The "Cloud" - Is it for you and your accounting software?
It depends...

• In its broadest sense, the Cloud refers to anything that is accessed via the Internet. All websites reside in the Cloud. All email travels through the Cloud (except perhaps internal email). If you have to use the Internet to get at something, then that something is "on the Cloud".
• However, in general use, "the Cloud" usually refers to running applications on the Internet and storing your private data on a server accessible only through the Internet. The applications are usually specially designed proprietary applications that run only in a web browser and cannot be run locally on your own network.
• This page is focussed on running your business accounting software on a cloud-based system, and the many drawbacks of doing so.

A very important question...

What are the drawbacks on being on the Cloud?
Please note: In this article the focus is on accounting and ERP systems, with examples given of other software as well.

First off ... THINK about it. You will be RENTING ACCESS to YOUR OWN DATA, forever. Let's say that again ... If your accounting application is on the Cloud you will be paying someone to give you access to your own confidential and PRIVATE business data, forever. You're RENTING access to your OWN DATA. And in certain circumstances they can deny you access to your data. Is this REALLY what you want?

• Security Issue #1: Theft of your data
  Your valuable accounting data and other data are being stored on someone else's server. What is your recourse if someone hacks in and steals that data? Nothing! Cloud contracts typically protect the cloud vendor if your data is stolen. And after your competition has your customer list, your financial information, your inventory, your supplier pricing - well, you get the idea - "too bad so sad".
  Just ask the celebrities who had their nude photos stolen off iCloud if they still think the Cloud is a good idea. Or the thousands of customers of Target, Home Depot and others who have had their personal and financial information compromised. The list goes on, ever expanding as time goes by.
• Security issue #2: Integrity of your data
  What if your data becomes corrupted as a result of something the Cloud vendor did or failed to do? If they're nice they may try to recover it. But usually they will restore from an older backup (if there is one), say "too bad so sad we're sorry," and then it's up to you to re-enter all the transactions since that time. Will there be compensation for your trouble, staff time, business downtime? Probably not.
• Security Issue #3: Who's REALLY in charge of your data
  The Cloud vendor may provide assurances about how secure their systems are. But remember who is making those assurances: the vendor salesperson who is trying to convince you to sign up for their service. But in reality the security of your data lies entirely in the hands of the IT staff at the Cloud vendor. And they are just employees, who may be having a bad day, hate their job, hate their supervisor, even hate you or your business. Or be just plain incompetent. Are you willing to take that risk?
• Security Issue #4: USA
  Many Cloud vendors are located in the USA where the government has the right to look at your data anytime they want to. There may be legal reasons why your data or data about your Customers and Vendors cannot be kept in another country. And what about your employee's private information?
• Security issue #5: Points of failure
  On your local network all you have to do is control physical access to your computers, ensure staff are sensible regarding email attachments and web browsing (or control same), and ensure password security. With a Cloud application all of the above still applies, except now there are multiple points of potential access. You may not realize it, but ALL data to and from your location over the Internet has to travel through 10-20 or even 30 or more other points on the Internet, whether these are servers or routers and other devices. Each of these is a potential security breach point. And in addition to that are the devices and servers (and staff!) at the actual vendor's location.
• Security issue #6: Dependencies
  See the "Dependency" items on this page. Being dependent on someone else means you are not entirely secure.
• Legal issue #1: CRA: Location of books and records
  Most Cloud vendors are located in the USA. CRA requires Canadian companies to have their books and records located in Canada. This includes electronic and online systems. CRA is quite clear about this.
• Legal issue #2: CRA: Retention of records
  Should you wish to move away from the Cloud vendor of your accounting system, you will immediately no longer have access to your accounting data. CRA requires you to keep your records for seven years. Once you switch away, you may have to retain the Cloud vendor's service for a full seven more years!
• Dependency #1: Cloud Vendor: All the eggs in one basket
  You are 100% locked into and dependent on the Cloud Vendor for your crucial accounting systems. You are at their mercy. Read that again: You are at their mercy; you are 100% dependent on that Cloud vendor. What if they go bankrupt? What if they are bought out by another business and changes are made or they are shut down? What if they decide to discontinue the product you are using? What if they suffer a calamity such as their building burning down? What if their policies change to your detriment? Etc. See also the preceding Security issues.
• Dependency #2: Your own Internet connection
  You are 100% dependent on your Internet connection being fast and available. You may need need to enhance your own Internet service if you have any sort of volume going across the Internet due to your Cloud application. Be sure you count the cost of this when comparing!
• Dependency #3: Vendor's Internet connection
  Not only that, but you are 100% dependent on the Cloud vendor's Internet connection being up and fast enough to handle the volume of activity from all of their customers. This is an area where vendors are typically reluctant to upgrade until they receive enough complaints from customers - vendors will often oversell services.
• Dependency #4: Vendor's internal servers and systems
  You are completely dependent on the vendor's servers and systems being up and running at all times. Remember when Blackberry was down for a couple of days a few years back? Microsoft and Quickbooks have also experienced significant outages. As have most Cloud vendors.
• Dependency #5: Security
  See preceding Security points.
• Dependency #6: It's YOUR data, Part I
  This is largely a philosophical point, but nevertheless important. When you are on the Cloud YOUR valuable and confidential information that you use to run your business is on SOMEONE ELSE'S computer SOMEWHERE. Would you give it to your neighbour down the street? To a stranger in a city 2000 miles away? Of course not. Yet you don't personally know the Cloud vendor, nor can you ever know for sure how they treat their customers' data. Go for a visit to the vendor's premises ... and all is smiles and assurances. But what happens when YOUR data is actually compromised or slips into your competition's hands? This is not Facebook where maybe it doesn't matter. This is the lifeblood of your business.
• Dependency #7: It's YOUR data, Part II
  If you are using a Cloud-based accounting application, and someday you decide to switch away from it, you are dependent on the Cloud vendor to be nice and allow you to retrieve an up-to-date copy of your data. This may prove difficult if you have a dispute with the vendor and perhaps you haven't paid them for a few months. And will the data be in a readable and useable form?
• Dependency #8: It's YOUR data, Part III
  Speaking of payment ... What if you miss a monthly payment for the Cloud services? What if the vendor doesn't receive your payments? What if their accounting system screws up and they have no record of your payments? How quickly will the vendor cut off access to your accounting data - a few days? The same day? Or will they be "nice"?
• Lack of Control #1: Unwanted upgrades
  Remember when Office 2007 came out and how much everyone hated it? And how you (probably) put off upgrading for 1-2-3 years or more because you already owned and loved Office 2003, and besides you didn't really need the upgrade anyways? When your accounting system is on the Cloud you will receive upgrades whether you want them or not. Presto, one day you log on and everything's different. You have no control over this. You will get the changed screens, added new fields and new ways of doing things whether you want them or like them, or not. And the new release may have bugs that seriously affect you, and you often canot retract to a previous version.
• Lack of control #2: Backups and restoring
  With data stored locally on your own network, you can restore your data at any time (assuming you have a good backup system in place - but that would be under your control). You can even restore a portion of your data (one table, or even a few records) if appropriate and necessary. But with a Cloud vendor you are dependent on their backup and restore services. Their backup systems may not be adequate or proper. They may not allow custom restore operations.
• Lack of control #3: Customizability and add-ons
  When your accounting software is running on your own local system it is quite feasible to have third party applications added to it, or have one custom-written for your own particular business needs. You have an enormous amount of flexibility of who you select to do this work for you and what the custom app will do. When you are running Cloud-based software your choices are severely limited, if there are any options to do this at all.
• Browser compatibility issues
  NOTHING runs on "any browser", no matter that the Cloud vendor salesperson tells you. Most of us have had experiences where a web page doesn't display properly because we are using a particular web browser (Internet Explorer vs Firefox vs Chrome vs Opera) or even a particular version. Cloud-based software is very sensitive to browser brands and versions.
• Cost issues #1: You pay forever
  With any Cloud-based software you will be paying for it for as long as you use it. At least when you purchase an accounting software or a server to use at your own premises, it is a one-time cost (if you elect to not pay the annual maintenance, which is usually not required). You won't have to buy any upgrades or pay annual maintenance if you don't want to, or at least not until technology renders that version obsolete (sometimes up to 10 years). And don't forget that what you are actually doing is renting access to your own private and confidential data.
• Cost issues #2: Price increases
  The Cloud vendor may promise a certain monthly fee for a particular time period at the outset in order to get your business. But look out when that initial time period expires! You are at their mercy. And they may even hit you with an increase before then, citing "unforeseen factors beyond our control" (examine the fine print carefully).
• Cost issues #3: Is it really cheaper than hosting your own server
  Cloud vendors like to tell you that it's cheaper to pay a monthly fee, that this is cheaper than paying up front for a server and related infrastructure. They do this by bringing in all sorts of costs you allegedly incur when running your own local servers and network. Do your own math and comparisons on this. Be very careful in accepting what you are told. Ensure that you are only including actual real differential costs. For example, if you don't need to buy a new server to run your accounting software then that should not be part of your comparison of costs. Maintenance costs are usually negligible for a properly set up server and network for a small business.
• Cost issues #4: Your Internet connection
  You will need a very good Internet connection to run your software on the Cloud. You will very likely need to upgrade this. Don't forget to get full and accurate costs for this before you commit. It may be more than you think.
• Consider the Source: Who is behind the push to the Cloud?
  The Cloud vendors are behind this push, of course. Do some research. Everywhere you look, it is the Cloud vendors who are preaching the so-called benefits of moving to the Cloud. Most of the benefits are things which you can easily do for yourself, and for a lot cheaper. Software vendors have been trying to push consumers into a software rental model for many years. For some reason they have been able to push this more to the forefront lately. Perhaps it is due to our obsession with all things Internet and the "connected" world we live in.
• Myth: Cloud requires no Infrastructure or hardware
  A common pro-Cloud argument is that you will require no infrastructure. This is completely untrue. You still need local workstations, network cabling and connections, and a very good Internet connection. The only thing you may not actually need is a server. But you'll probably want some sort of server anyways, because there's probably still data you will want to keep locally at your premises that your staff will need access to.
• Myth: Cloud is faster
  Your own network is about 1000 times faster than the Internet, and with significantly less wait time between operations.
• Myth: Cloud is easier and quicker to deploy
  Deployment of modern software and updates to workstations is usually quite easy nowadays and takes minimal time, in some cases only seconds. As for deployment of new software, you will still require the same amount of training. Data conversion will be the same in either case. New software will usually run on your existing infrastructure unless you are significantly scaling up.
• Myth: Cloud is new
  Cloud is not new. Some businesses have been on some form of the Cloud for over 40 years. You have probably seen those clunky text-based systems at stores and businesses. Those have been around for ages, and used to run over the phone line through a 1200-baud modem. That is the Cloud. The only thing that is new is the connections are now much faster.
  And you have had the ability to remotely access your system since Windows NT Server v4 - that's a lot of years ago.
  Software vendors have been trying to push customers onto Cloud applications for 10-15 years or more. For some reason they are now having some success. The reason they have been so persistent is because it's good for them.
• Myth: Cloud is flexible
  Running your application on the Cloud means you are locked into the vendor's software, with your data on their server. Your options are limited or none. You are paying forever. You are locked into many dependencies. You MUST run whatever version of the software the Cloud vendor is providing. There are limited or no options for add-ons. And so on. This does not equate to "flexible" no matter how you read it.
• Myth: Cloud is reliable
  Only as reliable as your own Internet connection, the vendor's internet connection, the vendor's servers, the vendor's security, the browser and version you use, the stability of the vendor's software, the vendor's IT staff, ... need we go on?
• Myth: Cloud is cheaper
  Even aside from the potential cost to you of your data being compromised, the Cloud is not cheaper, or at best costs the same as running applications on your own network. Cloud vendors usually exaggerate the costs of running a local business network. When actual numbers are carefully compared, you will usually find there is no advantage from a purely cost perspective. It just seems cheaper because the costs are amortized over time. But that's what you do with capital outlays anyways via depreciation or with leasing. And don't forget to take into account what the Cloud vendor salesperson is exaggerating or may not be telling you. And also any hidden fees or gotchas (such a a setup fee for adding another company to your accounting software).
• Myth: Going to the Cloud is good because everyone else is doing it, it's how things are done now, it's the latest trend.
  Well, none of these are actual business reasons for doing it, and none of these mean it's beneficial for you or for anyone else. Actually, these aren't good reasons for doing just about anything.

When might the Cloud be appropriate?

• When you actually do need to share something with the public at large. A good example of this is your website and webstore. These must be on the Cloud, by definition.
• When you need to share something quickly and easily with a lot of people. Here's where Facebook, Twitter and Flickr come in handy. But you could also do that on a blog page on your own website. And these services are not really suited to business activities, in spite of the hype you might read otherwise.
• You are absolutely broke, have no equipment or resources, and it is critical to get something up and running ASAP.
• For completely personal and casual non-confidential information such as holiday photos, sharing thoughts and feelings, etc. In short, generally non-business reasons.

With thanks to Andrew Bates of Adagio Software. Although he did not contribute directly to this article, he has provided many insightful perspectives on the Cloud in his presentations.