What is virtualised accounting software and is it a good thing?

11th December 2011

Many organisations have virtualised their servers and many more may follow this with the virtualisation of applications such as accounting. FSN writer Lesley Meall explores the various approaches to this.


Back in the mists of time, when I was a baby software engineer, I vaguely recall being shown how to partition a physical drive to create multiple logical drives. It’s 30 years ago, so I don’t remember anything about the process, but I am pretty sure that it was my first experience of ‘virtualisation’, and it wasn’t particularly complicated. Information technology (IT) has changed a lot since then, and whilst many things have become much, much, simpler, some have become much more complex – and virtualisation is one of them. 

Before you can even discuss it now, you need to define the parameters of your conversation: different people mean different things by ‘virtualisation’ (as FSN has previously outlined here), and you can get your head around some of these variations more easily than others. So, whilst this article is (eventually) going to consider the virtualisation of accounting applications, before doing this, it seems appropriate to provide some context, because the virtualisation of software applications is currently much less widespread than the virtualisation of computers – with good reason.  

If you have a collection of ‘bog standard’ computer servers and they are each individually dedicated to certain tasks, then their processing power and storage capacity are likely to be under-utilised, but virtualisation can overcome this constraint. If specialist software tools are used to split each physical box into multiple ‘virtual’ ones, and these can be re-sized and moved around ‘dynamically’ to meet changing needs, then the physical boxes can be better utilised, and many of the associated costs can be reduced. 

Businesses that want to exploit this can take various routes. Some have the will and the resources to handle server virtualisation in house, using their own IT staff. Some businesses chose to hand their boxes over to a third party service provider and let them do the virtualisation on their behalf. Some businesses get rid of their own boxes (when they reach the end of their useful life, of course), and use the resources of a third party provider. With this last approach, often described as a ‘private cloud’, some businesses use boxes that are dedicated to their business, whilst others take the ‘multi-tenant’ route to boxes that are shared with other businesses. 

In all of these scenarios, some businesses supplement their servers with on-demand resources from public cloud providers (such as Amazon Web Services), in an approach described as ‘hybrid cloud’. Because these resources are available as and when needed, they can be used to accommodate seasonal or unexpected increases in demand, if the set-up a business has opted for does not have the required spare capacity. Of course, some businesses chose to go a step further and rely on the servers of public cloud providers for almost all of their processing power and data storage. 

Chester Zoo has used Microsoft’s Hyper-V system to virtualise its servers. Phil Morris, the IT manager says: ‘This has cut our investment in hardware and saved us around £11,000 on electricity for power and cooling.’ Six-man start-up XAOP takes a different approach. ‘We create a virtual machine for each project we work on,’ says the founder and software engineer Stijn Van Vreckem, who uses an online time tracking tool (Timetag.it) and activity-based costing, to select either Amazon or Heroku for each XAOP activity, depending on which is the most cost-effective. 

All of which brings us to the virtualisation of software applications, and in particular, accounting and business systems. Just as servers can be ‘virtualised’ in different ways, so can accounting software. Just as some businesses have the will and the resources to virtualise their own servers, and others do not, some businesses have the will and the resources to virtualise accounting software and others do not – and conversations about ‘virtual’ accounting software can be as potentially confusing as conversations about ‘server virtualisation’, because the V word has (once again) so many meanings. 

Let’s start with the public cloud, as this is relatively straightforward. Rather than installing and maintaining accounting and bookkeeping packages on software on computer systems belonging to the business, many now take the software as a service (SaaS) approach to what some describe as virtual accounting applications (and others may describe as online accounting). These applications and the associated data live on remote servers belonging to third party providers (such as Kashflow or Netsuite) and are available on-demand, from anywhere with an internet connection. 

Amongst the many to benefit from this are an online recruitment company Blue Glue, Fenchurch Group of commercial and residential property development companies, and underfloor heating specialist Nu-heat. They’ve all entered the world of virtual accounting with different online accounting applications, following different paths, and being more or less impressed by various associated benefits. You can read about their experiences in a previous FSN article here; and you can also read about the external support that transitions like this can demand, here.  

In theory, these applications can ramp up and down to meet your business demands in the same way as on demand ‘server’ resources can. In practice, with many SaaS accounting systems you will find yourself constrained to processing certain numbers of transactions during a given period, and although you can add new users very easily, on demand, you will probably find yourself obliged to commit to the increase for a minimum contract term (often a year). So when your needs shrink, reducing your ‘capacity’ to reflect this is nothing like as simple as ramping it up.

 But there are other approaches to the virtualisation of accounting applications; like server virtualisation, it comes in various guises. Perhaps the most long-standing variant involves an application running on a server, and remote users interacting with an ‘image’ of the application window; another approach involves running applications locally, but in a virtualised environment that is isolated from the local computer. Discussions of applications virtualisation may throw up references to providers such as Citrix, Microsoft, Symantec and VMware, and various specialist products. 

Some organisations (and usually those above a certain size) chose to virtualise accounting applications themselves (with or without external assistance) and run them on their own virtualised servers. Take Chester Zoo, which has virtualised its personnel systems, time and attendance, and its accounting systems, with the help of a Microsoft certified partner Nviron. ‘We virtualised our whole Microsoft Dynamics Navision accounting system, within an hour,’ says Morris, and without end users having the vaguest idea that anything was going on. 

For a great many businesses, however, the virtualisation of their accounting applications is something that goes hand in hand with a decision to outsource some or all of their IT to a third party service provider. Instead of in-house servers and PCs and (corporate and personal) laptops with accounting software installed on them (and requiring management, maintenance and upgrades), the software applications are installed on servers that are managed by third party providers, and accessed ‘on demand’ using the internet, from a variety of fixed and mobile devices. 

When Geoff Matthews started his consultancy and accounting firm, he chose this approach, and because a local telco offered him a ‘very good deal’, he opted for a multi-tenant set up, where he and his staff use software applications and data that sits on boxes that are also home to the software applications and data of other businesses. ‘Sharing the servers has never been a problem,’ he says, and whilst some of the accounting software he and his staff use is in this ‘private cloud’, some is in the public cloud, because as he explains: ‘We have clients using KashFlow, Liberty Accounts and Xero.’ 

The asbestos removal and management contractor Silverdell opted for its own private cloud, using its own boxes ‘After a period of growth we ended up with three operating divisions that all had very different infrastructures,’ explains Ian Johnson, the chief financial officer, so it has unified these infrastructures and their applications (which includes virtualised accounting software) into a single private cloud, that is managed for it by a third party provider, Lancashire-based IT Managed Services (ITMS). 

‘We have virtualised accounting systems for a number of our clients,’ says Phil Taylor, managing director with the managed service provider ITMS, and most of the time this is problem-free. ‘With some accounting systems, there can be issues with the back-end database that sits underneath them,’ he says, particularly if this is not an industry standard one such as Oracle or SQL, ‘because some databases are easier to virtualise than others.’ The same can be said of accounting systems. 

Virtualisation can reduce the revenue to software vendors because buyers can end up needing fewer software licenses, so not all vendors are ‘supportive’. ‘Some keep their software development work cost-effective by building additional services and support into their business model,’ observes Taylor, but others are so keen to hang on to the concurrent user model, that they code their products to prevent virtualisation. There are also scenarios where the buyers and users of accounting software have little to gain and much to lose from its virtualisation. 

‘As long as the transaction numbers are relatively low, as they are with most of the businesses we work with, then there is no problem virtualising the accounting software,’ says Taylor. But James Carnie, technical architect with the hosting provider eLinea has some words of caution for larger organisations that may be thinking of virtualising their accounting systems. ‘With major implementations of Enterprise Resource Planning systems, the transaction processing is so resource-intensive that the reasons for virtualisation can just fall out of the window.’