Cloudy with a chance of downtime

There are two distinct camps in the debate on whether cloud-based financial services software is advanced and reliable enough to run a small business.

Simply, cloud services are those that would traditionally be located on a company’s in-house computers but are instead based off-site in data centres all over the world (the cloud) and accessed via the Internet.

Software developer and entrepreneur, Barry Kukkuk, could be a poster boy for a generation of small business owners who use web-based applications to run the financial side of their businesses.
Kukkuk, who started his company, Infinite Resolution software, in 2004, says he uses cloud-based apps to do everything from drafting documents, design and managing projects to issuing invoices and performing financial audits.

“I’ve been using purely online services to run my business from day one with very few problems,” he says. “Because my company is a PTY Ltd there are certain reporting and tax conventions we’re required to adhere to and the program we use, FreshBooks, is able to handle that as well as the day-to-day accounting functions like invoicing. Our entire financial operation is run online—we use e-banking to check balances and statements and make payments and SARS e-filing to pay VAT and income tax.

“It’s because of sophisticated online integration that the company has a savings account, not a cheque account—it’s cheaper and, anyway, who uses cheques anymore?” Kukkuk’s enthusiasm for cloud-based financial services has rubbed off on companies he does business with and many have made the leap and signed up for them based on his positive feedback.

“Larger companies tend to keep their financial operations under their own roof but small businesses have the flexibility—and the will—to try something new. We have encountered absolutely no resistance to the way we do business using web-based services,” he says. However, Kukkuk is quick to point out that working online does have a downside.

“For all the convenience that online financial apps bring, they’re only as reliable as your internet connection. If that goes down—and in South Africa it has been an issue although it’s getting better—you’re blocked from accessing important financial data. There are workarounds though—if you have an ADSL fixed line connection that’s down, a 3G mobile network line will usually do the trick.

“Mobile network access also means you can plug into your financial data via your smartphone from wherever you happen to be. I use a BlackBerry for web browsing and, by extension, to access FreshBooks for financial updates. “Another problem we’ve encountered is firewalls. Sometimes when we have sent emails with a link to a customer’s invoice, their firewall has blocked it. In that case we just download a PDF of the invoice and send them that. But on the whole everything works smoothly,” he says.

“Just about all interaction with my accountant happens online. When our books need to be processed we simply do everything via email. I think I last had a face-to-face meeting with my accountant six months ago,” says Kukkuk. Accountant Sharon Arcus, owner of Key Partnership, has embraced the internet as a way of doing business with her clients, typically small- to medium-sized companies, but stops short of using cloud-based services.

“There’s no doubt that the internet has brought efficiencies to our interaction with the companies we deal with just in terms of time we used to have to spend out of the office. A few years ago we were on the road visiting clients a lot more than we do now,” she says. However, Arcus says because of its sensitive nature, companies are not yet comfortable with trusting their financial data to the faceless environment of the Internet.

“Our clients do require some face time with us and we spend time at their offices managing and administering their financials—they’re more comfortable with that arrangement,” she says. “Particularly with higher-level or more complicated work, online financial applications are not able to cope adequately with the complexity and nuances that these entail. That said, online interaction has a definite place in modern accounting practice and much of our work is achieved via email or over the phone. We are also able to log in remotely to our clients’ financial systems and solve any issues via the web.”

Arcus says cloud-based financial services are anathema to her and many other professional accountants not because they hinder business but because they remove a layer of control of an organisation’s finances. “You have to ask yourself, who owns the data? Who is responsible for it? If something goes wrong, what recourse do I have? These are questions that affect the nuts and bolts of running a business effectively—no matter the size. Apart from the conceptual issues, there are difficulties around bandwidth reliability and speeds as well as hosting fees,” she says.

Internet and small business analyst, Arthur Goldstuck, managing director of research firm World Wide Worx, says consumer concerns about cloud computing services are not without foundation and are partly justified. “Small business owners tend to be nervous about the cloud—many don’t trust it,” he says.

“One of the problems is with the very term cloud computing which is perceived as vaporous but the reality is that a solid and widely-used service like Internet banking is essentially cloud computing and that forms the financial foundation of most small business financial activities.

“Security is a concern as are service outages so people can’t be blamed for exercising caution,” says Goldstuck. He uses several cloud services and recommends an Australian online accounting package called Saasu.com (Software As A Service Utility).

“It’s flexible and cost-effective and it just works. Users can generate up to 20 invoices a month for free—thereafter they’re charged Aus$25 per month. They can also pay for extra modules like payroll, for example. There are South African online accounting services and they start at about R140 per month,” he says.

Most analysts agree that South African businesses have largely ignored online accounting services in favour of computer-based packages that they know and trust. While use of web-based financial services is set to grow and even accelerate in the medium-term, it’s a concept that hasn’t taken hold yet principally because of concerns around bandwidth, security and reliability.

Says Goldstuck: “In 2011 we expect to see little movement in this arena but naysayers should be aware of a few realities. Cloud computing should actually be called Vault Computing or Bunker Computing, because the applications and files all reside in a data centre. These are fortress-like facilities with massive generators for backup and access control that make banks look vulnerable by comparison.

“But online services have been known to be breached. And some users of these services become so complacent, they get careless with passwords and invite trouble in the form of data theft. Most online accounting services are a great deal more secure than those you would find housed in any small business.”