Today's small and midsize businesses have more options than ever before for handling their finances, from age-old Microsoft Excel spreadsheets to new age software-as-a-service solutions. With the spread of broadband Internet and cloud computing, financial software of virtually any kind can now be researched, bought and implemented in a fraction of the time required just a few years ago. Sales calls are increasingly led by customers who already know a lot about the product, while actual delivery can be done in minutes via an IP network rather than in days spent waiting for licenses and physical discs.
The many flavors of cloud
As we have discussed a few times here before, there is indeed an ongoing shift from on-premises tools to cloud accounting software among SMBs. A 2014 survey of 250 U.K. accounting firms, conducted by OnePoll and commissioned by Xero, found that the percentage of respondents "already using cloud" had grown from 28 to 34 since September 2013. There was also a similar jump in organizations reporting that they were "almost there" with their cloud deployments.
However, "cloud" comes in many flavors and isn't necessarily the same from one vendor to the next. As such, it can be tricky to understand exactly what kinds of software are being most widely implemented to replace older tools. The cloud is more like a bite of Neapolitan ice cream - with several different possibilities gathered under one common name - than a homogenous dollop of vanilla or chocolate. Both private cloud and multi-tenant SaaS can be called "cloud" because they do share characteristics such as automation and Web-based access, but they are not the same in terms of their respective user experiences or - crucially - costs.
Let's consider a few of the key characteristics underlying the various types of SMB financial solutions marketed as "cloud":
Hosted
It is often debated if hosted solutions qualify as "cloud." There are definitely some big differences between hosted and cloud. If cloud-based SaaS (e.g., Intacct and Salesforce) and IaaS (e.g., Amazon Web Services or Microsoft Azure) are like getting electric in your home directly from the power company, then hosted is more like renting your own generator. A hosted solution, like that generator, is only for your use. Plus, it can be powerful and efficient if properly managed.
Nevertheless, the hosted route requires a lot of oversight and likely some degree of assistance, in this case from a managed services provider. This can take the form of fees for simply reserving dedicated resources, even if they aren't actually used. Thus the fine-grained control of the hosted financial solution, in which you have your own databases, is offset by a high total cost of ownership and limited scalability.
Private cloud
The private cloud isn't as well known as the public cloud, in large part because its characteristics are particular to each organization that implements it. On-premises IT infrastructure, licenses and software are essentially set up to behave as if they were delivered from a cloud-like platform. Accordingly, the costs are similar to traditional solutions.
In practice, a private cloud could facilitate streamlined access to financial applications and other resources by making them available through a Web browser. This ease of use, sometimes called "self-service," is an important difference between private cloud and hosted solutions, since the latter does not prioritize Web access in the same way.
Overall, a private cloud can provide high levels of security, control and performance. But it requires a lot of technical legwork - such as multi-tenancy for different user groups - that would in contrast be covered by the cloud service provider when working with a public cloud, as noted in this article in Network Computing.
Multi-tenant SaaS
Speaking of multi-tenancy, SaaS solutions adhere to this principle in order to serve numerous customers from a single instance. This model has benefits for both the provider and the customer. It simplifies technical infrastructure management for the former and reduces prices for the latter.
"Multi-tenant SaaS benefits both the provider and the customer."
Moreover, multi-tenant SaaS solutions allow accounting departments to reliably add new users at little to no marginal cost. This is because, on the other end, the provider is managing a single stack or environment, handling updates that roll out to many users at once. The drawn-out upgrade processes and steep costs associated with traditional tools are removed and replaced by a simple SaaS subscription that takes care of all upkeep.
Why multi-tenant cloud financial solutions makes the most sense
Modern SaaS solutions are multi-tenant from the ground up - multi-tenancy is the backbone of their efficiency. Single-tenant alternatives toe the line of being "cloud" in the first place, and are typically legacy applications that are being modernized by cutting corners.
Compared with the limitations of single-tenant SaaS and hosted solutions, as well as the high technical bar for private cloud, multi-tenant SaaS is a much more cost-effective and scalable way to modernize company finances. This cloud accounting software can be easily accessed over the Internet from any device, after being deployed in much less time than on-premises alternatives.
The result is huge savings on licenses and infrastructure, as well as more time and resources to divert to product innovation. Processes that required tons of man-hours in the past and didn't scale for company growth - e.g., performing redundant data entry in Excel - can also be consolidated into a solution that works for everyone. Look for an SaaS solution that can grow alongside your business.