Are you tired of managing your business finances using traditional accounting methods? It’s time to switch to cloud accounting. Cloud accounting is a revolutionary AI-based technology that’s been gaining popularity among SaaS finance leaders. It’s a game-changer for software companies and can benefit businesses of all sizes.
In this post, we cover everything you need to know about SaaS cloud accounting–from understanding the basics to unveiling its benefits for your business and more. We’ll also discuss what to look for when choosing cloud accounting software and how it can transform your business operations. Let’s get started.
Cloud Computing Explained: Getting Acquainted with Cloud Software
When data is kept in the cloud, it’s stored in data lakes on the internet rather than being hosted on-premises. This is made possible by the cloud computing architecture, which includes the essential components and sub-components necessary for cloud services. This means that as long as you have an internet connection, you can access your financial data through a web browser or mobile app.
This helps SaaS organizations protect against data access interruptions and keeps things flowing smoothly in your department. Cloud-based data lakes are more secure than onsite data silos, and automatic backups simplify the disaster recovery process if something happens to your data.
By centralizing company data with a single source of truth (SSOT), cloud software also enhances team collaboration, boosting the quality of everyone’s contributions.
What is Cloud Computing?
Cloud computing refers to the technology that allows users to access and utilize computing resources, such as data storage, processing power, and applications, over the internet. Instead of relying on local hardware and infrastructure, cloud computing enables businesses to store, manage, and process data remotely. This shift to remote data management offers several advantages, including on-demand access to computing resources, enhanced scalability, increased flexibility, and significant cost savings.
By leveraging cloud computing, organizations can reduce their dependency on physical data centers and local servers. This not only minimizes the need for substantial upfront investments in hardware but also allows businesses to scale their operations seamlessly as they grow. Whether it’s expanding data storage capacity or increasing computing power, cloud computing provides the agility needed to adapt to changing business demands.
Defining cloud accounting
Cloud accounting involves using cloud-based software to manage your company’s financial operations and subscription-related business processes. Unlike traditional accounting methods, cloud accounting stores data on remote servers. Cloud accounting leverages various cloud computing services, such as Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS), to provide comprehensive financial management solutions. This allows for multi-user access and real-time collaboration, making it easier for teams to work together efficiently.
Cloud accounting suites securely store and back up your financial records, ensuring their safety and recoverability. With cloud solutions, software updates and maintenance are handled automatically by the software provider, saving you time, cost, and hassle.
In terms of the underlying technology that finance leaders use, there have been two ” accounting revolutions” over the last 45 years. The first occurred with the creation of spreadsheet accounting software in 1978 (ancient history, right?). The second revolutionary event was the invention of cloud accounting software powered by AI and machine learning (ML). Let’s see why it’s made such an impact.
Types of Cloud Computing
Cloud computing comes in various forms, each catering to different business needs and preferences. The three primary types of cloud computing are public, private, and hybrid clouds.
- Public Cloud: Public clouds are cloud computing environments that are open to the general public and owned by third-party providers. These providers, such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP), offer a wide range of cloud services to businesses of all sizes. Public clouds are known for their scalability, cost-effectiveness, and ease of use, making them an attractive option for many organizations.
- Private Cloud: A private cloud is a cloud computing environment dedicated to a single organization. Typically hosted on-premises or in a private data center, private clouds offer greater control and security compared to public clouds. They are ideal for businesses with stringent security requirements or those that need to comply with specific regulatory standards.
- Hybrid Cloud: Hybrid clouds combine the best of both public and private clouds. By integrating public and private cloud services, hybrid clouds offer the benefits of scalability, flexibility, and cost savings while maintaining a higher level of control and security. This approach allows businesses to optimize their cloud strategy by leveraging the strengths of both cloud environments.
Key differences between legacy and cloud accounting
Below are some of the most significant differences between manual accounting software and cloud-based solutions. As a CFO, you’ll probably find that each one directly applies to your career. Cloud accounting solutions often provide users with control over their operating systems within a managed infrastructure, simplifying the management of financial data.
- Error rates: Manual accounting produces more errors than automated workflows. This extends across payroll, accounts receivable, financial reporting, and other essential functions. That’s bound to happen when data is spread out among teams, and reports and forecasts are cobbled together via email chains instead of centrally assembled.
- Inter-departmental support: With automation, other stakeholders can access all the data they need to make informed choices. Sales, marketing, and customer success teams perform better with instant access to the information they need, like adoption rates, user trends, segmentation data, and more.
- Board reporting functionality: There’s one thing every CFO loves–when a board meeting goes perfectly. With spreadsheet-based accounting, that’s a coin toss at the very best. Accounting automation improves board meetingswith role-based dashboards and detailed visuals, allowing you to weave a financial narrative rather than just present data.
Now, we’ll look at some hidden risks of legacy SaaS accounting that might’ve slipped under your radar.
The value of a cloud accounting system for SaaS finance
Cloud-based accounting software is vital in helping SaaS companies manage cash coming in and going out. A cloud provider’s infrastructure ensures that your financial data is securely stored and easily accessible, reducing the burden on your IT department. Every aspect of modern cloud accounting improves financial visibility–from SaaS metrics integration to deferred revenue burn down readouts, role-based dashboards, and more.
As a SaaS CFO, maximizing your operational visibility has ramifications for every area of your performance. But two of the most important are streamlining business growth and optimizing financial planning and analysis (FP&A). Let’s review the cloud’s impact on both of those areas.
How cloud solutions unlock pain-free SaaS growth
For SaaS companies, scaling effectively can be a tricky balancing act. When it comes to growth initiatives, business leaders sometimes develop a “lead foot” and slam the accelerator for all they’re worth. There’s a catch to this approach, however.
A reliable cloud service provider can help your organization scale efficiently by managing the necessary infrastructure and providing scalable computing resources.
Manual accounting suites don’t offer dynamic scaling functionality. In other words, when you rely on spreadsheets, everything might run perfectly when you have 10,000 customers. But as you continue to grow–and especially if your company experiences a sudden surge in signups–your accounting software’s performance will start to suffer.
By contrast, organizations that leverage cloud-based automation streamline both aspects of corporate growth: speed and sustainability. Here’s how cloud accounting achieves that:
- AI enables companies to scale faster: Accounting software equipped with AI and ML increases your company’s efficiency and strategic effectiveness, significantly speeding the growth process. With optimized cash flow management and automated budgeting, you can set goals intelligently and reach them successfully. Automation also improves the quality of your customer service through touchless invoices,
- Automation unlocks strategically sustainable growth: Cloud accounting software can seamlessly accommodate user growth thanks to its dynamic scaling capabilities. Your department’s key processes and workflows will go just as smoothly with 100K users as they will with 10,000. That holds true in reverse as well if you happen to run into tough times and need to scale down.
In addition to improving your organization’s ability to scale gracefully at speed, AI is a game-changer for FP&A. Let’s see why.
Why cloud accounting gives SaaS FP&A a jolt
Moving away from legacy tech is one of the best ways to enhance your FP&A. FP&A is all about guaranteeing revenue for your business–and it’s really hard to do that with outdated tools.
Cloud accounting solutions leverage a robust underlying infrastructure to provide real-time financial visibility and streamline financial planning processes.
Some of FP&A’s essential components for SaaS companies include forecasting, budgeting, pricing, and billing analysis.
Let’s briefly review the impact of cloud accounting on each of those areas.
Automation unlocks beginning-to-end improvements in forecasting
Cloud planning software streamlines every step of the forecasting process. We’ll break it into three major pieces: beginning, middle, and end.
The operating system in cloud accounting software plays a crucial role in managing the forecasting process, ensuring accuracy and efficiency.
First comes forecast assembly. Instead of cobbling forecasts together from emailed spreadsheet attachments, you just plug in your centrally accessible data and click a button. This saves time and money, but just as importantly, it prevents manual errors from creeping into your forecasts.
Next is the middle phase. Manual forecasting is a one-shot deal, meaning you run your forecast and obtain your results. That’s it. But cloud solutions with machine learning (ML) can create dynamic forecast models. In other words, you can create models that shift to reflect the changes occurring around you. This eliminates a tremendous amount of lag in your FP&A, allowing you to respond to threats and opportunities in real time.
Then comes the final phase–putting your forecast data to use. Manual forecasts are much more limited in range, accuracy, and the flexibility of their scenario planning. Spreadsheet forecasts can’t handle the same number of financial variables as automated software, meaning legacy accounting teams operate with limited information and visibility. AI turns that around.
Why public cloud technology is ideal for effective budgeting and intelligent allocations
Setting your SaaS budget can be tricky. A workable budget requires the input and approval of many people with different priorities and needs. Manual budgeting usually requires endless email chains to get the job done, and your deadline can start barreling down on you before you know it. But even if you hit your deadline, you encounter a new difficulty: staying on target.
Cloud accounting software simplifies the budgeting process for software organizations while delivering more robust and dependable results. Centrally accessible data eliminates the hassle of manual exchanges. And with increased financial visibility into your company’s metrics and performance data, it becomes much easier to make allocations you can be confident in.
Automation software also includes built-in budgeting alerts. So if you deviate from your stated plan, you’ll be made aware of it immediately. If you use traditional accounting software, you might make a budget deviation and not even realize it until it’s already done operational harm in some way.
AI gives you pricing and billing flexibility
For subscription SaaS companies, pricing and billing have a massive impact on logo churn, subscription renewal rates, cross-sells, and account upgrades. Finding the best SaaS pricing strategy for your organization will help you grow quickly and sustainably, whether you’re a small business or a publicly traded company.
Cloud accounting is compatible with all of today’s most popular SaaS billing methods, such as:
- Flat rate pricing
- Feature tiers
- Pay-as-you-go, or usage billing
- Per-user billing
- Hybrid billing models
It’s worth noting that customers expect a frictionless billing experience. Preferably one with multiple payment options like debit and credit, ACH, or third-party apps like PayPal and Amazon Pay. Cloud financial management software facilitates frictionless payments to help you maximize customer convenience and retention.
Let’s get into the day-to-day performance benefits of cloud accounting for SaaS companies.
Operational benefits of hybrid cloud accounting for SaaS organizations
Now we’ll do a deep dive into the operational benefits of cloud accounting for SaaS companies. Understanding the different cloud computing deployment models, such as public, private, and hybrid clouds, can help organizations choose the best approach for their needs. Then we’ll close out with a few quick tips on smoothing the transition to automation and what you should look for in a cloud provider and accounting suite.
Accessibility and flexibility
Cloud accounting offers unparalleled accessibility and flexibility for managing your financial data. With cloud software in your department, you can effortlessly access your financial information from anywhere, at any time. Cloud providers play a crucial role in delivering the accessibility and flexibility that cloud accounting solutions offer, ensuring that your financial data is always available when you need it.
You can easily share financial data with stakeholders for shared interests like budgets, sales and marketing campaigns, and more. Make sure that any product you’re considering is equipped with an SSOT for maximum effectiveness.
Real-time financial visibility
With accounting automation, you gain a real-time view of your company’s financial performance, empowering you to make more profitable business decisions. Depending on the type of cloud computing model you choose, such as IaaS, PaaS, or SaaS, you can gain different levels of control and visibility over your financial data.
Accounting software based on cloud computing offers customizable role-based dashboards. These convenient single-screen views allow you to track your cash flow, SaaS metrics, and monitor expenses in one location. Centralized visibility quickly results in cost savings by allowing your department to pinpoint the exact tasks that need attention, maximizing everyone’s daily contributions.
By utilizing cloud software instead of traditional methods, such as double-entry bookkeeping on a laptop, you can experience a new level of visibility into your organization’s finances.
Efficiency through process automation
Automating tedious and repetitive manual accounting tasks can multiply efficiency, save time, and prevent costly mistakes.
Cloud computing services, such as IaaS and SaaS, enable businesses to automate repetitive tasks and focus on more strategic activities.
Just look around your department, and you’ll find plenty of day-to-day workflows that AI could perform more easily: invoicing, historical reporting, accounts payable and receivable, and many others.
The real benefit of process automation, though, is that it frees you and your team up for more meaningful work. The more collective bandwidth your company has for large-scale strategizing, the better. Let AI handle the number-crunching and pencil-pushing.
Data storage security and streamlined compliance
With cloud accounting software hosted on a remote server, you can reduce the possibility of data loss and business interruptions caused by hardware failures, natural disasters, and other factors.
Cloud accounting solutions also offer advanced encryption technology to secure your sensitive financial data, protecting you from the hefty fines you could incur from a data breach.
Furthermore, these solutions allow you to maintain compliance with ASC 606 and other regulations applicable to companies in the United States and elsewhere.
If an important compliance update affects your business, you’ll receive an automatic notification so you never miss a beat.
Cloud Storage and Analytics
Cloud storage and analytics are essential components of cloud computing, providing businesses with powerful tools to manage and analyze their data.
Cloud Storage: Cloud storage enables organizations to store and manage their data in the cloud, eliminating the need for local storage solutions. This approach offers several benefits, including scalability, flexibility, and cost savings. With cloud storage, businesses can easily scale their storage capacity to meet growing demands, access their data from anywhere at any time, and reduce the costs associated with maintaining physical storage infrastructure.
Cloud Analytics: Cloud analytics refers to the ability to analyze and process data in the cloud. By leveraging cloud-based analytics tools, businesses can gain valuable insights from their data without the need for extensive on-premises infrastructure. Cloud analytics offers scalability, allowing organizations to handle large volumes of data, and flexibility, enabling access to analytics tools from any location. Additionally, cloud analytics can lead to significant cost savings by reducing the need for expensive hardware and software investments.
Generating employee and stakeholder support for cloud accounting
You need to garner employee and stakeholder support to ensure the smoothest possible transition to cloud accounting software. One way to accomplish this is by effectively communicating the benefits of cloud accounting to both parties–a massive jump in operational efficiency, heightened collaboration, and constant access to updated data.
Stakeholders in all departments will benefit from the adoption of cloud accounting. Sales and marketing will have access to all the data they need to shape campaigns that win your market. Customer success can take advantage of user trend and sentiment data to see who’s at risk of churning and proactively reach out. In addition to that, cloud accounting is known to be less technically problematic than legacy accounting, so IT can focus on finding ways to move your company forward instead of troubleshooting all the time.
Highlight the ease of use and time-saving features that will streamline employees’ and stakeholders’ workflows, allowing them to focus on more critical tasks. And be sure to address any concerns about data security by explaining the robust measures that cloud solutions have in place to protect your sensitive information.
Once you’ve generated buy-in at your company, you still need to know what to look for in your ideal accounting tech stack.
Tips for selecting cloud service providers for accounting software
When considering different cloud accounting software vendors, it’s essential to evaluate key features such as invoicing capabilities, cash flow visibility, and third-party integration. Pay close attention to pricing plan options and talk to other stakeholders to establish a budget.
Prioritize scalability to ensure the software can seamlessly expand to meet your company’s needs as you grow. Accounting software is of limited use if you’ll need to replace it in a year or two–or if things really pick up, maybe even sooner than that.
Reading online reviews and considering other users’ experiences helps evaluate the performance reliability of different accounting suites. Lastly, look for software providers that offer free product demos, regular updates, and who have worked extensively with companies whose needs are similar to yours.
Cloud Deployment and Infrastructure
Cloud deployment and infrastructure are critical aspects of implementing and managing cloud computing resources.
Cloud Deployment Models: There are three primary cloud deployment models: public, private, and hybrid clouds. Each model offers unique advantages and is suited to different business needs. Public clouds provide scalability and cost savings, private clouds offer enhanced security and control, and hybrid clouds combine the benefits of both.
Cloud Infrastructure: Cloud infrastructure encompasses the underlying hardware and software components that support cloud computing. This includes servers, storage, networking, and virtualization technologies. Cloud infrastructure is designed to be highly scalable and resilient, ensuring that businesses can rely on robust and flexible computing resources to support their operations.
By understanding the different cloud deployment models and the components of cloud infrastructure, businesses can make informed decisions about how to best leverage cloud computing to meet their needs.
Cloud Computing Challenges
While cloud computing offers numerous benefits, it also presents several challenges that businesses must address to ensure a successful cloud strategy.
- Security: Security is a major concern in cloud computing, as data is stored and processed remotely. Businesses must implement robust security measures to protect their sensitive information from unauthorized access and cyber threats. This includes encryption, access controls, and regular security audits.
- Compliance: Compliance with regulatory requirements is critical for businesses operating in the cloud. Organizations must ensure that their cloud computing practices align with industry standards and legal regulations, such as GDPR, HIPAA, and ASC 606. This involves working closely with cloud service providers to maintain compliance and avoid potential fines and penalties.
- Vendor Lock-in: Vendor lock-in occurs when a business becomes overly dependent on a single cloud provider, making it difficult to switch providers or move data and applications to a different environment. To mitigate this risk, businesses should adopt a multi-cloud strategy, use open standards, and ensure data portability.
By understanding and addressing these challenges, businesses can maximize the benefits of cloud computing while minimizing potential risks. This approach enables organizations to leverage the full potential of cloud technology to drive innovation, efficiency, and growth.
Are you leaping blindly?
The benefits of cloud accounting for SaaS companies are virtually beyond dispute. However, you still need to be on guard against blind reliance. In the business world, this is a complacent mindset that assumes AI is a magic bullet. All you have to do is make a purchase–no planning, forethought, or strategy required.
Unfortunately, this isn’t true. AI is extraordinarily powerful, but it isn’t a magic bullet, and blind reliance can drastically limit your ROI from these technologies. Achieving a successful and secure transition to the cloud isn’t difficult, but it does require you to go into the process with your eyes wide open.
