The time will come when basic accounting software will no longer fulfil your growing business’ requirements.
There often comes a point within a relationship when one party realises it’s time to move on. They feel they have outgrown the relationship, or that their needs are no longer being satisfied.
The same applies in business. The systems that may have served you well in the past will inevitably no longer be able to keep pace as the business matures. In fact, they could end up holding your business back.
But at what point should a growing business decide to move on from a long-term relationship with its basic accounting software? What is the tipping point for a firm to swap Xero, QuickBooks or Sage for a dedicated mid-market ERP system?
Often a firm simply outgrows its existing system and requires more integrated capabilities -particularly as it grows in revenue, employee base, customers or office locations.
For example, they may be using a single accounting software package but as their business scales, things like the volume of invoices and number of suppliers increase, adding complexity to the business. This can be particularly challenging if they are moving into new markets and need to be able to cover requirements such as multiple currencies, notes Chris Richards, regional president UK&I at Unit4.
Clients should have an honest conversation with the vendor and be transparent about who else they are talking to.” Chris Richards, Unit4
“Mergers and acquisitions are another common cause as it is harder to integrate existing systems, so it makes more sense to adopt a new platform that covers all their requirements,” she explains. “The customer may not want full blown HCM, but they do want a more integrated finance and procurement process.”
“Something we’re seeing more of now is that customers want to be able to do better data analysis across wider areas of the business. Given all the volatility we’ve seen in recent years, the ability to forecast more accurately is becoming even more important to businesses as they scale.”
What are the red flags?
So what are tell-tale signs to look out for that your business is reaching a tipping point and needs to consider a proper ERP system?
The first is information loss, lost orders or paperwork in a failure to transfer key data from one system to another, according to Stephen Edginton, VP of product development at Epicor. This means data silos can occur because systems are not integrated, and customers are ultimately let down.
“The second is your accounting month-end close is often hard to reconcile, you only get limited insight into key operational processes, you find it hard to see across your business units and determining the profitability of a product, project or customer is painful,” he continues.
“Lastly, growth causes cracks in processes. We often see scaling issues where individuals have set up ways of doing things that become a critical cog in a business process. However, if they leave, the business is tied to that subsystem which is often not understood or flexible.”
It’s true that businesses without the perfect match ERP system can scale to some degree – but they will inevitably end up compensating for it through workarounds. This results in manual and unreliable ad-hoc processes, which are not designed or developed for your industry, so typically do not follow best practices or are not flexible enough.
“You pay the price for this over time,” warns Edginton.
It’s complicated
Elsewhere, John Case, CEO of Acumatica, says that one problem with general accounting software is that multiple locations require multiple databases, which is not conducive to a team that’s expanding its number of physical locations or supporting a dispersed workforce.
“With cloud-based ERP software, companies can manage multiple locations using a single database, enabling mobility and productivity for employees on both desktop and mobile devices, from any location, at any time. Scalability and growth are much simpler with cloud-based ERP software,” he says.
We often see scaling issues where individuals set up ways of
doing things that become a critical cog in a process.”
Stephen Edginton / Epicor
For example, says Case, a business in the manufacturing, distribution, or commerce industries is dealing with supply chain logistics, inventory tracking and warehouse management, among other things.
“Basic accounting software is not built to handle these complexities. These basic systems cannot integrate data across each line of business, which makes it difficult for decision makers to have a complete picture of the business. By implementing an ERP solution, the business can capture comprehensive business data in real time. This data enables the business to make more informed decisions and increases efficiency and productivity.”
Don’t leave it too late
But despite the tell-tale signs, many businesses don’t realise they need to replace their existing software until it’s too late.
It is common for a growing company to invest in a cloud-based customer relationship management system like Salesforce to enable them to scale their revenue. However, they often neglect their back office systems – which is where problems typically arise.
Indeed, Andy Campbell, global solution evangelist at FinancialForce, says the main reason why small companies go out of business is not due to a lack of turnover. Rather, it is because of cash flow issues as a consequence of not having a tight control over the business.
“As the saying goes, ‘Turnover is vanity, profit is sanity, but cash is king’” he explains. “Growing businesses need to invest in robust, scalable, and flexible ERP systems that can support their operations and provide them with the information that they need. It also provides the basis upon which to make the right decisions to drive the business forward.”
Campbell maintains that many smaller companies delay investing in an ERP until it is too late, as they have a perception that such a journey will be costly, complex and timely. Perhaps there has been some justification for that view, historically. However, with the new breed of cloud-based ERP vendors, this is no longer the case.
He continues, “If a business is growing, they need to ask the question: ‘Will I still be trusting my business to run on spreadsheets in three years’ time?’ The answer is probably no. It is better to be in control of a decision than have a decision thrust upon you or wait until it is too late!”
Feel the benefits
It is therefore vital that businesses recognise that there is a world of difference between a basic accounting package and an ERP solution. The former focusses solely on supporting the finance function within the organisation. The latter typically provides a much broader range of functionality of which accounting is just a part – a true ERP solution will also include areas such as project management, billing, supply chain and even manufacturing. Put simply, it is an end-to-end business management tool that connects multiple departments and applications.
“Information from finance, sales, marketing, operations, and any third-party application desired coalesces into the ERP system, making it easy to access business-wide data in real-time,” says Case. “The result is a 360-degree view of the business and real-time access to synchronised data.”
Important too is that modern ERP systems will also have been designed to address the issues of growth. This means they should obviously be able to scale in size.
Scalability and growth are much simpler with cloud-based ERP software.” John Case / Acumatica
“The solution needs to be inherently flexible to easily accommodate ongoing organisational change and new business propositions such as subscriptions,” says Campbell. “They also will need to support the challenges of the global economy including multi-company, multi-language and multi-currency.”
The argument for investing in a dedicated mid-market ERP system is compelling. A Forrester study has found that companies that adopted a cloud-based ERP experienced significant benefits, including a 15 percent improvement in gross margins, a 15 percent increase in sales volume, and a 45 percent increase in employee productivity. The study also determined that organisations would experience benefits of $3.5m over three years versus costs of $2.1m, adding up to a net present value of $1.4m and a return on investment of 66 percent. The payback period for investing in the solution was 16 months.
Finding a perfect match
So, how do the smaller ERP vendors support customers that are looking to make this transition?
Unit4’s Richards explains that one challenge is that customers moving from a single accounting application to an ERP platform sometimes underestimate the amount of time needed to think about how their business processes work together, and the knowledge and resources required to ensure these systems function well together.
This is where the vendor’s expertise and tools should kick in.
“We recommend using an industry model approach, so that you are using best practice solutions for your sector,” she says. “This ensures you have the relevant functionality for your business and adoption is easier and quicker. For example, we’ve just done this for an international hospitality and events business. Using the relevant industry model, they have been able to go live in three to four months which means the time to value is good.”
Richards also says it is important to understand that adopting a best practice approach will require an acceptance there will be some change in how the business operates. This means the leadership team must consider what it will mean for the business in the future. They must also be seen to lead the deployment precisely because it will be a change management exercise. The business leaders must pull everyone together to ensure teams such as finance and HR are collaborating to integrate processes.
“It is better to be in control of a decision than have a decision thrust upon you or wait until it is too late!”
Andy Campbell / FinancialForce
Finally, Richards points out that the shift to an ERP solution might genuinely be too much at this stage for some companies.
“Clients should have an open and honest conversation with the vendor and be transparent about who else they are talking to,” she says. “By simply looking at which vendors are on the short list you may find you are just looking for an upgrade to a more sophisticated accounting software package.
“However, ERP vendors should also be able to work with customers to provide flexible packages that can ramp up costs in line with the company’s growth.”
Time to split
As your company grows and your business needs become more complex, you’ll find that entry-level accounting software has clear limits. As such, the time will come for you to re-evaluate your relationship with your accounting software.
“I encourage organisations to step back and ask themselves whether they have a system that provides the visibility, efficiency and automation of the data and processes they need to operate successfully now and in the future,” says Thomas Sutter, finance centre of excellence, Oracle NetSuite.
“Do you have the capabilities that will take you where you want to go? As you grow and expand you need to be able to do more with less and find simple ways to manage complex problems. Your technology should be a solution rather than a hindrance on that journey.”
“True ERP helps deliver visibility, efficiency and automation
of data and processes.” Thomas Sutter / Oracle NetSuite
At its most basic level, ERP software helps you integrate your various business functions into one complete system to streamline processes and information across the entire organisation.
“True ERP helps deliver visibility, efficiency and automation of data and processes so that employees stay laser-focussed on their product or service by freeing up the time and resources needed to drive innovation and remain competitive,” adds Sutter.
“ERP systems can contribute to better decision-making, with built-in business intelligence and a single version of the truth to produce better, faster and more intuitive decision-making. True ERP can also help simplify the different departments across a business and automate manual processes to save time and free up resources to better serve customers. Compared to entry-level solutions, true ERP allows business leaders to run a global business with ease, by effortlessly managing multiple subsidiaries, business units and legal entities with one ERP solution, with data visibility at local, regional and headquarter levels. Plus, true ERP should be customisable and allow for integration with other business-critical applications to keep data connected and accessible.”
Yes, breaking up is hard to do. But maybe the time is right to move on to a dedicated ERP solution that is right for your business.
