Nobody likes accounting software. As small-business owners, we know we need it. And when business is good, we might not even mind using it. But nobody ever gets fired up to go shopping for accounting software.
Yet what kind of accounting software you need can actually be a pretty good indication of how your business is doing. Still working in spreadsheets? Small potatoes. Got a double-entry system with multi-user capability? Moving up in the world. Working a full-on enterprise resource planning (ERP) system with integrated global inventory data and real-time reporting? You’ve arrived.
Knowing when it’s time to make the shift up to the next level, however, can be a daunting task. Upgrading accounting software can come with a significant learning curve. The transition can take weeks to months, depending on how much data you’re moving over. And the software itself can cost a small fortune.
So to help your decision-making, I’ve divided the market into three categories, with a brief description of the types of users that are appropriate for each.
Beginner. This is the classic small-business user, probably with about 10 employees. You’re likely using spreadsheets and you’re tracking only the most important, top-level data points: cash, accounts receivable, accounts payable, taxes, general ledger, billing, and maybe sales and purchase orders. These are all “single-entry,” which means they are one-sided records used only to keep track of budgets and the like. There is no asset tracking, and inventory, expenses and revenues aren’t reported here. The volume of transactions is relatively low, as is the expertise needed to maintain the books.
Intermediate. This level is for the sophisticated small business or even a mid-size business with as many as 100 employees. Here you will most likely be using an off-the-shelf accounting software package, anything from QuickBooks to Peachtree to Microsoft Dynamics to low-end ERP software. You’re definitely using a double-entry system, in which each transaction changes at least two different bookkeeping records (debits and credits) and acts as a way of keeping the books balanced at all times. And you’ve got the system networked throughout the company, allowing multiple users to affect the data. You have payroll tied into the system, as well as inventory and asset tracking. You may even be able to use multiple currencies and handle integrated e-commerce. These accounting systems can be pretty sophisticated and scale well, so you’re going to need an accounting expert at this point. Add that to the significant cost increase you’ll see at this level.
Expert. This is the big leagues. You’re running a global business with a complex supply chain. You’ve got more than 100 employees and are doing half a billion in annual revenues. You’re also investing in an enterprise resource planning application. ERP systems can involve monstrous software implementations that take a team of consultants months to complete. They integrate into nearly every part of your business, from finance to human resources. And they even reach outside your company walls to suppliers and customers. The idea behind these systems is complete integration of company operations. They are incredibly powerful and incredibly expensive. If you’re ready for ERP, you know it.
Accounting software can be a drag. There’s really no way to get excited about it. But making the right choice is critical, because having too weak a solution will cripple your business and having too robust a solution is a waste of money. So choose wisely. And happy accounting.
Dan Briody is the author of two books and the former Executive Editor of CIO Insight Magazine, a leading publication for information technology managers. He is also a frequent contributor on technology topics for Wired., Inc. and Business Week magazines.
Note: This article was edited on June 14, 2010.
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