3 myths about cloud services

Over the past decade, the term "cloud service" has evolved from an amusing, obscure buzzword into a staple of the business world. It is no longer foreign to accountants, as cloud storage has become the preferred method for business managers and accountants to store financial data. In 2015, we launched our own cloud product, Jumis Pro, and today, more than two-thirds of all users of the Jumis accounting solution have migrated from local installations to the cloud.

Storing data off-site offers numerous advantages. A company no longer needs to maintain server rooms or hardware, there is no need to worry about data backups, and information can be accessed from both computers and smartphones. It does not even matter where you are—even if you are at the beach. All you need is an internet connection.

Despite these conveniences, many companies are deterred from adopting cloud solutions by deep-seated myths that are long outdated but still persist in people's minds. Here are the most common ones, along with their debunking.

"Storing data on a computer is safer than in the cloud"

This is perhaps one of the most common myths about cloud services. For cloud providers, security is one of the most critical factors in successfully offering services. It is not for nothing that huge investments are made in staff training and the development of data centers to ensure they meet all security standards established in the European Union and globally. Data security in the cloud is managed by professional IT specialists who are aware of the risks and trained to use the most secure technologies. Cloud services use specialized data redundancy systems that ensure regular backups are created. This means that data in the cloud is always stored in at least two copies. If, for any reason, the original data is corrupted, it can be immediately restored from a backup. For an accountant, this means that in the event of erroneous data entry or accidental deletion, you can always revert to a previous version of the data. The cloud also maintains specialized access security systems, or firewalls, that protect it from hacker and virus attacks.

Since data in a cloud service is accessed via an internet connection, a secure data channel must also be ensured between the database hosted in the cloud and the client's computer. Most commonly, SSL (Secure Sockets Layer) encryption algorithms are used, which protect data even if an unauthorized person or an internet service provider intercepts it. For example, in the case of an unsecured wireless network, data is not encrypted, and transmitted information can be intercepted by a hacker or a dishonest employee.

In practice, there are many cases where data stored on a computer or company server is lost. The most common reasons are damaged hard drives, lost or stolen computers, accidental damage, and less frequently, fire, floods, or other natural disasters. Hackers and scammers are increasingly interested in misappropriating company data for extortion purposes. Recently, a wave of "ransomware" swept the world, causing massive losses to countless companies globally. These viruses also affected Latvian companies, and data stored on company computers or servers was lost.

"Regulatory authorities have free access to data in the cloud"

It is hard to imagine how such a myth originated, but rumors have been circulating for some time that regulatory authorities in Latvia might have free access to data stored in the cloud. In reality, this is impossible legally, practically, and from a moral and ethical standpoint. All legal nuances are included in the contract concluded between the cloud service provider and the client.

Company data stored in the cloud is the property of the company, and therefore access to it is determined by the company's responsible personnel. One of the rare situations in which regulatory authorities can access company data is if company employees grant this access permission during an audit. Other situations are regulated by the legislation of the Republic of Latvia.

In the more than four years since our cloud service has been operating, serving over 6,000 companies in the cloud, we have received only a few requests to grant access permission. The requests were not accepted because they lacked justification.

"Cloud services are too expensive"

This myth cannot be explained with a single definitive answer, as for some companies, cloud services may cost more than maintaining their own IT infrastructure, while for others, it is significantly cheaper.

A company's costs for cloud services or its own IT infrastructure depend on the company's data security strategy, business model, and needs. It is important to identify all cost items associated with IT infrastructure and understand how seriously the company wants to treat its accounting and financial data. The principle is: the more you have to lose, the more complex and expensive it is to provide a full-fledged security system.

Cloud service costs differ fundamentally from traditional IT infrastructure costs. Cloud service costs are operational (OPEX), whereas if a company builds its own internal IT infrastructure, capital expenditures (CAPEX) are usually required. It is essential to evaluate whether the company needs to purchase its own servers (perhaps because they will run not only accounting but also other systems) or whether the IT server infrastructure should be entrusted to cloud service providers.

Every company's situation is different. For example, a company that provides IT services will choose to build its own IT infrastructure because IT is the company's core business. It plans to use various systems, and the company has enough IT specialists to maintain these systems. Conversely, a company engaged in trade, rather than IT, will calculate that it is more cost-effective to use cloud services and not worry about hiring IT specialists and investing in servers.

One of the significant cost advantages of cloud services is flexibility. For example, if a company's business is seasonal, cloud service costs are incurred only for the resources consumed.

Example: The company SIA MSG deals with construction projects that are mainly carried out in the summer. Consequently, in the summer, the company hires additional staff—payroll accountants, warehouse managers, and project managers—who need access to the company's management system. In the case of a cloud service, additional users can be added to the system during the summer period, and payment is made accordingly for the specific number of users each month. After the active season ends, the company removes the additional users and no longer pays for them.

Cloud service costs can sometimes seem higher because only licensing fees are considered, rather than the total cost of ownership. To objectively evaluate whether to maintain your own server with databases or use a cloud service, you must consider the total costs of data storage within the company, which include:

• Purchase of a data server or computer
• Software acquisition and maintenance
• Computer network infrastructure
• Additional electricity costs for the data server
• IT specialist services.