Timing the Switch From Accounting Software to an ERP System

One of the most important factors in a growing business is making sure it has systems that can support it as it expands. Small businesses often try to squeeze as much performance from their existing systems to delay investing in more powerful systems.

When a small business pushes an accounting system beyond its limits it can slow-down its growth. The business, in effect, may sacrifice more lucrative opportunities if it avoids investing the capital and effort in suitable business software.

So what are the tipping points in accounting software? When does a business need to step up to an ERP?

• Incomplete syncing between multiple applications. The increase of third-party business software lets small businesses do an amazing range of activities. However, it can be a real challenge to keep information in sync between separate systems. Information may only sync in one direction, for example. Or some fields will sync while others will not.

The result is often inconsistent databases, and there is no certainty that the information is consistent across all systems. This commonly presents a problem for customer contact information stored in the CRM.

If the accountant updates the customer phone number in the accounting system, does that sync back to the CRM so the sales people see the updated information? If the sync is one way from the CRM to the accounting system, as is often the case, then it will not. Or perhaps the information isn’t synchronised.

ERP systems solve the problem of inconsistent customer data by unifying all CRM information in a single database linked to every other module (accounting, inventory, help desk, etc).

• Periodic syncing is too slow. Another factor to consider if you’re using third-party programs with your accounting software is the frequency and speed of syncing data. Due to inherent limitations of APIs, accounting software vendors limit the frequency with which third-party applications exchange information with the accounting software database.

As a result, third-party programs typically sync information not regularly. Inventory management applications usually sync no more than once per day, and ecommerce applications may limit the periodic journal entries to once per month.

Many businesses require real-time, up-to-date information. Thanks to a single database, information is shared among applications in the ERP system instantly, or with minimal delays.

• Reporting lacks detail. If you’re thinking about switching to an ERP system, you probably have one or more inventory, ecommerce, or payroll system syncing with your accounting software. The odds are that those systems don’t sync all transaction data to the accounting system. Instead, they sync a daily or monthly journal entry to record sales, cost of goods sold, inventory changes, etc.

One challenge of this approach is that detailed information that may be useful to decision makers is not available via accounting reports. Users seeking detailed information have to search for it in another application. This may be time consuming or impractical.

A benefit of switching to an ERP is that it is possible to “drill down” from a high-level view to the original transaction detail, including source documents.

• Unable to track multiple entities. Most accounting software is designed to track the assets, liabilities and equity of a single entity. However, for many reasons it is often preferable to structure a small business using more than one legal entity.

One way to attempt to track the activity of multiple legal entities in accounting software is to segment transactions by an additional dimension other than accounts. By using “classes” or “tracking categories”, as they are often called, it’s possible to produce a segmented income statement and balance sheet.

There are limitations to this method, though. For example, it is difficult to report easily on financial activity when there are different ownership percentages among various affiliated entities. ERP solves this problem by allowing “multi-ledger” accounting functions. This tracks transactions by each legal entity, instantly consolidates the data and reports on the business as a whole.

• Cost of training and using multiple applications. It’s harder to train employees when they have to learn many different applications with different user interfaces. ERP systems generally present a similar user interface and navigation structure across all the modules. This makes it easier for employees to work across different modules, since they don’t have to learn a new interface for each function.

“As an integrated application, NetSuite is ideally suited for startups with a clear growth path. It maps all relevant business processes and can be easily customised. Its ease of use and scalability are further benefits for young companies.” FELS Group GmbH

Multiple separate databases also present a security risk. When employees resign, it can be difficult to ensure that access is revoked to all systems.

When an ERP is in place, access to all modules may be revoked by deactivating a single login. This also makes it easier to audit access permissions among current employees who have changed jobs and should no longer have the same levels of permissions.

For example, a sales agent may move into a customer service role. If the CRM is separate from the support ticketing system, IT or managers may neglect to remove the former sales agent’s access to the CRM application.

• Stuck on desktop systems. Small businesses are often as guilty of hanging onto outdated technology as large enterprises. An enterprise may stick with legacy software beyond its useful lifespan because the application was custom created for a specific purpose.

A small business may keep using old software running on a server because of the inconvenience in retraining on new software, or the time it would take to find a suitable program as a replacement. The business may even be reluctant to pay a monthly fee for an alternative cloud software system if it is already using software under a perpetual license at no additional cost.

Cloud computing has revolutionised the delivery of software, as the business no longer needs to own a server, and the associated expenses of maintenance and upgrades. Cloud software has many other advantages; it is accessible from anywhere on any computer or device with an internet browser, it can be used by staff on their mobile phones or tablets, it connects easily and often free of charge, and so on.

Nobody understands the importance of true cloud better than young companies. There is a world of difference between software designed for the cloud and software designed for the legacy world. NetSuite has never been a desktop product. It has always been a multi-tenant solution. In contrast, many basic accounting solutions still come in a desktop version. Even the hosted product lacks the always-upgraded, strong code base of real multi-tenancy.