Nikoo Samadi
When you choose an ERP system, you also choose how to run it. With Microsoft Dynamics 365 Business Central, you can deploy in the cloud (online/SaaS) or on-premises. Both options use the same core application and support finance, sales, purchasing, inventory, and operations, but hosting and maintenance change your cost, control, and IT workload.
Some companies prefer full control over infrastructure and upgrade timing. Others prefer Microsoft to manage servers, updates, and platform security. The right choice depends on your IT strategy, compliance needs, and long-term plans.
In this guide, we compare Business Central cloud vs on-premises across cost, maintenance, customization, security, performance, and scalability so you can choose the deployment model that fits your organization.
What Is Microsoft Dynamics 365 Business Central Cloud?
Microsoft Dynamics 365 Business Central cloud is the online version of the system. Microsoft hosts it in its data centers, and you access it through a web browser. There is no need to install servers. Microsoft handles platform updates, backups, and service availability. Your team can log in from any location with an internet connection and use it on a laptop, tablet, or phone.
Business Central cloud runs on Microsoft Azure. Microsoft delivers predictable update cycles (major updates typically twice per year) and supports configuring maintenance windows and sandbox testing to reduce disruption.
Licensing follows a subscription model, which means that you pay a monthly fee per user. Most core features match the on-premises version, and you can extend the system with apps from AppSource or custom extensions.
In a Business Central cloud vs on-premises comparison, the cloud model reduces internal infrastructure work and shifts platform responsibility to Microsoft.
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What Is Microsoft Dynamics 365 Business Central On‑Premises?
Microsoft Dynamics 365 Business Central on‑premises runs on servers your company owns or controls. You install the application in your own data center or private hosting environment, and your IT team manages the infrastructure.
Your IT team can control server setup, database configuration, and upgrade timing. You decide when to apply updates and can test changes before moving them to production.
Your team has full access and control over data because it stays on your own servers. It makes it easier for the team to customize and configure the data. On-premises is suitable for companies with strict data security policies.
Key Differences Between On-Cloud vs. On-Premises
One of the biggest differences between them is who manages the infrastructure. With Business Central Cloud, Microsoft hosts the system in Azure and takes care of servers, backups, performance, security patches, and automatic updates.
With Business Central On-Premises, the system runs on your own servers or private hosting environment. Your IT team (or partner) is responsible for installation, updates, and backups. Here we have a more detailed explanation of the differences.
1. Infrastructure & Maintenance
Cloud:
Hosted by Microsoft
Automatic updates (twice per year major releases)
No server maintenance required
Microsoft manages uptime and disaster recovery
On-Premises:
Hosted on your own servers
Manual updates controlled by your IT team
You manage backups, performance, and availability
Requires internal or outsourced IT expertise
2. Cost Structure
Cloud (Operational Expense – OpEx)
Monthly or annual subscription per user
No upfront hardware investment
Predictable recurring costs
On-Premises (Capital Expense – CapEx)
Higher upfront license and hardware costs
Ongoing maintenance and upgrade expenses
Potential long-term infrastructure savings for large enterprises
For growing businesses, the cloud model often provides better cost flexibility and lower initial investment.
3. Customization & Control
Cloud:
Supports extensions (no direct code modifications)
Standardized update model
Limited access to server-level configuration
On-Premises:
Greater control over environment
More flexibility for deep customizations
Full database and infrastructure access
If your organization requires heavy system-level customization, on-premises may offer more flexibility.
4. Security & Compliance
Cloud:
Enterprise-grade security managed by Microsoft
Built on Azure compliance standards
Automatic security patches
On-Premises:
Full control over security policies
Responsibility for patching and monitoring
May be required for specific regulatory environments
Most businesses benefit from Microsoft’s built-in cloud security unless specific local compliance laws require local hosting.
5. Scalability & Remote Access
Cloud:
Easy to scale users up or down
Access from anywhere
Ideal for remote or multi-location teams
On-Premises:
Scaling requires hardware planning
Remote access needs VPN or secure gateway setup
Better suited for stable, centralized operations
If your workforce is remote or distributed, cloud deployment provides a clear advantage.
6. Performance & Reliability
Cloud
Runs on Microsoft Azure infrastructure
Built-in redundancy and disaster recovery
Microsoft monitors uptime and service health
Automatic performance optimization at the platform level
Scalability handled at the service layer
On-Premises
Performance depends on internal hardware capacity
Requires database and infrastructure tuning
Your IT team manages monitoring and optimization
Hardware upgrades may be required as usage grows
Full control over server configuration and performance settings
For organizations that prefer standardized, managed performance with minimal internal oversight, the cloud model provides consistency. For organizations that require full control over infrastructure resources and tuning, on-premises may offer greater flexibility.
7. Upgrade Strategy & Version Management
Cloud
Microsoft delivers major updates twice per year
Minor updates and patches are applied automatically
Sandbox environments allow testing before release
No large upgrade projects required
Always running a supported and current version
On-Premises
Upgrade timing is fully controlled by your IT team
Updates require planning, testing, and execution
Larger version upgrades may involve project-level effort
Possibility to delay upgrades based on internal priorities
Risk of accumulating technical debt if upgrades are postponed
In a Business Central cloud vs on-premises decision, organizations that prefer automatic updates and reduced maintenance effort often lean toward the cloud model. Organizations that require full control over upgrade timing and internal release cycles may prefer on-premises deployment.
When Business Central Cloud Makes Sense
Cloud is often the stronger option when simplicity and scalability matter most:
- You want to reduce infrastructure management: servers, SQL environments, hardware refresh cycles.
- You support remote or multi‑location teams: less friction to access).
- You prefer predictable operational costs: subscription model.
- You want to stay current: without large upgrade projects like major update cycles are predictable and managed through the service model.
- You don’t require deep infrastructure-level control: and are comfortable using extensions/APIs.
When Business Central On‑Premises Makes Sense
On‑premises can still be the stronger option in specific environments:
- You require full infrastructure control: custom security policies, isolated networks, and strict governance.
- You operate under specific regulatory constraints: that demand internal oversight of system architecture or data handling.
- You run heavy legacy integrations: that rely on deeper system-level access.
- You have established internal IT infrastructure: and don’t expect meaningful operational savings from the cloud.
- You need flexible upgrade timing: aligned to internal project schedules.
Migration and Future Flexibility
When evaluating Business Central cloud vs. on-premises, it’s important to understand that the decision is not necessarily permanent.
Organizations currently running the on-premises version of Microsoft Dynamics 365 Business Central still have the option to migrate to the cloud in the future. Microsoft provides supported migration paths that allow businesses to transition from on-premises environments to the cloud version in a structured and controlled way.
This flexibility plays an important role in a Business Central cloud vs. on-premises strategy. Some companies begin with on-premises deployment due to regulatory or infrastructure requirements and later move to the cloud as their IT strategy evolves. Others modernize gradually, migrating when operational readiness, cost structure, or scalability needs change.
Understanding that your ERP deployment model can evolve over time makes long-term planning more manageable and reduces the pressure of making a “permanent” choice.
Final Thoughts
The choice between Business Central cloud and on‑premises is not about which is better. It’s about what fits your organization’s structure, risk tolerance, and long‑term IT strategy. Both deliver the same core ERP capabilities. The real difference is infrastructure ownership, upgrade management, security responsibility, performance tuning control, and access model.
Before making a decision, consider:
- How much infrastructure responsibility your team wants to carry
- Whether remote accessibility is a priority
- Your internal IT capacity and expertise
- Regulatory or compliance requirements
- Your long‑term ERP roadmap
If you’re still evaluating options, a structured assessment can clarify trade‑offs based on your technical and operational realities.
Table of Contents
Read more
- Business Central Cloud vs On Premises: Which to Choose
- Forbes Reveals the Best Cloud ERP: Here’s Why Business Central Wins
- How the Microsoft Power Apps Platform Transforms Manual Processes
- Top Power Automate Workflows Every Business Should Use in 2025
- Microsoft Copilot AI Agents: Build Your First AI Agent
Forbes Reveals the Best Cloud ERP: Here’s Why Business Central Wins
How the Microsoft Power Apps Platform Transforms Manual Processes
Top Power Automate Workflows Every Business Should Use in 2025
