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SMBs get cloud financials, but large enterprises aren't far behind

Two CFOs explain why cloud financials became the clear choice after they outgrew their old systems and got over their concerns about cloud security, data access and functional depth.

While confidence in public clouds for general business applications grew in recent years, many CFOs still balked at trusting core financials to an outside service provider. Common stumbling blocks for cloud financials were concerns about security and immature financial capabilities in cloud systems.

But now, CFOs in midsized and smaller organizations are becoming comfortable enough with the cloud to choose it in growing numbers for essential areas, such as accounts receivable and payable, general ledger, and other financial activities. "The capabilities of today’s cloud financials are adequate for these types of organizations," said Michael Guay, research director for ERP strategy and value realization at Gartner.

Most large enterprises, especially multinationals with complex local-reporting requirements, continue to stick with on-premises financials for now, but even that is changing. "Gartner is predicting that by 2018, at least 25% of large enterprises will be acquiring new financial systems in the cloud," Guay said. 

A variety of factors are leading to increased adoption of cloud financials. CFOs are coming to believe that service providers have successfully addressed concerns about security, the ability to easily access financial data, and the functional depth of the systems. That said, careful evaluations are still required. "Each company and vertical market has unique requirements," Guay said. "If you’re a CFO, you don’t want to lose important functionality by moving to the cloud."

Technology startup sees growth path in cloud financials

John Wagner is a CFO who evaluated cloud and decided to commit when his growing tech startup, EverQuote, needed to replace its QuickBooks Online. The company, based in Cambridge, Mass., has grown to about 160 people in five years, and in 2015, it adopted cloud-based MineralTree to speed invoice entries and approvals. Earlier this year, EverQuote moved to NetSuite’s ERP service for general ledger and the platform’s financial-management controls. The company is now rolling out Expensify for cloud-based processing of expense reports.

"We consider the cloud to be mature enough that it’s no longer a stretch, even for financial software," Wagner said. "We now have a financial system that can scale with the company if we go from 160 to 1,600 employees. We also saw not being dependent on an internal IT infrastructure as an advantage with on-demand applications."

Discussions with his service provider convinced him that security would be better with the cloud than what EverQuote could have achieved with an on-premises application. "Security is as important to their business as it is to ours," Wagner said.

Although he committed to cloud, the CFO didn’t go all-in with the NetSuite platform.

For example, EverQuote continues to use a proprietary revenue-recognition application rather than the module that comes with the ERP suite. The company now uploads rev-rec data to the financial system each month. Similarly, EverQuote continues to use a separate service to manage payroll. "Our strategy is to take an iterative approach to adding functionality," Wagner said. "Given the size of our company, we’re fairly nimble in terms of adding tools, so we decided to find a scalable core financial system and then pace future implementations."

Enhanced reporting aids decision making

At the Rancon Group, based in Murrieta, Calif. cloud financials are enhancing financial reporting and decision making. Founded in the early 1970s, the real estate developer creates limited liability corporations -- the count is now up to 100 -- to attract investors to help acquire land, perform some initial development, and resell the assets to builders. More recently, Rancon also launched brokerage and escrow companies, and it’s developing a resort in the California wine country.

Effectively managing all these entities became a challenge with its previous financial package, QuickBooks. In particular, the old system separated financial data for each entity. "Doing something as simple as pulling the cash balances of each of our legal entities was a tedious process that took hours to do in the old system," said CFO Steven Van Houten. "That made it difficult to budget, to understand what’s doable from a financial standpoint for each project, or to determine when to reach out to our investors for a capital call."

Last year, the firm adopted Oracle ERP Cloud for general accounting, payables and receivables, purchasing, and project management. "We now have flexible access to our financial data," he said.

At the start of the evaluation process, it wasn’t a given that Rancon would adopt a cloud system. "We wanted financials in the cloud, but we were cautious about whether it would work out," Van Houten said. "We had looked at cloud previously for some other types of software, but it didn’t quite pencil for us."

In addition to becoming convinced of the new system’s maturity, Van Houten also liked how the cloud would mitigate burdens for the internal IT staff. "If we went with an on-premise application, we would probably have had to bring additional staff on board. That became an important part of our decision criteria."

He also gravitated to the project-management capabilities in the final choice. "We have large projects where significant monies were going to be invested and with long-term contracts and payment milestones," he explained. "We needed a system that supported that. We were also interested in mobile tools, so our product managers could see their data while at construction sites, in county offices, or when meeting with consultants."

These draws didn’t completely eliminate implementation challenges. "Flipping the switch on a new accounting system is never a fun day," he said.

One hitch was getting the financial staff, which averaged 12 years with the old system, used to working differently. "Training is of paramount importance to get your team used to the new product before you go live," he explained.

With the help of the new cloud financials, Van Houten plans to redefine how the AR/AP department runs. "We’ll be able to direct all invoices to AP, where they’ll be scanned and coded," he said.

Once the invoices are reviewed and submitted, they’ll automatically be routed to the appropriate approver for the given legal entity and the approved invoices will go back to the system to be paid in the next check run. "That means we’ll always have a handle on what obligations are outstanding and have an electronic record of who approved what and see anything outstanding or that still needs to be approved. We expect that will give us much better information about our obligations."

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