Thinking of using cloud accounting, please read this.

This issue came up because some are now pushing Xero cloud accounting, although to be fair many of my clients use MYOB and Quickbooks on the cloud too. What it is a model where you do not own the software, you have a subscription and every month you pay a fee generally fixed to use it.

We are now investigating cloud accounting further and have had several discussions with among others with the CBA bank. CBA seems keen on Xero and hasdone a lot of work with them. If anyone wants to try Xero cloud, I do have thanks to the CBA bank a free two-month trial. Note there are some conditions.

Now I see several advantages, the two big pluses claimed with cloud accountancy areas is as long as you have a decent internet connection, you can access your financial system anywhere. Say your accountant had a query, and he is in his office; you are in the shop, and your partner is at home all can log on the same accounts together. In reality, I am not so sure that this benefit is as useful to my clients. In all my years of business, I have never needed such a facility, mainly all three accountants I have used have their own tax system. All they want from me is in writing several standard reports which they key into their tax programs. They have sound legal reasons for doing that. When they ask me a question, I like to examine my books, check the figures in our accountancy system and check the paperwork before I commit myself.

The other advantage claimed is that you can try the software out at nominal cost. If you do not like it, you can go elsewhere with little loss. In reality, most accountancy software comes with a demo version you can try to, nor those that I have seen that adopt a cloud accountancy system have never told me that they saved a lot by going to cloud accounting. Generally, the costs are comparable, for example, quickbooks is about $400, on a cloud a similar system is $21/month plus optional extras on a yearly plan.

However, what does disturb me is the data? This is a problem that is holding us up from moving into cloud accounting. When I asked Xero how long do you keep the data if someone stops paying. I was told by one representative one year and when I had further questions and asked again another told me five. This did not give me much confidence, as in Australia, we require seven years from lodgment. Quickbooks they said seven years, that it can still be accessed in read only reports, as they do not cut you off and if someone re-subscribe they can keep using it as usual. Furthermore, a user you can actually get a physical data file and store it themselves. I liked that answer much better.

Now where is our data hosted, just in case there is any legal problem over data (Australian laws are very strict on data rights) Xero told me that they hosted overseas, while Quickbooks told me that they host in Australia. MYOB hosts abroad too. To me that was another bad mark against Xero and MYOB cloud as I like the protection of Australian law. The thought of maybe having to go to a foreign court with different laws for my data does not please me.

The next point is who owns the data. It is not so simple with cloud. Say two partners own a business; the first is the administrator of the accountancy program, if the second wants a copy of the data they may find that they are not considered the owner and get locked out. This actually has happened. It is not a problem if you own the software as all the second partner does is take a backup.

If you want to read up on an actual case of someone who had problems with cloud accounting. click here "My $20,000 mistake"