Five Reasons for Upgrading Your Entry-Level Accounting System

Analyst Viewpoint

Small business owners are fortunate to have a choice of feature-rich, flexible, and affordable entry-level accounting packages. Eventually, though, successful businesses grow and will often find that the very accounting software that once made things more efficient is now bogging down operations. Here are five unmistakable signs that it is time to replace your entry-level application with financial management software designed for midsize companies. Small business owners are fortunate to have a choice of feature-rich, flexible, and affordable entry-level accounting packages. Eventually, though, successful businesses grow and will often find that the very accounting software that once made things more efficient is now bogging down operations. Here are five unmistakable signs that it is time to replace your entry-level application with financial management software designed for midsize companies.

#1 Your CPA advises you to upgrade. CPAs do not go out of their way to spend clients’ money if it’s not absolutely necessary. So, if the CPA’s advice is to run the business with a more capable financial management package, that’s probably a good idea. And it’s also likely that this advice is reflective of one or more the following four reasons.

#2 The business has become more complex. As organizations grow, their structure and accounting tend to get more complicated. For example, business requirements cause the chart of accounts to expand, or there are substantially more legal entities, perhaps even operations in multiple countries with multiple currencies. Maybe the company now has more employees than can be supported by the entry-level software, or there is considerable employee turnover because of the nature of the business. It could be that the volume of business transactions is pushing the software to its limits. Entry-level systems are great for smaller businesses, where simplicity and ease of use are essential, but past that point, simplicity becomes a constraint, not an enabler.

#3 Productivity is lagging. It’s possible that dealing with that increased complexity on a daily basis is forcing staff to spend time on workarounds, which is time consuming and hurts productivity. Replacing an entry-level system is likely to improve productivity immediately, and the right system provides scalability that can allow operations to grow without having to add much, if any, administrative overhead, so that found cash and time can be used for investment and business operations.

#4 Inadequate analysis and reporting. Those canned reports that were once so useful when the business was smaller have become inadequate. Now staff efficiency is lagging because too much time is spent working around the shortcomings of software that doesn’t have the analysis and reporting capabilities necessary to run an organization intelligently. Dashboards that provide timely information and automated and self-service reporting can improve staff productivity and give executives the information and insight they need to cut through complexity, making it possible for them to make better decisions more consistently.

#5 It takes too long to close the books. The generally accepted benchmark for completing the accounting close is five business days after the end of the month or quarter. However, Ventana Research’s Office of Finance Benchmark Research found that 49% of midsize businesses take seven or more days to complete their quarterly close. Time spent on the accounting close is time that is unavailable for doing more useful work that supports a growing business. And a shorter close provides executives and managers with more timely management and financial accounting information, enabling them to act faster to address issues and opportunities.

Making the case for investing in any new software must go beyond the direct savings it provides. CFOs and senior executives should consider the overall value provided by an accounting system designed for their needs. For example, more capable software can enhance their department’s capabilities to provide the entire organization with data and insights to improve its performance.

It’s also important not to overlook the many possible risks inherent in staying with an entry-level accounting system too long – risks to the smooth operation of the business associated with an inability to deal with complexity, lack of productivity or ability to scale, employing too many workarounds to deal with scale and complexity, or with limited visibility or analysis and reporting capability.

In the past, it was hard to make the transition from a small business accounting application to one designed to address the specific needs of a midsize organization in large part because systems were deployed on-premises. Cloud-based systems require less up-front investment in software and hardware, and they do not require additional staff to manage the application, perform upgrades and implement patches. Security from accredited vendors is probably better than what a midsize organization can provide on its own.

Plants left in pots that are too small become rootbound and cannot grow to their full potential. The same is true for organizations and their financial management systems. CFOs in midsize organizations should periodically review how well their systems foster growth and performance. When the signs are there, it’s time to change.