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With the massive surge in online accounting systems over the past two years, I am getting quite a few questions from my clients to explain the various advantages and disadvantages of these system versus the traditional accounting software which is installed on your server or PC.
I will try and provide a neutral analysis of both systems in this post, and hopefully give you enough information to make an informed decision. I will also try to refrain from naming specific software vendors unless absolutely necessary.
Disclaimer: My business currently sells and supports installable accounting software, but we also are in the process of developing online accounting software solutions for our clients.
Installed Software
This is the style that most business people are familiar with. You either go to a computer store and purchase an accounting system off the shelf, or else you engage a consulting firm to provide you with software, and one of their consultants will descend upon your network with a swathe of CD’s and manuals to install the software for you. At the end of either process, you have at least one, if not more, nice shiny CD’s to safely store away.
If you are really lucky, over the course of the coming months and years, you will regularly get updated CD’s being sent to you in the mail – or else you will keep saying the same abovementioned consultant sneaking around your server on a regular basis.
Doesn’t it give you a nice, comforting feeling – having your own software in your little hands, under your own control? No one else can come in and steal the original programs, and your data…all your data is safely secure on your server down the hall. Only your own immediate staff can get access. Oh happy days…
Or not! In my experience, only about a third of our customers can safely say they have reached this cozy nirvana – and of those, about 75% of them are living precariously close to the edge.
Let’s face it – the average small business does not have a fool proof IT system. We rarely find servers with all the security patches installed, and we routinely find loopholes in firewalls and other ’security’ measure that have been hastily slapped together, or done on a budget.
With the average machine on the internet being sniffed for a hostile attack at least several times a day, are your confident that your server will be safe from all forms of intrusion? What about your trusty staff members? All it would take is for one of them to download an infected email which will unleash a trojan horse or key logging software that can compromise your network passwords or even transmit your precious accounting data externally.
Even your premises – what if the office was destroyed by fire? Would you be thanking your (un)lucky stars that you insisted that all backups and copies of your data were kept within the four (now smouldering) walls at all times?
I dont mean to paint a bleak picture here, or seems that I am pushing you towards an online solution, but in my extensive experience, not many small or medium sized businesses really spend enough on their IT infrastructure to ensure that they have 99.999% uptime or are secure from nearly all hacking attempts.
Too many businesses still have antiquated servers which were ’slapped together by their brother in law who was studying computers at night school 6 years ago’. Don’t trust these sorts of systems to be safe or reliable.
You may find that as you upgrade your business software, you will accordingly have to upgrade your computer hardware to suit. What if the latest version only works on XP and Vista? What happens to all your trusty old Windows98 workstations? What if the new version needs SQL server installed on your network server? Can you increase the memory? Will you have to buy new hard drives to cater for the increasing amounts of data?
Lastly, we see a large number of clients who simply lose their installation CD’s, or else they try and keep them all, and have the wrong versions in the ‘current software’ folder. Very few of our clients actually manage their software installation CD assets well, and we find a lot of time is wasted trying to get all CD’s the match their currently installed setup.
Web Based Software
A friend and colleague of mine predicts that we are the last generation of users who will have to run an installation CD. Such is the uptake of online software and services these days.
It sounds great doesn’t it? Zero installation or management headaches. Simply find a PC connected to the internet, fire up a web browser and you can access your data from anywhere in the world!
Sorry to bring you back to reality – but such perfection does not exist…yet. There are still minor issues plaguing some providers which will have to be resolved.
One of these is reliability, and while most online providers can boast 99.999% availability, there are still a few too many incidents of downtime caused by what would seem to be avoidable situations. A case in point is that late last year, a truck smashed into an electrical pole near RackSpace’s headquarters at an undisclosed location. This crash caused a spike in the system which shut down about 25% of RackSpace’s servers.
Now, RackSpace are one of the largest hosting companies in the world, and they host servers for some big name web companies, and this sort of thing should just NOT have happened, what with all the backup generators and secondary power lines going into the building etc., but happen it did. Just like the Titanic was ‘unsinkable’.
In my view, going all on the web still constitute a ’single point of failure’ should the internet go down. Which leads me to my next point – broadband internet reliability, at least in Australia, is still patchy to say the least. Nearly every major carrier here has regular outages and serious lag times on their service from time to time.
If the council cuts a phone cable down the street from your office, could you be without your critical accounting data for a day (or two)? Do you have backup internet connectivity via wireless 3G cards?
Another factor that needs addressing with some online vendors, is there is still too much focus on a particular brand of browser. There are sites which I avoid now because of their insistence on Internet Explorer version 6. Some still dont support Firefox or Opera and other rapidly growing browser types.
Technically, I realise that it is difficult to develop a system which fully supports all browsers currently on the market, but I should think that any online provider worth their salt would make the effort.
Security, Security, Security
One common objection to going with a web based solution that I hear from my clients is: “Oh, but then my precious data will be out there on the internet, and anyone could get to it…”
Ok – valid point. However, most of the top tier online providers have their reputation at stake here. They will usually have spent big dollars in getting their security systems to be almost bulletproof. It would take a determined hacker to get in and steal their data.
“Oh, but what about their internal staff members and network administrators? I don’t know them and don’t know whether to trust them…” is usually the follow up remark to my above reply.
Once again – valid point. At this stage in the proceedings I usually end up offending my client/prospect by stating:
“Nobody CARES about your data or your company. Really. Nobody does. You do, obviously, but the rest of us have our own stuff to worry about…”
Yes, it’s true. Re-read the above paragraph again. You competitor is having more problems reading his OWN data off his OWN server. Why would he expend the time and energy trying to hack into yours? Would a network administrator on the other side of the world really care about your profit and loss report or how many doughnuts you sold to Fred this month?
I acknowledge that security breaches can happen, but rest assured that this is a rarity rather than the norm. I would say that 99.9% of online business are perfectly, boringly safe.
The Upgrade Cycle
Another big advantage of online systems, is that you never have to worry about upgrades. If there are any improvements to the underlying software – it is usually done seamlessly in the background for you, and the next time you log in, you have all the new features and power available. No paying expensive consultants to come in and install new versions, or have any hassles with data conversions etc.
It’s true though, that you dont have any say in whether you even want the new version. On some occassions, the existing version works just as well for you and you may not want the extra bells and whistles that the vendor is pushing onto you.
The Hip Pocket
A characteristic of online systems, is that they are almost always based on a monthly or yearly subscription rather than an upfront licence cost. You usually pay according to the number of users who will be using the system and sometimes according to the features you wish to use.
Some installed software vendors are going down this route too, so you will always need to do a careful analysis of your return on investment to see which way is better for you.
Cashflow wise, a small monthly payment may be easier on your books, but over the years, you could end up paying a lot more than equivalent up front licensing fees.
Conclusion
As with all business decisions, you will need to weigh up the pros and cons before making the big step, and I certainly hope that I have given you enough information here to be able to make a decision that suits you and your business. Please feel free to share you experiences or suggestions in the comments.
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