Cloud accounting: how it works, key benefits, and top platforms

In an industry where flexibility and remote access are increasingly the norm, cloud software has become the go-to technology for forward-thinking accounting firms. Today, roughly 60% of accountants have embraced cloud solutions. But what exactly does that mean? What is cloud accounting, and what do you stand to benefit from it? 

In this article, we’ll explain everything you need to know about cloud accounting and its benefits. We’ll explore how to choose the right cloud accounting software for your practice — and highlight some of the most popular platforms on the market. 

What is cloud accounting?

Excuse the pun, but cloud accounting can seem like a rather nebulous term. So what exactly does it mean? First of all, cloud accounting is fundamentally about technology — and cloud technology in particular. 

Cloud technology enables users to access software, storage, and other computing resources over the internet as a service. Instead of requiring hardware to run software or manage data, all users need to access key systems is an internet connection. 

With this in mind, cloud accounting is simply the use of cloud accounting software (and other cloud services) to run an accounting practice. 

How does cloud accounting software differ from traditional accounting software?

There are several key differences between cloud accounting and traditional accounting software. These differences affect the way software is accessed, maintained, and paid for. Here are two key examples.

Hosting and access

The most important difference is how the two types of software are hosted and accessed. Cloud software is hosted by third-party software providers and accessed through a web browser or app. Compare this with traditional accounting software, which is installed on individual devices or local networks. 

For cloud accounting software, the internet is your key to accessing and using it. For traditional accounting software, you access it through your own hardware. This has important implications for maintenance, scalability, and security, which we’ll cover in more detail in the next section. 

Ownership and payment

Cloud software is typically purchased on a subscription basis. This model is known as software as a service, or SaaS for short. In this model, accounting practices pay a recurring fee to access the platform. Any updates, fixes, or improvements and made automatically by the software provider.

Traditional software, on the other hand, is typically purchased with a one-time license fee. Unlike cloud software, you own the software outright. If you want to upgrade it or fix any bugs, you may have to pay extra for a new version.

Let’s illustrate these differences with an analogy. If cloud accounting software is like Netflix, traditional accounting software is like a DVD. To use Netflix, you just need a device connected to the internet. To play a DVD, you need technical infrastructure to run it (a DVD player), which you are responsible for maintaining and fixing. 

Just as people prefer the seamless access and hassle-free service that Netflix offers, accounting firms are increasingly switching to cloud-based accounting and bookkeeping software. 

The key benefits of cloud accounting

Cloud accounting offers a range of advantages for modern accounting firms. It enables them to rethink the way they hire, operate, and scale. Here are some key examples:

Seamless access on any device

In recent years, remote work has gone from a perk to an expectation. Today, more than half (54%) of accounting and finance professionals operate on a hybrid basis, splitting their time between the office and home.  

Cloud accounting software enables seamless access for remote and hybrid teams. As long as a user has an internet connection and permission to use the software, they can access it on any device, anywhere, and at any time. If their device breaks, no data or software is lost. 

This is a game-changer for modern accounting firms. When recruiting new staff, they are no longer constrained geographically. Instead of requiring enough office space to house their entire team, they can operate with smaller office spaces, virtual offices, and lower overheads.

Access to real-time data

Because cloud accounting systems are constantly updated, accountants get access to real-time data. When they view financial information, track cash flow, or manage budgets, they can rest assured that the data they are seeing is current and accurate. 

From an analytics perspective, cloud software provides real-time data insights. This enables accountants and business leaders to make smarter decisions.

Cost-efficiency

Cloud accounting software operates on a subscription basis. Instead of paying a high one-off fee, you pay each month or year on a rolling basis. This spreads the cost evenly over time, making it easier to budget for. 

What’s more, you can save on IT infrastructure and support. If there’s an issue or bug that needs fixing, the software provider will handle it automatically. 

Smoother collaboration

Cloud accounting software enables smoother collaboration between team members. With seamless access from anywhere, remote and hybrid teams can work together unrestricted by their locations. They can work on the same data and documents simultaneously and in real time. This leads to greater efficiency and transparency. 

Automatic updates and maintenance

With the SaaS model, software providers double as service providers. That means when the software needs fixing, improving, or updating, the software provider will handle it for you. As a service provider, they are committed to providing the smoothest, most hassle-free user experience possible. 

Scalability and flexibility

Cloud accounting software is inherently more scalable than traditional software. Because the data and technical infrastructure are stored and managed offsite by a third party, you can scale up your usage without needing to invest in new hardware or software upgrades. As your firm grows, you can: 

• Add more users or clients
• Increase data and file storage
• Expand or unlock new features

This scalability and flexibility make cloud accounting software a perfect solution for firms planning for long-term growth. 

How to choose the right cloud accounting software for your business

There are plenty of cloud accounting platforms to choose from, and no two are the same. While the ideal solution will depend on your specific needs, here are some important factors to consider. 

Cost and value

It’s important to have an idea of your budget before you start looking for cloud accounting solutions. Understanding what you can and cannot afford will help you narrow down the field from the outset. 

While some cloud accounting software is cheaper than others, cost isn’t always the same thing as cost-effectiveness. If a slightly more expensive platform offers features that will be of considerable value to your firm, chances are it’ll work out more cost-effective in the long run. 

Here are some tips to help you understand and analyze the cost — and cost-effectiveness — of different cloud accounting software: 

• Alongside cost, consider how much money the platform will save you through increased efficiency or improved services
• Make use of ROI (return on investment) calculators to understand cost savings and value propositions
• Take into account the features and services a platform offers — and weigh them up against the cost
• Analyze different payment plans and how they will impact your firm as it grows
• Look out for any hidden costs or fees for setup, support, upgrades, or increased usage 

Focus on ease of use

User experience (UX) is a key factor to consider when choosing software. The more intuitive and user-friendly a platform is, the faster the time to value. Ease of use is also a key factor in getting your team and clients to adopt the software. The best programs offer:

• An attractive, user-friendly interface
• Intuitive and logical navigation 
• Helpful tutorials and guides

Integration capabilities

You need your cloud accounting software to be able to “talk” to your other core systems. Through integrations, you can create a joined-up accounting tech stack that enables seamless workflows and accurate, real-time data sharing. 

Ensure that the software you choose offers native integrations with your CRM, practice management software, document management system, and payment processors. This will reduce the need for manual data entry, enabling you to simplify complex workflows and avoid jumping between multiple systems to get work done.

Data security

You’ll use your cloud accounting software to manage highly sensitive personal and financial data, so data security is paramount. We recommend choosing software that offers robust data security features, including: 

• End-to-end encryption
• Two-factor authentication and biometrics
• Regular security updates
• Reliable data backup options
• Built-in compliance with the latest data protection standards

Scalability

While cloud accounting software is much more scalable than traditional software, certain factors can aid or hinder scalability as your firm grows. For example, some software offers limited feature sets. While that may suit you now, you may find you need to upgrade as your needs become broader and more advanced. 

Other software may charge you more for increased usage. You may be forced to upgrade to a more expensive plan as you reach certain user or client limits, for example. With this in mind, look for cloud accounting software that will scale seamlessly as your business grows. 

Customer support and training

Customer support and training are an important yet often overlooked factor when choosing cloud accounting software. Here are some questions to ask when choosing a platform: 

• Is 24/7 support available, or is it limited to certain times of the day or week?
• Will I be able to talk directly with a human, or will I have to go through frustrating chatbots first?
• Will I get hands-on support when implementing and configuring the platform?
• Will I have to pay extra for hands-on training and support?
• What kind of educational materials and content are available? 

The best cloud accounting software: 4 platforms to consider

So which cloud accounting software platforms should you look at? In this section, we’ll highlight four of the most popular solutions on the market, what they offer, and who they are best suited to. 

• QuickBooks Online
• Xero
• Zoho Books
• FreshBooks

1. QuickBooks Online

QuickBooks Online (QBO) is the market leader in cloud accounting software for small businesses, with an estimated 80% of the market share. When you consider that small businesses make up 99.9% of all businesses in the US, you can see that QBO is a behemoth in the world of accounting tech.

QBO is successful for a reason. It offers a user-friendly yet powerful solution for business owners and accountants looking to run efficient bookkeeping, accounting, and reporting. 

Key features

• Bank feeds for an accurate, real-time view of finances
• Professional invoices and payment reminders
• Real-time inventory management
• Automated tax calculations and one-click forms
• Mobile app and receipt scanner
• Support for multiple currencies 
• Insights, reports, and cash flow planners

Pricing

QBO offers the following four pricing plans. The more expensive the plan, the more users you can have, and the broader and more advanced the feature set:

• Simple Start at $9.50 per month, for one user + an accountant
• Essentials at $14 per month, for up to three users + plus an accountant 
• Plus at $20 per month, for up to five users + plus an accountant 
• Advanced at $38 per month, for up to 25 users 

Please note: the prices quoted below are accurate at the time of writing as part of a discounted offer. 

What kind of businesses use QuickBooks Online?

QBO is used by solopreneurs and small businesses, primarily in the US. Users may be business owners looking to manage their own books or accountants managing their clients’ books.  

Pros and cons

User reviews

• G2 rating: 4.0 out of 5 from 3,650+ reviews
• Capterra rating: 4.3 out of 5 from 7,650+ reviews

User ratings

QBO is well-known for being easy to use, and its online reviews are a testament to this. Here’s a recent example from G2:

What I like best about QuickBooks Online is its user-friendly interface and the flexibility it offers for managing finances on the go. The cloud-based platform allows me to access my financial data anytime, anywhere, which is crucial for staying on top of my business’s cash flow.

Unfortunately, it’s not all positive. As this reviewer highlights, there are some serious concerns about QBO’s support, especially when trying to downgrade your plan. 

I’m reaching out to express my serious frustration with Intuit’s customer service and policies. I need to downgrade my subscription from Advanced to Simple Start—I have no interest in paying $235 per month for a plan that’s beyond what I need. However, my attempts to make this change have been met with unacceptable roadblocks. The system is designed to push users towards costly options, making it nearly impossible to downgrade without a battle.

2. Xero

Xero is another popular cloud accounting package for small businesses. Well known for being accessible and easy to use, Xero currently ranks second in terms of popularity, with approximately 11% of the market share. That said, many accountants consider it a superior platform to QBO, as this conversation on the r/Accounting subreddit shows: 

Key features

• More than 21,000 bank connections for real-time data
• Automated bank reconciliations
• A range of expense management tools
• Invoices, automated reminders, and payment processing
• Project planning, budgeting, and time tracking
• Inventory management tools
• Robust analytics, including cash flow projections
• Support for multiple currencies

Pricing

Xero offers three different pricing plans. As you’d expect, cheaper plans offer narrower feature sets. The cheapest also has strict limits on the number of quotes and invoices you can send, as well as the number of bills you can enter.

• Early at $15 per month
• Growing at $47 per month
• Established at $80 per month

At the time of writing, there’s a major 95% discount offer for the first three months of your contract. 

What kind of businesses use Xero?

Xero is designed for small and medium-sized businesses. It’s particularly popular with startups looking to manage their own books, as well as accountants looking for a straightforward system for managing multiple small-business clients.

Pros and cons

User ratings

• G2 rating: 4.3 out of 5 from 700+ reviews
• Capterra rating: 4.4 out of 5 from 3,000+ reviews

User reviews

Like QBO, Xero’s most-mentioned plus point among online reviews is its ease of use. Features-wise, its reporting capabilities and automation tools receive a lot of praise. Here’s what a recent reviewer had to say: 

The most incredible feature has been the financial reporting which helps us get insightful and detailed reports about our financial activities. The automations available make our work easier for example when entering data for invoicing.

On the downside, several reviewers mention the platform’s limitations, especially for businesses with more advanced accounting needs. As this reviewer mentions, Xero has fewer bank feeds than QBO, making it tricky to transition some clients over from one to the other: 

The biggest dislike is the bank feeds. It doesn’t take all bank types, unlike Quickbooks. It is sometimes very hard to get clients to switch over because of this. One of my clients who I got on board to use Xero. I have to constantly manually enter or import bank transactions which is very very time-consuming.

3. Zoho Books

Zoho Books is the cloud accounting platform from Indian software giant Zoho. It works seamlessly alongside other tools in the Zoho suite, including its CRM, project management tools, and analytics platform. 

While it hasn’t managed to capture the same market share as platforms like QuickBooks Online and Xero, there are plenty of reasons to consider it — not least because it offers a completely free plan for solopreneurs and micro businesses.

Key features

• Accounts payable and receivable management
• Seamless bank syncs for automated reconciliations
• Inventory and stock management
• Built-in tax compliance
• Project management, budgeting, and billing
• Collaboration tools for teams, clients, and vendors
• Workflow automation 
• Reporting, with more than 70 built-in reports

What kind of businesses use Zoho Books?

Zoho Books is used by solopreneurs and small businesses to manage finances and cash flow. Because of its seamless integration with other Zoho software, it’s popular with businesses that are already part of the Zoho ecosystem.

Pros and cons

User ratings

• G2 rating: 4.4 out of 5 from 290+ reviews
• Capterra rating: 4.4 out of 5 from 640+ reviews

User reviews

So what do Zoho Books users rate about the platform? Well, the platform has a pretty rich feature set. As this reviewer explains, for those already in the Zoho ecosystem, combining Zoho Books with its sister analytics and CRM platforms leads an enhanced functionality:

The main features that Zoho offers include automated reconciliation in the banking module, GST compliance, and interaction with other programs such as Zoho Analytics to generate dashboards and deliver vital insights. It is an excellent accounting tool that can automate regular bills and installment changes and is frequently monitored or freely integrated with other Zoho suite products such as Zoho CRM.

Other reviewers are vocal about Zoho Books’ limitations, however. As the user below explains, Zoho Books offers little in the way of customization options, and aside from seamless connections with other Zoho platforms, it’s way behind the competition when it comes to third-party integrations: 

Zoho Books has limitations in customization for reports and invoices. Zoho Book is easy to integrate with other ZOHO applications but it is challenging to integrate with third-party applications. It is very complicated to migrate data for a business with a large amount of data.

4. FreshBooks

FreshBooks is a popular cloud bookkeeping software platform. It markets itself as a direct alternative to QuickBooks Online that’s even more user-friendly. What it lacks in advanced accounting features, it makes up for with its highly intuitive user interface and dashboard. It’s a great fit for businesses looking for a relatively simple platform for tracking income and expenses, but those with more complex needs will want to look elsewhere.

Key features

• Expense tracking, with mobile receipt scanner and auto expense categorization
• Standard accounting and bookkeeping tools
• Automated invoicing and billing
• Project management, team collaboration, and time-tracking tools 
• Job estimates and proposals

What kind of businesses use FreshBooks?

FreshBooks is a popular choice for solopreneurs and small business owners looking to manage their own books. Because of its slightly narrower capabilities, it’s a sensible choice for those looking for a simple, easy-to-use platform that does the basics well.

Pros and cons

User ratings

• G2 rating: 4.5 out of 5 from 800+ reviews
• Capterra rating: 4.5 out of 5 from 4,450+ reviews

User reviews

FreshBooks scores well for its simplicity — not only in terms of its features and user experience but also its implementation. As this reviewer explains, while its capabilities are narrower than some competitors, it ticks most boxes for small businesses:

FreshBooks allows you to quickly set up everything you need for a small-to-medium service-based business. They have all the things you need to get running, including payment processing, invoice sending, estimates, and more!

As for the negatives, some users struggle with the lack of more advanced features, while others complain about the limits placed on the number of clients on some plans. Here’s a recent example: 

What I dislike about FreshBooks is the limitation on the number of clients for certain plans and the need for workarounds to manage more clients. As a premium paying user, these restrictions feel frustrating, especially when I have to delete and undelete clients just to stay within the limit. It’s a bit cumbersome for what should be a simple process, and I wish there were more flexibility in this area.

How TaxDome can complement your cloud accounting solution

To run a modern accounting firm, you need two core pieces of tech: your cloud accounting software and a comprehensive practice management platform. While the former helps you with the actual accounting work, the latter helps you with everything else. 

Take TaxDome, for example. As a leader in the practice management space, TaxDome provides a central hub where your team can collaborate, manage clients, and organize their work. Here’s how TaxDome can complement your accounting software and enhance your workflows.

Automated workflows 

Traditionally, accountants spend a large portion of their day handling repetitive manual tasks. TaxDome provides powerful workflow automation capabilities that enable accountants to run entire workflows on autopilot, including all: 

• Client communication
• Document gathering and management
• E-signature requests 
• Invoicing and payment reminders
• Task management 

Instead of handling all of that manually, accountants simply add new jobs to a pipeline, activating a series of automations that are triggered when certain actions are completed. In practice, this means you can automate virtually all of your client onboarding, tax preparation, and more. 

Using TaxDome’s workflow automation, accountants save up to 40 hours per week. They can then use that time to focus on providing a better service to clients and growing their firms.

A consolidated tech stack

TaxDome is like a Swiss army knife for accounting firms, combining multiple tools in one central hub. Instead of jumping between different solutions for document management, invoicing, task management, or proposals, they’re all there in one place. 

This enables forward-thinking accounting firms to simplify and consolidate their tech stacks. In turn, this makes processes more joined-up and efficient — while saving considerable costs on multiple software licenses.

Integration with popular accounting software

TaxDome offers native integrations with popular accounting software such as QuickBooks Online. This enables you to sync data relating to invoices, transactions, and payment details in real time, resulting in: 

• Accurate and timely data across both platforms
• Faster accounting processes
• Elimination of manual data entry and its associated errors

In addition to accounting software, TaxDome offers native integrations with the most popular tax software, payment processors, email providers, and scheduling software. 

An enhanced client experience

In addition to enhancing and streamlining internal operations, TaxDome transforms the client experience. With a custom-branded client portal and top-rated client mobile app, clients can manage all touch points with your firm in a secure and intuitive way. This includes: 

• Viewing, scanning, uploading, and e-signing documents
• Completing client tasks
• Viewing invoices and making payments
• Scheduling calls with accountants
• Secure real-time chats

Document management and secure storage 

TaxDome removes the need for a standalone document management system. With unlimited secure storage, you can manage and exchange client documents and files via a document hub that’s integrated with TaxDome’s client portal and CRM. 

TaxDome also offers a smart desktop assistant that enables you to upload documents, lock documents to invoices, and request e-signatures from your desktop — without needing to log in to your TaxDome portal. 

But that’s not all. TaxDome enables you to request and manage legally binding e-signatures, including KBA, AdES, and QES. There’s even a built-in PDF editor.

FAQs

What is cloud accounting?

Cloud accounting is the managing of financial data through cloud software — i.e. online software hosted on remote servers and paid for via a subscription model. Instead of having software installed on local devices or networks, cloud software enables accountants to access, manage, and update financial data from anywhere with internet access.

Is cloud accounting secure?

Yes. Using an established cloud accounting software provider is more secure than running software on local devices. The best cloud software providers prioritize data security. This involves strong encryption, regular security updates, and reliable data backups. Many software providers also hold compliance certifications, such as SOC 2 or ISO 27001, to further demonstrate their commitment to data protection.

How much does cloud accounting software cost?

Cloud accounting software typically operates on a subscription model, with different pricing plans to suit the needs of different users. For example, cloud accounting software providers may offer plans for solopreneurs, small teams, and even enterprises, each with different feature sets and usage limits. Basic plans may start around $10-$30 per user per month, while advanced plans for larger firms can cost $100 or more per user. 

Can cloud accounting software integrate with other business tools?

Yes. Cloud accounting solutions offer native integrations with popular business tools such as CRMs, payroll software, payment processors, and practice management platforms. This enables seamless data sharing and more efficient, joined-up workflows.

What are the benefits of cloud accounting for small businesses?

Cloud accounting enables accounting teams to access their cloud software on any device, anywhere with an internet connection. Because it is hosted and managed offsite by a third-party software provider, cloud accounting software also provides greater flexibility, security, and scalability. 

How does cloud accounting work offline?

Because cloud accounting requires an internet connection, offline access is limited. That said, some providers may offer mobile applications with offline capabilities or local storage options for specific features. This allows you to perform certain tasks offline and sync updates once you are reconnected to the internet.

How do I transition from traditional software to cloud accounting?

Most cloud accounting providers offer data migration tools or hands-on support. This process tends to include exporting and importing data, verifying its accuracy, and training team members on the new system. Choosing a provider that offers migration support can make the switch smoother.

What level of customization does cloud accounting software offer?

Many cloud accounting solutions allow you to customize reports, dashboards, invoices, workflows, and user roles. This enables you to tailor the software to the unique needs of your practice, creating a more efficient and personalized experience for you and your clients.

How frequently are updates made to cloud accounting software?

Your cloud accounting software provider may update the system regularly. This could be to incorporate new features, UX changes, performance improvements, or security patches. Unlike traditional software, you always have access to the latest version, without needing to perform manual updates.

What happens to my data if I cancel my subscription?

Most software providers allow users to export their data before canceling the service. It’s a good idea to check the provider’s data retention policies, as some may keep your data for a limited time after cancellation, giving you a grace period to download and store it securely.

The bottom line

Cloud accounting is a game-changer for modern accounting firms. It lifts the restrictions imposed by traditional accounting software, enabling your team to access financial data from any device, anywhere with an internet connection. This opens the door for more flexible work arrangements. 

But that’s not all. Because cloud accounting software is provided not just as a product but also as a service, all security, data backup, and updates happen automatically and seamlessly. This leaves you more time and resources to focus on using the software to drive better business outcomes.

To maximize efficiency across your firm, however, you need more than just cloud accounting software. By coupling it with a comprehensive practice management platform like TaxDome, you can take your cloud accounting business to the next level. The result is enhanced communication and collaboration, less time spent on manual tasks, and an incredible client experience that leads to long-term stability and growth. 

To see why more than ten thousand accounting practices worldwide choose TaxDome to power their businesses, request a demo today.