There is a vast array of financial management solutions on the market today, with specialized functionality for almost any industry or size of organization. Moreover, the specific type of accounting can differ between programs - project, fund, and fixed asset are examples. Add to this variety the constant change of standards, compliance requirements and technology platforms, and the process of selecting a solution gets tricky. This buyer’s guide is intended to make the process much more bearable.
Here’s what we’ll cover:
What is Accounting Software?
Business accounting software keeps track of the financial transactions within an organization. A core package includes general ledger, accounts receivable, accounts payable, payroll, and reporting modules. These systems occasionally come with specialized functionality for particular types of businesses or companies. An example is fund accounting for nonprofit organizations and government entities. Because it's a critical business process, it's often a central component of an organization’s enterprise resource planning (ERP) system.
|Core Accounting||Core systems assist with the basic functions necessary to balance a business' books, including general ledger functionality, the ability to track accounts payable (A/P) and accounts receivable (A/R), fixed assets, and bank reconciliation. Every business requires these core functions to manage its finances.|
|Project Accounting||This type of system helps project-oriented businesses maximize job profitability and efficiency by tracking detailed project costs. Businesses can examine past job costs and estimate future costs to choose the jobs which will achieve adequate profit. It tracks by project factors like labor, overhead, materials, and equipment to improve decision-making.|
|Fund Accounting||These solutions support non-profit and governmental entities in tracking their development and spending of funds. Non-profit organizations can track their expenditures of donations or grants to make sure they meet fund provider requirements. The system also allows government entities to make sure they meet unique Governmental Accounting Standards Board (GASB) regulations.|
|Inventory Management||This type of solution helps companies keep the correct inventory levels to maximize profit, avoid overspending, and minimize the costs associated with inventory depreciation. The right system keeps inventory information up-to-date by tracking product levels as well as orders, sales, and deliveries. The Generally Accepted Accounting Principles (GAAP) stipulate specific ways to account for inventory to ensure proper reporting of value for inventory that has depreciated or undergone other changes. Software with inventory management capabilities ensures this is done correctly.|
|Billing & Invoicing||These systems automate the collection of payments from customers to enable timely and consistent collection with minimal human error. There are many different types of billing and invoice systems designed to support the wide range of industries, business models, payment methods, and scale of operations.|
|Budgeting & Forecasting||Users can leverage budgeting and forecasting solutions to project a company’s financial outlook from historical data and estimates of future conditions. These systems are typically used in businesses that must consolidate multiple departmental forecasts and budgets. The systems are most helpful where multiple variables drive the ultimate forecast.|
|Fixed Asset Accounting||This type of system tracks fixed assets by providing a central database of important asset information, including location, check-in and check-out, due date for return, maintenance scheduling, audit history, cost and depreciation. Depreciation schedules are a core element of this specialty.|
|Payroll Management||Payroll systems help businesses track and process employee payrolls. It also composes and prints paychecks, automatically withholds and pays government taxes, and generates the necessary legal and tax reports on a regular basis. Automated reminders to pay required fees help businesses avoid legal penalties.|
What Type of Buyer Are You?
Before evaluating your options, you must determine what type of buyer you are. Over 90% of buyers fall into one of these three categories:
- Growing small business buyers. These small businesses are on the verge of upgrading basic systems, like QuickBooks, to support more sophisticated functions (like demand forecasting, intercompany accounts, increased data storage, and others). Growing businesses upgrade their systems for a range of reasons. Industry-specific functionality will become important when a small company reaches a certain size threshold.
- Enterprise buyers. These buyers represent businesses and organizations that need the functionality of a full enterprise resource planning (ERP) suite. Usually, these systems will include functionality for multi-company consolidation, international operations and foreign currency, and other concerns relevant to large entities. Seamless integration is usually more important than specific features; however, there is considerable differentiation in both of these areas, and buyers should examine both. SAP and Oracle, two of the largest vendors, have some of the most feature-rich systems on the market.
- Best-of-breed buyers. These buyers are focused on specific functions. For example, non-profit organizations need to look specifically for systems that can perform fund accounting. This method tracks funds in such a way that different grant providers can see the right report on how each fund amount has been used. Construction companies or engineering firms, on the other hand, usually need a system that can break down costs by each project, location, and other characteristics. For best-of-breed buyers like these, functionality is often more important than integration.
Market Trends You Should Understand
As you evaluate solutions, consider these current market trends.
- Software as a Service (SaaS). SaaS is picking up speed as buyers realize the advantages of lower up-front costs and quicker implementation time. NetSuite is a prominent example of a SaaS system. In fact, it is available only as a SaaS offering.
- Mobile apps. Mobile applications are gaining popularity across the board, and accounting is no exception. Check to see how each vendor is innovating on this front.
- Increased specialization by industry. Increasingly, consumers are demanding more industry-specific features, and vendors are listening. Products that were once “horizontal” - such as Sage MAS 90/200, QuickBooks, and Microsoft Dynamics - are increasingly adding new vertical features to cater to buyers’ specific industries. Make sure to keep a lookout for features that fit your particular industry when investigating tools and solutions.
- Business intelligence. Interest in business intelligence is on the rise. Business intelligence takes the massive amount of data collected and organizes it into reports designed to support business improvement. Many vendors are now integrating business intelligence into their ERP and financial management systems.
Benefits & Potential Issues
The key benefits of financial management systems are clear: better visibility of costs and expenditures, which leads to more financially responsible decision making. In addition, systems can generate reports in a variety of ways to summarize this information cleanly for the right audience. For example, non-profits can generate reports specific to a particular grant provider, detailing exactly where every cent of the funding ended up. This allows an organization to be accountable to investors, donors, and lenders, maintaining trust and avoiding financial damage. These systems also allows companies to ensure compliance with reporting standards and federal requirements.
There are a number of issues that should be avoided when selecting a solution. Buyers in certain vertical industries must make sure the appropriate modules are included in the system they purchase. For example, engineering firms and construction companies should choose a system with a project accounting module. Another issue is a company’s rate of growth; the buyer should consider how fast the company is growing at the time of purchase. This way, the company will not grow out of a system immediately after investing considerable time and funds in the selection and implementation processes.
Recent Events in Business Accounting Software
There’s a lot happening in accounting business software these days. Market trends like widespread adoption of cloud-based accounting software for business, increased specialization by industry and more are driving new demand. Vendors are responding by developing more capabilities and by offering industry-specific applications to meet the needs of accounting software users in any industry. A few vendors are garnering recognition for their success to that end. We’ve highlighted a few here for you to consider when performing business accounting software reviews:
- Intacct - For the third consecutive year, Intacct--a leading provider of cloud financial management and business accounting systems--was named to the AlwaysOn OnDemand 100 Top Private Companies list. The prestigious list is a roundup of private on-demand and SaaS companies leading the race to the cloud with innovative systems and rapid growth. This comes after Intacct announced a 128% increase in new bookings in the 2011 calendar year with 80% growth in Q4 alone. Congratulations to all of this year’s OnDemand 100 Winners.
- Oracle Financial Services - Oracle ranked as a one of the market leader for integrated risk and finance management solutions in Chartis Research’s “Risk & Finance Integration 2011” report, released earlier this year. Using key functional requirements based on analysis of industry best practices, Chartis evaluated 12 vendors for their ability to integrate risk and finance systems. Oracle Financial Services Analytical Applications lead the industry for solution completeness. This came two months before Oracle introduced the newest addition to their suite of applications, Oracle Financial Services Loan Loss Forecasting & Provisioning. The application enables financial institutions to effectively forecast credit losses by providing pre-configured computation models and stress testing capabilities.
- NetSuite PSA - Spring 2012 saw NetSuite as the leading provider of cloud-based ERP accounting systems, leading the Professional Services Automation (PSA) market for the fourth consecutive year. With eight of the 20 "Best of the Best" professional services organizations participating in SPI Research 2012 Professional Services Maturity Benchmark Report using NetSuite software to manage key processes, their powerful PSA suite held a 26 percent market share in 2011. According to the study, NetSuite PSA customers outperformed their peers across various metrics--including revenue, billable utilization and bid-to-win ratios--securing NetSuite’s spot on our list of best accounting software providers.