How to select accounting software

CPA Journal, The, Nov 2001 by Mattingly, Tim

Making the

right

choice

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 "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:

* There is no single "best" product; different products are appropriate for different companies, based upon a thorough business-needs analysis.

* Typical existing software might accommodate 70% of most users' needs. A well-designed system might handle 85-- 90% of a user's needs. A customized version of the right software could accommodate more than 90% of what a company needs.

* Consisting of several hundred applications, accounting software is a highly fragmented market. Taking the labels off of the top brands (most of which are legacy, modular systems) makes it difficult to tell them apart.

* Companies vary widely in how important price is when compared to the overall commitment to implement and support an accounting system.

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.