Cloud Accounting Software vs Desktop Accounting Software: Which Is Right for You?

Picking accounting software isn’t always thrilling, but it’s one decision that’ll either save you headaches or create new ones. Most business owners face a core question: Should you go with cloud-based accounting software or stick with desktop solutions?

The differences are probably more significant than you expect. Desktop accounting software sits on your computer’s hard drive, meaning both the software and your financial data are stored locally. You get total control over your data, but you can only access it from that one machine. You’ll pay upfront for the software license and handle updates yourself.

In contrast, cloud accounting software stores your financial data on secure servers. This means you can access your books from anywhere with internet: your office, home, or the local coffee shop. You can access financial data remotely and in real-time, enhancing flexibility and decision-making. You’ll pay monthly or yearly, but updates happen automatically.

Understanding these key differences will help you make the right decision. We’ll walk through everything you need to know to make the right choice for your business, from security to scalability.

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Table of contents

Cloud and desktop software: the basics

Cloud accounting software vs desktop accounting software: a feature-by-feature comparison

Common problems with desktop accounting systems

The limitations of relying heavily on spreadsheets like Excel

When desktop accounting software might be a good fit

Choosing cloud accounting: 5 essential features to look for

Success stories: Small businesses thriving with cloud accounting

Steps to implementing the right cloud accounting solution for your business needs

Cloud-based software: a smart choice for modern businesses

Frequently asked questions

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Key takeaways

• Cloud accounting software is the superior choice for most small businesses. It offers unmatched flexibility with remote access, automatic updates, and enhanced security.
• Unlike desktop software, cloud solutions store your financial data on secure servers, so you can access it from anywhere with an internet connection.
• Using outdated versions of desktop accounting software can compromise data security and compliance, while cloud solutions automatically stay up to date and secure.
• Desktop software can be preferable for businesses that need offline access or that have specific customization requirements.
• Cloud accounting enables real-time collaboration, advanced automation for financial processes, and seamless integration with other business tools.
• When choosing cloud accounting, prioritize features like intuitive invoicing, accurate time tracking, customizable financial reporting, seamless bank integrations, and accessible customer support.

Cloud and desktop software: the basics

Before diving into the specifics of accounting solutions, let’s understand the fundamental differences between cloud and desktop software in a broader sense.

What is cloud software?

Cloud software is hosted on remote servers and accessed via the internet. This means users can log in from any device with an internet connection, and updates or backups are handled automatically by the provider. It’s often delivered on a SaaS (software as a service) model.

What is desktop software?

Desktop software (on-premises or traditional software) is installed directly onto a specific computer’s hard drive and typically requires manual updates and backups. The software application and any data it uses are stored locally on that machine.

It operates directly on your computer, allowing offline access and requiring manual management of updates and data backups.

Now, let’s apply these broader definitions to the specific context of accounting to understand how cloud and desktop accounting software compare.

Cloud accounting software vs desktop accounting software: a feature-by-feature comparison

To make a truly informed decision, it’s helpful to see a direct comparison with traditional desktop software across key features. Let’s break down how they stack up for accounting activities. 

Note that while the following attributes are typical for most cloud and desktop solutions, there are some exceptions.

Cloud vs. desktop accounting software: features, costs, and benefits compared

Choosing between cloud and desktop accounting software? This side-by-side comparison breaks down the key differences in accessibility, security, collaboration, and costs.

Feature	Cloud Accounting	Desktop Accounting
Access	Remote access from any device with internet connection	Limited to devices with software installed
Data storage	Securely stored in the cloud	Stored locally on devices
Data backup and security	Automatic backups; vendor manages security	Manual backups required; user manages security
Team collaboration	Real-time multi-user access; seamless	Difficult due to file sharing
Automation	Advanced, built-in automation for a wide range of financial processes, including creating journal entries and recording transactions	Some automation capabilities; typically less integrated and comprehensive, requiring more manual data entry
Reporting capabilities	Real-time, customizable, automated reports with easy sharing and collaboration	Standard reports, limited customization; often manual export and sharing
Updates and maintenance	Automatic updates included in subscription	Manual updates; may incur additional costs
IT burden	Minimal—updates, backups, and maintenance handled by the vendor	Significant—manual updates, backups, and local maintenance required
Scalability	Easily scales with business growth	Limited scalability; costly upgrades.
Integrations	Easy integration with other applications via APIs	Limited or difficult integrations
Cost model	Subscription-based	Higher upfront costs; possible upgrade costs

This feature-by-feature view highlights a fundamental divergence: For most small businesses, the agility, real-time access, automation of accounting activities, and reduced IT burden of cloud solutions are increasingly tipping the scales.

Common problems with desktop accounting systems

The last thing you need as a small business owner is for your accounting system to add to your workload or create unnecessary stress. Yet, for many, traditional desktop software and manual methods like spreadsheets do exactly that. These older approaches come with a host of daily frustrations that can slow you down and even put your business at risk. Let’s unpack some of the most common headaches you might be experiencing.

Limited access to your financial data

Desktop software locks your financial data to a single computer, meaning you can’t send an urgent invoice or check a payment from anywhere but your desk. This makes remote work difficult and slows down your ability to manage finances on the go. 

Imagine being a plumber on a job site. You need to check if a payment has cleared before ordering more materials, but you’re stuck until you get back to your desk. 

In contrast, cloud-based software provides easy access to business data from anywhere with an internet connection, supporting remote work and on-the-go financial management.

Difficult team and accountant collaboration

Sharing spreadsheets often involves emailing them back and forth, which can quickly lead to version control chaos. Which file is the most up-to-date? Who made which changes? This confusion can result in errors, wasted time, and a lot of frustration, especially during critical periods like tax season.

Cloud solutions enable seamless, real-time multi-user collaboration that minimizes manual processes. Account users have visibility into real-time reports and financial data so they can make informed decisions quickly.

Risky manual backups and data loss

“What if my computer crashes, is stolen, or my office experiences a fire or flood?” This is real possibility for businesses whose financial data resides solely on a desktop computer or in unprotected spreadsheet files. 

Unlike desktop software, which requires manual backups and places the burden of data security on the user, cloud accounting offers automatic backups and vendor-managed security, significantly reducing the risk of data loss.

Costly updates and outdated software

With desktop systems, software updates, including crucial tax table changes or new features, often come at an additional cost and require manual installation. You have to stay on top of maintenance and updates, potentially leading to outdated software and compliance issues. Older desktop software might not connect with newer online payment systems or customer relationship management (CRM) tools, forcing you into time-consuming manual data transfers and reconciliations.

Cloud platform updates are automatic and included in the subscription, ensuring access to the latest features and security patches without extra cost or effort.

The limitations of relying heavily on spreadsheets like Excel

For many startups and small businesses, Excel seems like an accessible starting point for managing finances. However, as your business grows and complexity increases, the limitations of spreadsheets quickly become glaring pain points.

• Slow and error-prone manual entry: Typing everything by hand takes a lot of time, and it’s easy to make mistakes. A small typo can lead to big problems with your financial records and decisions.
• Complex calculations lead to messy files: As your business grows, spreadsheets can turn into a tangled mess of formulas that no one truly understands or trusts.
• No real-time insights: Spreadsheets do not update automatically. This means you may be making important decisions with outdated information.
• Version control issues: When sharing spreadsheets, it can be hard to keep track of different versions, which undermines accuracy and makes teamwork more chaotic.
• Integration is nearly impossible: Spreadsheets don’t easily connect with other important business tools like accounting software or bank feeds, so you’ll have to do more manual work to get a clear picture of your finances.
• Data security risks: Spreadsheets typically don’t have the same access management and safeguards as accounting software. They can easily be modified or deleted and are prime targets for cyberattacks.

When desktop accounting software might be a good fit

While cloud accounting offers many advantages for most modern businesses, there are specific situations where traditional desktop accounting software might be a better choice for you. 

You need extensive offline access: If your business operates in locations with unreliable or no internet, desktop accounting software offers a significant advantage. Because the software and your financial data are stored directly on your computer’s hard drive, you can access and work on your books without an active internet connection. 

You have specific customization requirements: Desktop accounting software can give greater flexibility for deep customization to meet highly specialized business processes or niche, industry-specific needs. On-premises software can sometimes be tailored more extensively to integrate with legacy systems, unique reporting structures, or highly specific workflows.

You prefer a one-time purchase model: Some businesses prefer the traditional cost model of a one-time upfront purchase for a software license rather than recurring subscription fees. You prefer to store all data locally: With desktop software, your data resides on your own machine. If you have stringent internal data governance policies, keeping data entirely in-house might be a priority. With desktop software, you are responsible for managing your own data backups and security, which provides complete autonomy over your data’s location and protection measures.

Choosing cloud accounting: 5 essential features to look for

Once you recognize the compelling advantages of cloud accounting software, the next step is figuring out what to look for in a specific solution. The market is bustling with options, so it’s crucial to choose the right software that truly aligns with your business’s unique needs and can help you overcome your specific challenges. 

Here are some key aspects and features to consider, especially if you’re a service-based business owner or freelancer.

1. Intuitive invoicing and efficient expense tracking

For many small businesses, especially those providing services, invoicing is the lifeblood of cash flow. Your accounting software should make it effortless to create professional invoices, send them promptly, and track their status. Equally important is efficient expense tracking. You need a simple way to capture receipts (perhaps via a mobile app), categorize expenses correctly (especially distinguishing billable expenses), and see where your money is going.

Look for features that allow you to:

• Create customizable invoices with your logo.
• Send automated payment reminders to nudge clients gently.
• Accept online payments directly from the invoice.
• Capture receipts with a mobile app and easily categorize business expenses.

For example, solutions like FreshBooks can help you create customized invoices in moments and track billable expenses effortlessly, which directly helps you overcome the manual processes that slow you down.

2. Accurate time tracking and project profitability insights

If your business bills by the hour or manages projects, integrated time tracking is a non-negotiable feature. A good system ensures all billable time is captured, reducing revenue leakage and making your invoicing more accurate. Beyond just logging hours, the ideal solution should help you understand project profitability by showing you how much time and expense went into a project versus how much you billed.

Your software should let you:

• Easily log hours against specific clients and projects.
• Seamlessly convert tracked hours into an invoice.
• Get clarity on which projects are truly driving your success.

3. Customizable financial reporting

One of the main reasons businesses move to dedicated accounting software is to gain better insights into their financial health. Cloud solutions provide automated financial reports and advanced reporting capabilities that deliver real-time insights for better decision-making. Your chosen solution should offer a range of reports that are easy to generate and, crucially, easy to understand, even if you don’t have an accounting degree. Standard reports like the profit and loss (income statement), balance sheet, and cash flow statement are essential.

Look for software that lets you customize reports and filter data so you can see exactly what you need. When you can quickly pull up a profit and loss statement or check your cash flow at a glance, you’re empowered to make proactive decisions instead of reactive ones. 

4. Seamless integrations with banks and other business apps

Modern businesses rely on multiple tools, and your accounting software should be a team player. Direct bank feeds are a huge time-saver, automatically importing bank and credit card transactions to reduce manual data entry. 

Beyond banking, consider how the software connects with payment gateways you use (like Stripe or PayPal), your CRM, or any e-commerce platforms to create a unified view of your operations.

5. User-friendliness and accessible customer support

The most feature-rich software in the world is useless if it’s too complicated to navigate. Especially for small business owners who are often not accounting experts, the software should have an intuitive interface, be easy to set up, and straightforward to use on a daily basis. Look for a clean design, clear navigation, and helpful prompts or guides within the application.

And when you do have questions or run into an issue, responsive and helpful customer support is vital. What to consider:

• Does the vendor offer support via phone, email, or chat?
• Is there a comprehensive online knowledge base with tutorials and FAQs?

Choosing a system that feels intuitive and offers reliable support means you’ll spend less time feeling frustrated and more time benefiting from its features.

Success stories: Small businesses thriving with cloud accounting

Hearing from those who have made the leap to a cloud-based accounting system adds valuable perspective and shows the practical impact these modern tools can have.

The specialty trade business: regaining time and clarity

For contractor businesses like Local Glass, passion for the work can often be overshadowed by the demands of administrative tasks. Co-owner Heidi found herself spending countless hours on invoicing and struggling to keep track of payments. By switching to cloud accounting software from desktop accounting software, she was able to dramatically reduce the time spent on these financial chores. The ability to easily monitor outstanding payments and generate timely and accurate financial reports not only streamlined her operations but also eliminated the stresses of hidden fees and the frustrations of dealing with a complex and cumbersome desktop platform.

The organizing and cleaning service business: simple, efficient invoicing

Desktop accounting may seem like an upgrade from spreadsheets, but professional organizer Jennifer found the opposite. She ditched spreadsheets in favor of desktop accounting software for her growing business, Neat as a Pin Organizing & Cleaning, only to discover it was even more complicated and frustrating to use, not to mention expensive.

After switching to a cloud accounting solution, Jennifer was able to send invoices and receive payments online with ease. This transition saved her over two and a half hours each week on invoicing and payment collection, making her business operations much more efficient and helping her expand into multiple service areas and add more than a dozen employees.

Steps to implementing the right cloud accounting solution for your business needs

You’ve seen the limitations of traditional methods and the powerful advantages of the cloud. Now, how do you choose and implement the right cloud accounting software for your unique business? Understanding your business requirements is essential for selecting the right software. It’s not a one-size-fits-all decision, but by asking the right questions and following a clear process, you can find a tool that truly supports your objectives and sets you up for success.

Step 1: Understand your business’s accounting needs

Identify the core features you need from your software based on your business and its operations. Pinpointing your current challenges will help you prioritize the features that matter most.

• Business type: Do you sell services, products, or both? This may determine whether you need time tracking and/or inventory management.
• Users: How many people need access, and from where? Cloud software is ideal for remote teams and external accountants.
• Integrations: List the other tools you rely on, such as your business bank account, CRM, payment solution, or e-commerce platform.
• Core features: Compare fundamental functionalities like invoicing, expense management, and reporting to ensure the software meets your essential needs.
• Budget: Consider ongoing subscription fees versus the value the software provides.
• Scalability: Choose a system that can grow with your business.
• IT comfort level: Do you want to be hands-off with IT? Consider software that requires minimal technical oversight.

Step 2: Key questions for software vendors

When you research options, use free trials to get a feel for the software and ask vendors these pointed questions:

• How does your software serve businesses like mine in terms of size and industry?
• Can you demonstrate your features for [insert your top 3 needs here]?
• What security measures (like encryption and backups) do you use to protect my data?
• What customer support do you offer (phone, chat, email), and what are the hours?
• How user-friendly is the interface for a non-accountant?
• What are your pricing plans, and are there any hidden fees?
• What pricing models do you offer (subscription, one-time purchase, etc.)?
• Is a software license required for use, and what does it cover?
• What ongoing maintenance is required, and are there additional costs for updates or support?
• Can you describe the reporting capabilities of your software, especially for real-time and automated financial reports?
• Does it integrate with my bank and other essential tools?
• How easily can I scale my plan up or down?
• What does the onboarding process and data migration look like?

Step 3: Tips for a smooth switch to the cloud

A successful switch depends on careful implementation. Follow these tips for a seamless move.

• Consult your accountant, if you have one: Involve your financial advisor early. They can offer expert advice on choosing and setting up the right system.
• Plan data migration: Clean up your current records before moving them. Ask the vendor about their data import support.
• Set aside learning time: Any new system has a learning curve. Use tutorials and guides to get comfortable.
• Start with the basics: Master core functions like invoicing and expense tracking first. You can explore advanced features later.
• Train your team: Ensure everyone who will use the software is trained and understands its benefits.
• Ask for help: Don’t hesitate to use the vendor’s customer support when you have questions.

Cloud-based software: a smart choice for modern businesses

For most small businesses today, cloud accounting software is the superior choice due to its flexibility, built-in updates, and enhanced security. Unlike desktop software, cloud solutions store your financial data on secure remote servers, allowing you to access it from any internet-connected device. This gives you real-time collaboration, automated financial processes, and seamless integration with other business tools. 

While desktop software might be suitable for businesses needing offline access or specific customization, cloud accounting offers the agility, security, and efficiency you need to thrive. It allows you to:

• Gain freedom with anytime, anywhere access to your financials.
• Make smarter decisions with the power of real-time data and real-time insights.
• Reclaim your time through powerful automation, improving efficiency.
• Collaborate easily with your team and accountant.
• Reduce errors and enhance accuracy with advanced reporting capabilities and secure, multi-user access.

Ready to see how a cloud accounting solution designed for businesses like yours can make a difference? Explore how FreshBooks helps service-based business owners simplify their accounting and get paid faster at www.staging.freshenv.com.

Frequently asked questions

Is cloud accounting software really secure for my sensitive financial data?

Reputable cloud accounting software providers invest heavily in security measures. This often includes bank-level encryption for your data, both when it’s being transmitted and when it’s stored on their servers. They also typically offer features like multi-factor authentication, regular automatic backups to multiple secure locations, and compliance with international security standards (like SOC 2). While no system is 100% immune to breaches (and user-side security, such as password management, also plays a role), in many cases, your data is actually safer with a trusted cloud provider than on a single office computer that could be susceptible to hardware failure, theft, or malware. When evaluating the right software for your business requirements, consider the provider’s security practices as a core feature.

I’m a freelancer/very small business. Isn’t cloud accounting software too complex or expensive for me?

Not at all! Many cloud accounting solutions (including FreshBooks) are specifically designed with freelancers and small businesses in mind. They often have very user-friendly interfaces and offer tiered pricing models, including some very affordable or even free options for basic needs. The time saved on tasks like invoicing and expense tracking can quickly outweigh the cost. When choosing the right software, compare core features and reporting capabilities to ensure it fits your business requirements and budget.

What if my internet connection is unreliable? Will I lose access to my financial data with cloud accounting?

This is a valid concern. Cloud accounting software does require an internet connection for real-time access and syncing. However, some providers offer mobile apps with offline capabilities, allowing you to record certain transactions or view some data even when offline, which then syncs when you reconnect. When selecting the right software, check if offline access is included as a core feature to meet your business requirements.

How difficult is it to switch from my current desktop software (or spreadsheets) to a cloud accounting system?

While any change involves a learning curve, most modern cloud accounting platforms are designed for easy setup and data migration. Many offer tools to import data from common desktop software or spreadsheets. Vendors often provide extensive help guides, tutorials, and customer support to assist with the transition. If you are moving from a desktop solution, remember that desktop software typically requires purchasing a software license and may involve ongoing maintenance costs, while cloud solutions often use subscription-based pricing models. Consider your business requirements and core features needed to ensure you choose the right software for your needs.

Can my accountant access my cloud accounting software? How does that work?

Absolutely! This is one of the major advantages of cloud accounting. You can typically grant secure, role-based access to your accountant or bookkeeper. This means they can log in to your books directly (with your permission) to view your financial data, make adjustments, pull reports, or help with tax preparation, all in real-time without needing to exchange files. Advanced reporting capabilities are often a core feature, making collaboration and compliance easier.

The article mentions various benefits like automation and real-time data. Can you give a specific example of how this helps a service-based business?

Imagine you’re a consultant. With cloud accounting, you can track your billable hours using an integrated time tracking feature directly in the software. When it’s time to bill, you can instantly convert those tracked hours into a professional invoice and email it to your client, even from your phone. When the client pays online (another common cloud feature), the payment is automatically recorded and matched to the invoice. This whole process is faster, reduces manual entry, minimizes errors, and helps you get paid quicker, improving your cash flow. When evaluating the right software, look for automation and reporting capabilities as core features that align with your business requirements.

What happens to my data if I decide to stop using a particular cloud accounting service?

Reputable accounting providers usually have policies that allow you to export your data. The format and ease of export can vary (e.g., CSV files, Excel spreadsheets, specific backup formats). It’s always a good practice to understand a vendor’s data export policy and procedures before signing up, so you know how you can retrieve your information if you choose to switch providers or close your account. Also, consider ongoing maintenance and data retention policies as part of your business requirements when selecting the right software.

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