What is the difference between cloud-based and on-premise accounting software?

Cloud software is hosted on the vendor's servers and accessed through a web browser. You pay a monthly or annual subscription. Updates happen automatically. Your data is backed up continuously. You can access it from any device, anywhere. Note.now is cloud-based - you log in from your laptop, tablet, or phone and always have the latest version.

Multi-user collaboration is a significant advantage of cloud software. Your bookkeeper in one location, your accountant in another, and you at home can all work in the same set of books simultaneously. Changes appear in real time. There is no emailing files back and forth, no risk of working from an outdated version, and no manual merging of changes.

On-premise software is installed on your computer or local server. You pay a one-time license fee plus annual maintenance. You control all your data locally. Updates require manual installation. Remote access is limited unless you set up a VPN or remote desktop. Examples include QuickBooks Desktop and Sage 50.

Data sovereignty is the most common reason businesses choose on-premise software. Some industries - healthcare, government contracting, financial services - have specific regulations about where data can be stored and who can access it. On-premise software keeps data entirely within the organization's physical infrastructure, which may be required by compliance frameworks.

For most small and medium businesses in 2026, cloud software is the better choice. It is easier to set up, requires no IT maintenance, and enables your accountant to access your books remotely. On-premise still makes sense for businesses with strict data residency requirements, very limited internet access, or existing IT infrastructure built around local servers.

The total cost comparison often favours cloud software over a 3–5 year period. On-premise has no monthly fee, but the hardware costs, IT support time, backup management, and upgrade expenses add up. Cloud software bundles all of these into the subscription price.