At some point, every company outgrows small business accounting software. There are four options a CFO or controller can consider to solve this problem. In order to minimize long term costs and business disruptions, ideally, that upgrade would only happen once.
This guide covers:
Products like Quickbooks lack the capabilities mid-sized companies need. Applications made for small businesses do not scale well and don't present the data financial professionals require to understand the true health of the business. An upgrade driven by a Controller or CFO may come as part of a company-wide initiative to deploy ERP software, or as a more isolated project to simply upgrade accounting programs.
Your upgrade options
Companies have many choices from simple cloud-based small business accounting packages, to fully functional, integrated and industry specific ERP software. On top of the technology they buy, they need to choose implementation partners who understand the nuances of their business in order to get real value out of their investment. No matter what path they pick, there is the potential to solve today's challenges and still have the flexibility to meet what may come next.
Option 1: Cloud-based small business accounting solution
The first option is a sideways shift to a modern cloud based accounting package that can do everything companies expect from their existing solutions. These products cover all the basics to track revenue and expenses, maintain transaction records and manage receivables and payables. Payroll and inventory management are sometimes included or available as add-ons. This type of upgrade offers increased scalability in both transactions and users, and anytime/anywhere access.
Option 2: Mid-market Accounting/Light ERP software
Compared to small business applications, finance software for the mid-market includes payroll and inventory management out of the box and adds features for costing, forecasting, budgeting, purchasing, reporting and consolidating the financials of multiple entities. Some include basic features for manufacturing. These solutions can support large numbers of users and are now typically deployed in the cloud.
Option 3: General Purpose Mid-market ERP
Unlike a purely accounting focused solution, ERP is integrated into nearly every part of your organization. That, along with a more complete set of features, makes it possible to manage sales, customers, vendors, supply chains, quality, R&D, production, plant maintenance and logistics. Most companies going down this path also add in real-time analytics and forecasting.
Option 4: Industry Specific ERP
ERP built expressly for one industry will offer standard ERP capabilities as well as managing industry specific requirements. In the food industry that includes product safety, regulatory compliance, recalls, recipe formulations and batch manufacturing.
The difference between 'Accounting' and 'ERP' software
The decision to replace small business accounting software with more robust financial tools presents a dilemma between achieving incremental accounting improvements, or leveraging software that can manage both advanced financials and also improve core business operations. While ERP is a part of the basic tooling in a large enterprise, it may be relatively unknown to controllers or younger CFOs in high growth companies.
Accounting software stores partial data, ERP gives finance access to all essential business data.
The most important distinction between accounting software and ERP is the centralization and sharing of all enterprise data. If the company has to use one system for accounting and another to manage operations, they end up with data silos. Maintaining multiple products requires duplication of effort entering data, more difficulty accessing and reporting on it, and challenges in ensuring accuracy and timeliness. This makes it hard to understand how the business is really performing.
Accounting software supports accounting processes, ERP software drives operational efficiency across the entire business.
Besides centralizing data that Finance can leverage, ERP drives operational efficiency gains in every facet of a business. ERP manages core internal business operations like production, inventory, product quality and safety. It also handles external facing processes such as upstream and downstream supply chain, sales and marketing. Most of those modules also happen to contain financially relevant data. ERP drives true business intelligence.
When investing in an ERP makes sense
You want data from everywhere
With more reliable, more precise information about your profit drivers and sources of waste, you'll be able to better predict the future and consequently manage your company more proactively. With less uncertainty in reports and forecasts, managers make better decisions about allocating resources to profitable products, customers and customer segments. In an industry with small margins, that can have a big impact on profitability and growth.
You want to move beyond measurement into improving performance
Basic bookkeeping does a good job recording transactions and creating financial statements that give management an accurate picture of past performance. But predicting future performance and making adjustments in strategy is only possible with financial software that shares common data with the rest of your organization. By tying together all parts of a company, ERP can expose opportunities for improvement that basic accounting packages would miss. ERP has the power to reveal actionable insight.
You want your software to be able to grow with the business (so you don't have to replace it twice)
The implementation of new business software is always difficult, time consuming and costly. The more complicated your company gets as it grows, the greater those difficulties and costs are likely to be. More facilities, business entities, employees and expanding production volume all contribute to the cost and complexity of business software implementation. If a company has ambitions to keep growing, it would be ideal to only have to go through this process once.
Your want your software to be able to mirror your business, not the other way around.
A major difference between ERP and accounting software is what technologists call 'extensibility'. Companies that have junior accountants and limited IT staff don't have the capability to make fundamental changes to the way business software captures and makes use of data. They purchase and use software that has rigidly defined accounting workflow. ERP allows for mass customization. That means you can bend technology around the business problem, rather than changing the way your business functions in order to fit the limitations of your software.
When investing in 'food ERP' make sense.
You understand that the Food Industry is unique
To perform at its full potential, a company needs software developed and implemented by people who thoroughly understand the customer's industry. Food safety, perishable inventory, catch weights, protein deconstruction, allergens, item tracing and a strict regulatory environment are a few of the unique pressures on food processors and distributors. To manage these challenges effectively, a vendor can't just customize generic software. They have to have developed these capabilities already, have experience implementing them in your industry, and be capable of providing informed recommendations based on that experience.
Your priority is long term ROI rather than just minimizing initial project cost
ERP setup costs are significant. To maximize your return on investment, you need to change your business software infrequently so you can amortize the setup costs over many years. ERP software can be adapted to meet any unanticipated future needs, and scales with your business so you won’t need to replace it. Industry specific ERP generates greater absolute returns because it has food-focused features you wouldn’t get from generic ERP. You can avoid future software replacement projects by buying ERP instead of accounting software, and you can reduce the total cost of ownership by buying a solution that is food specific.
You want to minimize project risk
Virtually every ERP implementation involves some customization to fit the unique needs of the business. That customization increases the implementation costs and increases the potential for the project timelines to drift. The more purpose-built functionality that is included, the less risk there is in custom software development. You can further reduce your exposure by choosing an implementation partner with deep experience implementing software in your industry and who will deploy the solution on a proven and secure platform.
You know you are going to have to upgrade your financial management software. The good news is you have options. By investing in an ERP platform you can eliminate the need to undertake this kind of replacement again in the future. There are vendors like JustFood that have already taken generic ERP and adapted it to the requirements of food processors and manufacturers. This means solving your immediate challenges, and being very well positioned to address how the business changes over time.