help you prosper, whatever business conditions you meet.  Cloud is moving the Finance Organization from writing their history book to writing their playbook.

There is one last benefit that only a cloud or SaaS solution can give you: scalability. The future is not ours to know. Recessions come and go; opportunities are sometimes short-lived; operations may expand in one territory while shrinking in another; local markets can go global. Cloud or SaaS applications let you adapt by adjusting user licenses up or down on short notice; you pay only for what you use. If you decide to open an office in China, for example, your employee(s) there will need only a browser session to share your financial applications—just like your employees anywhere else in the world. Flexibility like that is priceless.

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