Leveraging accounting software can be one of the best ways to help grow and scale a business. However, to achieve a fruitful implementation of an accounting system, it is crucial to have some level of understanding. The objective of this blog is to answer the very fundamental question - what is accounting software?
Finding and implementing the right accounting software within a growing organization can be one of the best ways to reach the business goals and objectives. The marketplace offers various types of accounting software and ERP systems. However, when scaling up a small organization to a midsize one, there are risks and considerations to take into account. Therefore, as you are thinking about your accounting software journey, the following are the things that you should know about accounting software.
First, a basic level of understanding of accounting software is fundamental. Many organizations start their journeys by tracking their financials in the form of spreadsheets or other more fundamental, rudimentary types of technologies. As they grow and scale-up, often they look for an alternative, which leads them to accounting software that can provide some capabilities that will stimulate growth by permitting better visibility into how the business performance at a financial level.
The benefit of using accounting software in your organization is that it will include all of the traditional accounting and finance matters related to your business processes. The adaptation of accounting software will cover various needs including the organization’s general ledger, setting up a chart of accounts, as well as being able to track cost the different cost categories within your P&L. This is a fundamental aspect of accounting software.
Moreover, it includes accounts payable, accounts receivable, and those sorts of critical processes to any sort of accounting software. It also permits invoicing and tracking purchase orders and such. In addition, you have the business processes and workflows related to period-end close; thus, at the end of every month, quarter, or year when you are closing out your books, your workflows and processes are sorted and ready to be automated with the accounting software.
Finally, accounting software has another important component that is the drill-down ability. Its significance resides in the leverage that it provides. For example, if you are looking at a P&L and you want to drill down into different cost sub-categories, or even get down to the transactional level on your revenue outside of your general ledger, these are some operations that accounting software will assist you with.
Ultimately, you will find that accounting software does seem to be something that you would need for your organization. However, you want to identify the software that will best meet your needs and fulfill the requirements for your goals and objectives while subsequently, permitting your organization to move forward. I will be introducing you later to a specific software package that you might consider as part of your accounting software journey.
Accounting software implies thinking of standalone accounting-focused systems like QuickBooks, Zoho, FreshBooks, or Wave, but there is another type of technology called enterprise resource planning, ERP. Most ERP systems are designed to perform fine accounting and finance and are used as core financial and accounting software by many organizations. The difference between ERP and accounting software is that ERP can run more activities tying the business operations together, such as inventory and warehouse management in manufacturing or distribution companies.
However, one fundamental difference between accounting-focused systems that only do accounting is that they potentially require integration to other systems that handle other parts of the operations compared to ERP systems, which have finance and accounting at their core and are capable of performing other operations when added on certain modules within those systems. Therefore, having a vision and a pre-understanding of those two distinct options is essential to know which direction to follow while considering accounting software.
Nevertheless, accounting software is not just processes, workflows, and the cost and revenue tracking within the system, it is also the reports that come out of it. This applies not only to accountants and personnel within the finance and accounting group but also within operations. Therefore, you need to consider what kind of metrics, reports, and business intelligence your operational leaders might need to acquire in order to understand and follow the business performance.
Another key consideration for your business is to broaden your perspectives when you are looking at accounting software. Instead of only wanting to look at the way it handles the transactions and the controls that are underlying within the system, you would also want to consider what are the outputs and how the reports and the business intelligence tie together. Perceiving all these aspects is another important thing to consider in accounting software.
Up until now, I have provided a high-level overview explaining what accounting software is, therefore, now it is about time that we move to our next question that is, what is this accounting software? I will answer this question by proving some of the leading accounting software vendors in the market. As I mentioned before, there are two buckets, being the accounting systems and the enterprise resource planning systems, ERP.
Like all things, accounting software has some leaders and others. For small and midsize organizations, the leaders would be QuickBooks, FreshBooks, Wave, and the very commonly used Zoho. Thus, there are different options available in the market, you only need to make sure that you are looking at these systems while keeping in mind the organization’s growth. Because, when moving forward, your needs become more complex and you have to ensure that that particular software can handle it.
It might seem trivial but it is often a mistake that happens to organizations when they start on accounting software, but then they outgrow the initial system and need to expand to something more robust, like an ERP system. The ERP systems that I mentioned before can carry out accounting and finance actions, but also, they can perform other operations that might help tie together your operations throughout the entire organization.
Some products offer good ERP systems which might be good alternatives for your organization. Systems like Sage ERP are very good examples of high-performance leading ERP systems that focus on or do accounting and finance. Sage ERP has a number of different accounting efficient systems within their umbrella. Oracle NetSuite is another small and mid-market-focused system. These two products are examples of ERP systems to more myopically-focused accounting software.
What is important to remember is that with ERP systems you can start with the core finance and accounting modules and then add additional modules as you grow, or as your needs evolve over time. You are not compelled to bite off an entire ERP system at first, which will allow flexibility in thinking ahead and maybe plan for what sorts of broader technology capabilities outside of accounting and finance you might need a longer-term.
The final thing to look at while considering potential accounting and finance software for your business is its implementation and how it will look like. Unfortunately, unlike spreadsheets, it is not as simple as starting Microsoft Excel. It requires understanding the workflows as well as how to set up a chart of accounts, general ledger, reports, and business intelligence, and how accounts payable and accounts receivable types of processes flow. These things need to be designed and defined upfront.
Defining your business processes and requirements at an early stage is important, followed by a realistic understanding of what implementing the technology entails, as well as what it takes to define business processes in a way that fits the software, not forgetting to train your personnel. Usually, training and the business processes within accounting and finance cost more time and money than the technology itself. Therefore, make sure your realistic view encompasses, besides the technology, the operational and organizational components.
These are a few things you need to be knowledgeable about when considering the implementation of accounting and finance software. For more information on additional prospective vendors check out other videos on my YouTube channel, where you can find various reviews of different ERP systems and accounting software. You can also download our annual 2021 Digital Transformation Report, which includes several rankings and ratings of all different types of accounting and finance software, as well as ERP systems and customer relationship management systems. You can find different sorts of technologies that might help your business.
I hope you found this information useful and if you have questions regarding accounting software and how it can enable your digital transformation, please don’t hesitate to reach out to me directly. I am happy to be an informal sounding board as you move through your digital transformation journey.