The 21st century is steadily making its way through its second decade. The century has also seen major advancements in technology, especially in the business world. Walk around today and you will hear some business owners talk about “going the cloud way”. What they mean is that they have integrated cloud applications and business software in their operational niches so as to be more profitable. The popularity of cloud applications in business today can be widely attributed to their positive impact on business finance. Here’s how;
- Shifts large capital expenses (CAPEX) to much smaller but regular operating expenses (OPEX). By and large business financial health is determined by the amount of expenditure the business has against its revenues. The shift improves on business cash flow and aids in budgeting. This can be illustrated using the following cloud applications
- Infrastructure as a service (IAAS). Infrastructure as a service is key to enabling organisations to put the key business infrastructure in the cloud, and further purchase that infrastructure as a service. Here the main shift is based on the substitution of on-premise servers with the cloud bringing key advantages in scalability, flexibility, portability, maintenance cost and portability, with claims of development period reducing being commonplace. In regards to this model, Capital Expenditure spending on storage and server hardware is shifted to Operating Expenditure through the move to the cloud. Organisations do not own the equipment; rather a subscription (normally monthly) for usage is paid.
- Platform as a Service – PaaS. Platform as a Service scales things up a level. It offers both the scalable and flexible cloud infrastructure and heap upon applications. This is perfect for organisations aspiring to grow their systems to match their needs, while at the same time having the essential infrastructure taken care of via the cloud. A perfect example of Platform as a Service is Salesforce, which began as a cloud-based CRM application and has developed to become an important platform upon which thousands of organisations have built their business-critical applications.
2. Radically reduces depreciation without losing tax effectiveness; depreciation occurs on large expenses (equipment for example) that a business may use and is tax deductible over the life of the purchase (in effect the business claims “x” percent of its value each year). Depreciation greatly affects business finance in that it reduces the face value of attached assets. The reduced value reflects the reduced time for which that item is valuable to the company, and also reflects that the item will need to be replaced in the future. On the flipside cloud application operating expenses are typically tax deductible in full, which makes total financial sense to growing and thriving businesses.
3. Typically lower cost and time efficient; good business software reduces business overhead costs in various areas. Human resource cost is one such area; efficient business applications that integrate with each other can cover in for several employees guarding against duplication of labour. An example might be a cloud accounting program, cloud point of sale program and an eCommerce platform, all seamlessly integrated. This saves time for other money making business operations and puts it in a great financial position.
4. Cloud applications technology is normally up to date through automatic free improvements (updates by provider). In this case, there will be reduced capital expenditure when updates are required improving business finance.
It is no doubt that business software and cloud applications have seen a revolution in the past decade. They are the perfect tools to improve business finance in the modern world due in part to their strengths in reducing expenditure and increasing productivity.