Accounting might not be the most exciting part of running a business, but it’s one of the most important. For years, businesses have relied on traditional methods for accounting – manual ledgers, desktop software, and spreadsheets. But cloud accounting, a modern method of managing the books, can transform how businesses think about their finances. As cloud accounting becomes more popular, the global cloud accounting software market is expected to rise in value from $3.5 billion in 2023 to $7 billion by 2032.
Below, we’ll explain what cloud accounting is, how it works, and why businesses are switching to it.
What’s in this article?
- What is cloud accounting?
- How does cloud accounting work?
- What are the benefits of cloud accounting for businesses?
- Which businesses benefit the most from cloud accounting?
- How secure is cloud accounting for storing financial data?
- What features should you look for in a cloud accounting solution?
What is cloud accounting?
Cloud accounting is the practice of managing your business’s financials with software hosted online (on the “cloud”) rather than on a computer or server. Think of it as moving your books from your office computer to a secure, web-based platform. With cloud accounting, your data isn’t tied to one device; it’s available anywhere you have internet access. Cloud-based platforms also automate tedious tasks and sync data in real time, removing the need to manually update spreadsheets or use locally installed software.
How does cloud accounting work?
Cloud accounting enables you to track your business’s income, expenses, and overall financial health in an online environment. But instead of storing your data on a computer or local server (or in stacks of paperwork), cloud accounting keeps it on remote servers you can access from anywhere with an internet connection.
Most cloud accounting systems are designed to connect with other technologies you use to run your business – payment processors such as Stripe, e-commerce platforms such as Shopify, and customer relationship management (CRM) software. This lets the platforms provide real-time updates across systems and create a centralised location for your accounting activities.
For example, when a customer buys a product from your website, they can pay using Stripe. Your accounting platform will automatically record the payment, match it to the sale, and reflect it in your revenue reports. When you connect your business bank account to a cloud-based platform, the platform logs every new transaction – whether it’s a payment, a deposit, or an expense – and categorises it immediately.
With these capabilities, cloud accounting platforms can automate repetitive, time-consuming tasks that are prone to human error, including:
Bank reconciliation: Cloud accounting systems can match incoming payments to the corresponding invoices, which makes manual tracking unnecessary.
Recurring invoices: Cloud accounting platforms can automatically send invoices on a preset schedule, which is perfect for businesses with subscription-based or retainer models.
Expense categorisation: Many cloud accounting solutions “learn” from your habits. If you regularly classify office supplies purchased from a particular vendor as part of a specific category, the system can start doing so automatically.
What are the benefits of cloud accounting for businesses?
Cloud accounting makes finance more manageable and adaptable and aligns it with modern workflows. Here’s why businesses rely on it:
Accessibility: Cloud accounting lets you check your cash flow from your phone in a meeting, send an invoice while travelling, or share financial data with your accountant without being in the same room – it works wherever you do.
Real-time updates: Cloud accounting gives you a real-time overview of your finances. When a client pays an invoice, your numbers reflect it immediately. When you make a purchase, the solution logs it without delay. This real-time connection helps you manage what’s coming in, what’s going out, and what’s next.
Automated tasks: Cloud accounting handles repetitive tasks such as reconciling payments, categorising expenses, and sending reminders for overdue invoices. This lets you focus on more important work for your business.
Scalability: Whether you’re a one-person shop or expanding into new markets, cloud accounting adapts to fit your needs. Start with the basics, and add features such as payroll, inventory tracking, and multi-currency support when you’re ready. You don’t need to rebuild your financial system just because your business is expanding.
Easier collaboration: Because everything is online, your accountant, bookkeeper, and team can log in and access the same data you’re seeing. You’re not passing files back and forth or handling outdated versions. The cloud provides a shared workspace where everyone stays on the same page.
Automatic updates: Cloud-based platforms handle updates automatically. You don’t need to worry about installing new tax tables or patching bugs – these updates happen in the background. This ensures you’re always using the most current version of the software with access to the latest features and compliance standards.
Which businesses benefit the most from cloud accounting?
Though almost any business can benefit from cloud accounting, the impact is especially noticeable for those that value flexibility, automation, and scalability. Whether you’re running a startup, managing a small business, or leading a large enterprise, cloud accounting adapts to your needs and grows with you. Here’s how different types of businesses can benefit from cloud accounting:
Startups
For startups, which are often lean organizations, cloud accounting solutions can:
Save time: These platforms automate tedious tasks such as reconciling bank accounts and sending recurring invoices.
Stay flexible: These systems let startups scale their accounting needs as they expand, including tracking expenses early on and integrating payroll and advanced reporting as they add employees.
Provide visibility: These platforms give real-time insight into cash flow, which is especially important when every dollar counts.
For example, a tech start-up could connect Stripe to its cloud accounting platform to track subscription revenue and quickly generate financial reports for investors.
Small and medium-sized businesses (SMBs)
For SMBs, which typically have limited time and minimal staff, cloud accounting solutions can:
Consolidate systems: Cloud accounting platforms combine invoicing, expense tracking, payroll, and reporting in one platform and can reduce the need for multiple disconnected systems.
Enable remote work: These platforms let SMB owners and their teams work from the office, from home, or on the road.
Simplify taxes: The built-in tax tracking and compliance tools in these platforms make tax season easier.
For instance, a small retail business could use cloud accounting to sync sales data from its e-commerce platform, track inventory costs, and prepare financial statements without extra manual effort.
Freelancers and sole proprietors
For independent workers – who often do every role in their business, including sales and bookkeeping – cloud accounting can:
Cut costs: Many cloud accounting platforms have plans customised for freelancers that cover invoicing, expense tracking, and basic reporting without unnecessary features or high costs.
Reduce the need for expertise: The user-friendly design of these platforms means freelancers can manage their books without hiring extra help.
Help with tax readiness: Cloud accounting platforms can automatically track deductible expenses and generate reports for smooth tax filing.
For example, a freelance graphic designer could use cloud accounting to send professional invoices, log business expenses such as software subscriptions, and track income for tax payments.
Growing enterprises
Financial operations become increasingly complex for large enterprises as they grow. For these businesses, cloud accounting can provide:
Flexible features: From multi-currency support to advanced reporting, cloud-based platforms can handle the demands of global operations or high transaction volumes.
Team collaboration: Enterprises often have multiple people managing financials. Cloud-based platforms allow secure access for accountants, auditors, and department heads, ensuring everyone works from the same data.
Integration with other systems: Cloud accounting integrates with enterprise resource planning (ERP), CRM, and payment systems that are often used by large enterprises.
For instance, a manufacturing business might use cloud accounting to track production costs, sync with inventory software, and generate custom financial reports for each business unit.
Non-profits
Non-profits often need to track donations, manage restricted funds, and provide transparent reporting to donors and boards. For nonprofits, cloud accounting can:
Track donations: These platforms can tag income sources to help separate general donations from grant funding.
Generate custom reports: Cloud-based platforms can create reports that align with nonprofit accounting standards and show exactly how funds are being used.
Promote collaborations: These platforms can share financial data with board members or grant writers without requiring lengthy email threads or in-person meetings.
For example, a local non-profit could use cloud accounting to monitor cash flow, track expenses for a specific project, and prepare annual financial reports for donors.
Businesses with remote or distributed teams
Remote and distributed teams rely on cloud-based systems to stay connected. For businesses with these types of teams, cloud accounting can provide:
Access across locations: With cloud-based platforms, team members can log in from anywhere to check reports, submit expenses, or manage payroll.
Role-based permissions: Cloud-based platforms can grant access to different team members while maintaining control over sensitive financial data.
Easier collaboration: These platforms let accountants and bookkeepers work with data that’s updated in real time, regardless of their location.
For example, a digital marketing agency with employees in multiple countries could use cloud accounting to handle multi-currency invoicing, track expenses across teams, and ensure financial accuracy.
How secure is cloud accounting for storing financial data?
When managed properly, cloud accounting is often safer than traditional, locally stored solutions. Providers invest in security measures and infrastructure that exceed what most businesses could implement on their own. Here’s how the security of cloud accounting works:
Encryption
Encryption is the backbone of data security in cloud accounting. It transforms your data into a code that’s unreadable to unauthorised parties. When data moves between your device and the cloud, it’s encrypted to prevent interception. Data stored on the provider’s servers is also encrypted. So even if someone accessed the servers, the information would be unusable without the encryption key.
Multi-factor authentication (MFA)
MFA adds a layer of security by requiring more than just a password to log in. Even if your password is compromised, unauthorised users still need a second factor – such as a code sent to your phone or an app-based verification – to gain access.
Regular data backups
Cloud accounting providers perform regular data backups to keep your information safe, even in the event of hardware failure, cyberattacks, or natural disasters. They can restore your data quickly without major disruptions if something goes wrong.
Compliance with security standards
Reputable cloud accounting solutions comply with industry standards and regulations for data security and privacy. These might include:
System and Organisation Controls (SOC) 2: A framework for managing and securing sensitive information.
General Data Protection Regulation (GDPR): A regulation that protects customers’ personal data and applies to businesses operating in or working with the European Union (EU).
Payment Card Industry Data Security Standard (PCI DSS): A standard for data protection if your accounting software handles data from card payments.
User permissions and role-based access
Most cloud-based platforms let you control who sees what. For example, you can grant your accountant full access to your books while limiting an employee to submitting expense reports. This can reduce the risk of internal misuse or accidental changes.
Monitoring and threat detection
Cloud accounting providers invest in advanced threat detection systems. They actively monitor for suspicious activity, such as unusual log-in attempts or malware, and take proactive measures to block threats before they become breaches.
What features should you look for in a cloud accounting solution?
When you choose a cloud accounting system, the right platform depends on your business’s needs. A freelancer might prioritise invoicing and expense tracking, a small business might value tax compliance help and payroll integration, and a growing business might focus on scalability and advanced reporting.
Here are features you can look for, depending on your priorities:
Invoicing and payment processing
For your invoicing and payment needs, look for cloud accounting platforms that can:
Generate professional-looking invoices that are customisable with your branding
Automate recurring invoices for subscription-based or retainer models
Accept online payments through the invoice by integrating with payment processors such as Stripe
These features make it easier for customers to pay, update records automatically, and save time spent on collection efforts.
Expense tracking
If you track a lot of expenses, find platforms that let you:
Upload receipts via a mobile app by snapping a photo
Automatically import and categorise expenses from connected bank accounts or credit cards
Flag business-related expenses for potential deductions during tax season
Platforms that learn your habits (e.g., consistently categorising transactions from a specific vendor) can make these processes easier.
Bank reconciliation
For help with bank reconciliation (i.e., matching transactions in your accounting software to your bank statements), look for platforms that:
Automatically import bank transactions and suggest matches to invoices or expenses
Flag discrepancies so you can quickly investigate them
These platforms can keep your financial records accurate and up-to-date without requiring hours of manual work.
Reporting and financial insight
If reporting and financial insight are priorities, consider platforms with:
Prebuilt reports such as profit and loss statements, cash flow summaries, and balance sheets
Reports that are customised to your needs, such as performance tracking by project, department, or time period
Real-time dashboards that show key metrics such as revenue, expenses, and outstanding invoices
Detailed reporting is especially useful for decision-making, trend identification, and tax-filing preparations.
Tax compliance
For help with tax compliance, look for cloud accounting systems that can provide:
Automatic calculation of sales tax or value-added tax (VAT) based on your location and transaction type
Built-in tools to track deductible expenses and tax liabilities throughout the year
Integration with tax-filing software or the ability to generate tax-ready reports for your accountant
These features can save countless hours of preparation and reduce the risk of filing errors.
Payroll integration
For payroll management, find platforms that can:
Automate payroll calculations, including taxes and benefits
Sync payroll expenses with your financial reports to keep your books in order
Scalability and add-ons
If you’re looking for flexible solutions, check for features such as:
Multi-currency support for international transactions
Inventory management for product-based businesses
Project tracking to monitor costs and profitability on a per-project basis
Application programming interface (API) access for integration with other tools, including CRM or ERP systems
Scalability ensures you won’t outgrow your accounting software as your operations expand.
Collaboration and user permissions
If your business involves multiple people in managing finances, look for features such as:
Multi-user access with role-based permissions so you can control who sees or edits certain data
Real-time collaboration so your accountant and team can work alongside you without needing to be in the same location
This makes it easier to share information securely and avoid miscommunication.
Integration with other technologies
If you’re already using other technologies to run your business, consider platforms that can integrate with them. These other technologies might include:
Payment processors such as Stripe for automatic transaction tracking
E-commerce platforms such as Shopify or WooCommerce to sync sales data
Time-tracking tools if you bill clients by the hour
Inventory systems to track stock levels and costs
Ease of use and customer support
You should ensure the platform you choose is intuitive to use and provides support when you need it. Look for platforms that:
Don’t require advanced accounting knowledge to use
Come with onboarding support, tutorials, or a knowledge base to get you started
Provide responsive customer support in case you need help troubleshooting an issue
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.