By Tim Mattingly
In Brief
Sifting Through a Sea of Information
Choosing the right accounting software is becoming more difficult as the software market becomes increasingly fragmented. In many cases, more product information makes decision-making more difficult rather than less. The risks of leaping into an expensive purchase decision are hard to assess.
Consumers bewildered by the differences between real time and batch, off-the-shelf and custom, LAN and web, should remember that they are not alone, and their confusion is justified. By using an “assess needs first, select product last” framework, paying attention to basic product descriptions, and digesting pro and con evaluations, anyone can become an informed and intelligent consumer.
Several guiding principles can put into perspective the challenge of selecting the right accounting software for specific requirements:
Myriad other issues further complicate the process, including back-office functions, product versions, transaction volume, client/server operations, speed and performance, real-time queries and reports, e-business functionality, and database issues.
A basic problem with accounting software selection is the dizzying array of programs available. Not only are there abundant vendors and resellers serving every level of the market, but many vendors now further subdivide markets into ever-narrower segments. When a company decides to select a new software package, it is confronted with this deluge of technical information. Meanwhile, the fundamental criteria of software selection are often lost in the torrent of data.
Begin at the Beginning
Business requirements range so widely that the first step for any company is to carefully analyze its specific needs. For example, a jeweler that makes a large semi-annual inventory purchase in Amsterdam that will result in thousands of smaller retail transactions may need a high-powered sales system, while an offshore drilling company that contracts with a major oil company for a single sale that will require hundreds of purchases to support the contract may need an enhanced purchasing system instead.
Within these extremes, most accounting software packages’ functions include the following: general ledger, accounts payable, accounts receivable, inventory control, sales invoicing, purchasing, and payroll. Other considerations include whether a firm has one location or multiple offices (nationally or internationally), whether extensive reporting is critical, and whether a business or industry’s unique information calls for special software solutions that require add-on products or outside services. Although classic legacy-modular design has traditionally served users well, adding modules increases the complexity of transactional and module interfaces.
A sure way to become lost in the accounting software maze is to become preoccupied with the latest technological bells and whistles. Comparing a system’s features with the results of a business-needs analysis will lead to a better choice. Examples of system features include report writers, e-commerce and EDI capabilities, electronic funds transfer (EFT), sales ledger, comprehensive VAT, payroll, foreign currency, and data importing and export. Other functional considerations include ease of navigation, availability of online help, and user interface.
Realistic Cost Expectations
In most work environments, the software’s cost must at least be considered, even if it is not an overriding priority. High-end software features, designed for large corporations’ accounting departments, range from customer relationship management (CRM) to enterprise resource planning (ERP), and sometimes includes customized tool sets. Costs begin at several hundred thousand dollars.
Mid-market accounting/ERP products include financial accounting and business management applications with an open client/server architecture and fully integrated modules. Regardless of the brand, these will run on popular operating systems and databases. Costs typically range from $20,000 to just over $100,000.
Low-end systems for small businesses may be economical, but they are not devoid of attractive features, such as accounts receivable, accounts payable, general ledger, and comprehensive VAT. They run on popular operating systems, and can often be upgraded with payroll systems and report generators. Such budget systems do have more limited capabilities, but, at prices that range from the hundreds to the low thousands, the cost suits the market.
The Features Pulse
A quick survey of the accounting/ERP software landscape reveals hundreds of programs from which to choose. Although the Internet provides the ability to quickly access product listings and research multiple product lines and software industry leaders within specific market categories, the plethora of choices only increases the information overload. An overview of the best-selling programs in each category—small, medium, and large enterprises—will illustrate what to look for in making the selection decision. No specific buying recommendations are expressed or implied.
In the small-market category, ePeachtree and Quickbooks take advantage of the e-business trend. In addition to tapping the Internet’s convenience, their small-business software allows basic effective business management. Features include customer invoicing, inventory tracking, cost monitoring, and sales tax tracking. Their extended capabilities include purchase order processing and the entering and tracking of quotes and estimates.
In the mid-market segment, one of the most widely known and used accounting programs, Solomon IV from Microsoft/Great Plains, recently released version 4.50. Touted as a “comprehensive suite of business management and e-business applications, [it provides users] with a high level of flexibility and deeper functionality to address mid-market needs across various industries.” In everyday terms, this means that Solomon IV offers project management enhancements that allow close tracking of project details, supply chain management that can help manage and automate distribution processes, field service enhancements that automate both operations and accounting areas, and customization tools that provide more flexibility in automation and integration.
In the high-end market, defined as companies with revenues exceeding $250 million, major players include well-known names such as Epicor, Lawson, J.D. Edwards, Oracle, and PeopleSoft. At this level, selection stakes are considerably higher: Although they offer the most complete feature sets available, accounting/ERP systems represent a substantial investment and commitment. Costs can range from the hundreds of thousands of dollars to the low millions, along with significant associated implementation and support costs.
What’s the Solution?
Accounting/ERP software typically represents one of the biggest decisions a company makes. Strategies and 10-step programs for selecting and implementing accounting/ERP software can make the process unnecessarily intimidating. The best antidote is in-depth, ongoing consultant intervention.
Software selection is best when based on how the user, in this case an organization’s financial staff and accountants, wants to organize the information system relative to the business, its financial requirements, its size, and its rate of growth. For example, is only one office involved or are there divisional offices? Will reporting, such as for a product line or cost center, be a major activity for an office? Will future upgrades be necessary to cope with the company’s expansion? Are systems currently available that could meet, perhaps with modification, the company’s needs? What about databases and client/server systems? What about real-time processing versus legacy-batch processing? The answer always begins with determining the needs of the organization, not with seeing which template seems to be the best.
When the computer system is installed, what is it expected to do? The answer, which may be the result of group collaboration, can range from basic general ledger function to allowing multiple users and extensive e-business capabilities. It may require database servers or simply the basic capability to invoice customers, store detailed customer invoices, and track inventory transactions. As prospective system buyers begin to examine their actual needs rather than letting themselves be dazzled by technological features, the selection picture becomes clearer, even at this initial stage.
Collaboration, Budgeting, and System Attributes
The possibilities of group collaboration should not be underestimated. If many different users will be involved with the computer system on a daily basis, the purchase decision should consider their needs and expectations. Although, realistically, the final solution cannot suit everyone, it should at least try.
A company’s budget is of course part of the equation when determining which system to buy. To maximize its accuracy, budget preparation should include both a review of various systems and, if possible, an evaluation of comparable systems used by others. A frequently overlooked point is the importance of budgeting for the costs of implementation, user training, and ongoing support. Figures will inevitably change as new information is obtained and evaluated; this is not a problem, but rather a normal business situation.
The next stage of the decision-making process focuses on how product attributes match anticipated system outcomes. This involves evaluating a wide array of considerations, from operating procedures to user comfort level to quality of support.
The only way that the questions can truly be answered is for potential users to actually test the program under consideration. Does the software work easily, or is it overly complicated? Are the screens and menus logical, and is performance on par with expectations? Furthermore, does the system meet both present and future requirements—will the system grow with the company, and if so, how? What do current users say about the software, what has been published about it, and how well do opinions and observations seem to be in sync?
A major mistake that some companies make during this evaluation process is to give up because they fear that costs will greatly exceed what they had planned to spend. To avoid limiting one’s options, it is important to maintain cost flexibility and adjust to changing realities.
Other Technical Issues
Before taking the big step, several significant issues impinge on the selection process. One is the issue of real-time processing versus batch processing. Accountants worldwide struggle with this age-old dilemma: Is it preferable to subject financial and operations data to the batch model of entry, review, and posting to system accounts prior to reporting on such data? Or, should reports reflect all data currently entered into the system, regardless of its review or posting status? The answer is: It depends.
Most low-end and mid-market systems use the classic, batch-oriented solutions. Two exceptions to this rule are Quick Books at the low-end and Plus & Minus in the mid-market. Some users prefer the relative comfort of batch-oriented systems in environments that require a higher level of internal control, while others insist on the fast, current, and on-demand financial reporting of a real-time system. Company resources (people, products, and capital), type of industry and markets served, and data sensitivity and materiality are a few variables that must be considered when making this decision.
Increased publicity about the “virtual close” concept popularized by Cisco Systems has sharpened the real-time versus batch debate. Cisco, using real-time reporting tools throughout the enterprise that share all financial data almost instantly, has reduced the time necessary to close their books to one hour. Many believe that systems which allow continuous measurements and reporting will become the new standard, in sharp contrast to the periodic reporting practices of the legacy, batch-oriented, and modular systems that prevail today.
Another issue is that of multiple databases. Until recently, purchasers of accounting software were constrained to the software developer’s proprietary database. As software packages have multiplied, so have databases, with vendors now selling applications that accommodate many different databases.
Businesses that anticipate increasing numbers of transactions, or many additional users, will want a scalable database to handle their growth. This may considerably increase the software’s cost and significantly affect the usual variables of implementation and support. Determining which database works best for a particular company is not easy, however; per-user fees, consulting fees, and ongoing support must be considered alongside purchase price and performance.
Another issue is the trend among some vendors to concentrate on developing software for the upper-tier markets because of the perceived profitability advantages. This should not be a major consideration for those in the low-end market, because feature sets have generally kept pace with their more fundamental demands.
One final issue derives from the fact that client/server software does not require the entire database to work on a single record. Because it works with selected records within the database, the software design can be more efficient. Mid-market accounting/ERP software increasingly consists of client/server offerings.
Making the Decision
In deciding which accounting/ERP software to purchase, review the main criteria first. The search process can be narrowed at the outset because a company already knows its size, revenue, and market segment. Additionally, most successful businesses already have an existing system and therefore some experience with the selection process. The existing system’s feature set, along with implementation and support costs, can be matched against comparable software packages (perhaps by researching vendor websites) to initially get a rough idea of what the new purchase should be.
After determining business needs and understanding existing system capabilities, the company can analyze comparative costs and the ongoing commitment to keeping the system up and running. Then, when visiting resellers and test-driving the products, users can concentrate on the features most specific to the company’s business. Also recommended is talking firsthand with users of the same or comparable systems about their experiences. Then make the purchase decision, with a comfort that comes from thorough research and practical judgment.
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