Accounting Software Guide

Accounting software is necessary to automate efficiently the financial functions of most any business or organization. Today, most accounting software includes modules for maintaining a general ledger of financial transactions, managing payable, receivables and bank reconciliation, at a minimum. While many small businesses start off by using a shrink-wrapped package such as Quickbooks or Peachtree, growth typically necessitates a more advanced accounting solution.

Accounting was perhaps the first departmental function to be automated with computer software and many of the largest application software vendors have their roots in this market. There remain many vendors that focus solely on accounting software, but most of the software vendors in this market have evolved to offer a far broader suite of applications that span departments (i.e. enterprise resource planning (ERP) software). At Software Advice, our accounting software coverage spans construction, manufacturing, medical, property management, retail and distribution, with additional markets coming online soon.

Accounting Software Guide Sections

At their core, accounting software applications consist of a set of modules that automate the primary functions of a finance and accounting department. These include a general ledger, accounts payable, accounts receivable, purchase orders, and others detailed below. Most systems also offer additional extended modules - often designed for specific industries - such as sales order entry, inventory control, job costing, fund accounting or time tracking and billing.

Today's accounting software buyer faces at least two important decisions: 1) buy a "horizontal" accounting system that is designed to address the needs of a wide range of buyers or purchase a "vertical" (i.e. industry-specific) system designed just for their industry; and, 2) buy a core, "stand-alone" accounting system, or buy a complete ERP suite that includes other applications such as customer relationship management (CRM) and human resources management (HRMS).

• Market consolidation. The accounting software market has consolidated dramatically in the last decade. Oracle consolidated the large-enterprise market with its PeopleSoft/J.D. Edwards acquisition. Microsoft gained market share by acquiring Great Plains / Solomon and Navision / Daamgard. Sage is the most acquisitive, with ~20 accounting software acquisitions. Buyers should carefully assess vendor viability to avoid "sunset" scenarios.
• Mid-market competition. Mid-sized companies have long been considered the next big market for ERP giants like SAP and Oracle. The battle for these mid-market organizations has intensified as these large ERP players met entrenched competition from the likes of Epicor, Microsoft Dynamics, and Sage. This competition has benefited buyers, as vendors compete on both price and product development.
• Integrated suites. Most vendors are working to expand the breadth of functionality offered in their products. Within accounting, this may consist of adding new modules such as expense management or fixed asset accounting. More common are big moves that add new applications such as CRM and HRMS. These larger moves often come in the form of mergers and acquisitions; buyers should assess the level of integration.

• Industry Solutions. Most vendors with horizontal accounting solutions are feeling the pressure to meet the industry-specific needs of their customers. As a result, most vendors are introducing vertical functionality such as point of sale for retailers, fund accounting for non-profits or production planning for manufacturers. Again, many of these additions come in the form of mergers and acquisitions.
• Software-as-a-Service (SaaS). Increasingly, software is hosted in the vendor's data centers and accessed by customers through a web browser, rather than being installed "on-premise" at the customer's facilities. The ease of use, simplified maintenance and subscription pricing inherent in SaaS is rapidly expanding the popularity of this model. SaaS has not gained major traction in accounting, but is starting to gain momentum.
• Business intelligence. Traditional accounting applications were very transactional; they automated transactional processes like order management, payables and receivables. Increasingly, software vendors are extending their simple report writers to offer analytical applications with multi-dimensional analysis of the underlying financial data and "what if" scenarios to support business planning.

The accounting software market landscape can be segmented across multiple dimensions, but the most straightforward approach is to segment software vendors by target customer size. The traditional market leaders, SAP and Oracle (including PeopleSoft/J.D. Edwards), have historically targeted the largest enterprises - think Fortune 500 - but are aggressively moving downmarket. Infor also has a strong presence in the enterprise tier, as well as the mid-market.

The mid-market is the most hotly contested ERP battleground today. More than 30 mid-market vendors occupy this space as their core market, while SAP and Oracle are courting these buyers aggressively. Mid-market buyers present fairly sophisticated functional requirements, but need faster, less expensive implementation and maintenance. Traditional mid-market players have built their systems to meet these needs. The large players have now built entirely new products, such as SAP's Business One and Business ByDesign, to meet the needs of the mid-market.

Small businesses present a similar challenge. Many small businesses start off with a "shrink-wrapped" accounting package such as Quickbooks or Peachtree, as well as numerous Excel spreadsheets to plug the functional gaps. As these businesses grow, they inevitably find that they need a more sophisticated, packaged application. That is the point where they begin to evaluate small business accounting systems.

• Modern technology. Software application technology has evolved considerably. Many established accounting software products were architected decades ago and their underlying technology - databases and programming languages - have since lost favor or failed to evolve. Buyers should seek modern systems built on modern and open technology (e.g. .Net, Java, SQL databases).
• Deployment model. Increasingly, software is hosted in the vendor's data centers and accessed by customers through a web browser, rather than being installed "on-premise" at the customer's facilities. Buyers that favor this model will quickly narrow their short list to just a handful of pure SaaS solutions.
• Globalization. Buyers that have offshore operations, source globally or distribute in international markets will need to assess vendors' localization, translation and multi-currency support. Most vendors have made efforts to improve their international capabilities, but each buyer must match product capabilities to their own requirements.

• Breadth of functionality. While accounting software products have reached near functional parity within core modules, not all vendors have expanded to offer the range of extended modules or applications. Buyers that value an integrated enterprise suite over stand-alone solutions will find considerable differentiation amongst vendors.
• Fit for buyer's size of business. As noted in the prior section, the accounting software vendor landscape is stratified by the size of buyer served by each product. While may vendors claim to be all things to all sizes of business, differentiation remains. Buyers will notice substantial variations in pricing, implementation timeframes and vendor attention.
• Industry fit. To target the largest market opportunity and appeal to the widest range of customers, many vendors started with more generic functionality. Over the past decade, vendors have focused on developing specific solutions for vertical markets. Buyers should seek strong functional support for their industry. They must also assess the viability of industry-focused vendors as some may be fairly small due to their specialization.