I know what you're thinking: You've learned all about accounting, and you know what your business needs to do and what you need to track in order to thrive—only then, you find out there's a whole new type of accounting software to learn about to manage your company's cash. I get it. But hear me out—there's a big difference between accounting systems and financial management systems, and it really is important for you to consider both when approaching your business funds.
In this Buyer's Guide, we'll cover the basic need-to-know aspects of financial management systems, including a definition and an overview of some key features of the software.
A financial management system is made up of both software and strategies that companies can use to supervise and manage all finances, including income, expenses and assets, with the goal of increasing profits and maintaining steady income.
So what's the difference between financial management and accounting? To put it simply, accounting is record keeping, and financial management is using those records to actually manage your money. Where accounting software is designed to document and classify all of your business transactions, financial management software goes a step further to track, analyze and report financial data that can help you do a lot of things, such as:
Companies can certainly function without a financial management system in place, but only up to a point. A good rule of thumb is, if your business is big enough to benefit from an enterprise resource planning (ERP) system, it's big enough to benefit from a financial management system as well. In fact, quite a lot of ERP software includes financial management modules in its functionality.
When you think about everything an ERP system does, it makes a lot of sense that so many of these products include financial management features. The main function of an ERP system is to connect every department within a company to ease the transfer of data, provide higher visibility of all business processes and empower managers to make better decisions.
While financial management software can function as a stand-alone solution, it can provide even more accurate feedback for managers when linked to ERP systems. In turn, an ERP system's reach across the entirety of your company can enhance financial management software in many ways. For example:
Financial data management functionality in Sage X3 ERP Software
It's useful to know how ERP and financial management systems work together when integrated into one product, but don't forget that you can implement a stand-alone financial management product without having to invest in a more expensive ERP system. But regardless of what route you take, you'll want to make sure the financial management system you're getting includes some essential functionality:
|Activity dashboard||A centralized location within the software where users can come to get a broad overview of all financial activity. Often, dashboards will include easily digestible graphs of data, yearly, monthly or daily breakdowns of income and expenses, year-over-year comparisons etc.|
|Invoicing||Managing receivables. Often made up of both invoice management—controlling things such as invoice workflow and tracking—and invoice processing—actually processing the invoices when they come in.|
|Expense tracking||Track, process, pay and record all expenses incurred in the course of business.|
|Profit tracking||Keep tabs on income and determine what products or services are bringing in the majority of profit. Can also help assess return on investment for purchases you may be considering.|
|Cost analysis||Usually comes hand-in-hand with profit tracking. This feature takes a close look at where you're spending money, analyzing procurement etc.|
|Investment tracking||Sometimes tied into asset tracking, this feature keeps track of ROI and investment performance. Also helps you determine what new investments you may need to make.|
|Projections||Looks at past performance and external market factors to build a forecast of potential revenue and expenses.|
|Real-time data||Helps create reports, consolidate financial data into one place, maintain compliance and easily present information related to the financial status of your company.|
|Accounting integration||Removes the need for a separate accounting system to record things such as general ledger entries, accounts receivable and accounts payable.|
Because it's always good to know what value you should anticipate from new software, let's take a look at some of the main benefits you'll see from a financial management system.
All of these (and many other) benefits combine to make financial management software a valuable tool for any business, but before you run out and buy a new system, it's useful to take the time to assess your company's needs. Make a list of features you need to get out of financial software and jot down any questions that come up in the course of your research. That way, you can be completely confident that whatever product you select meets all your needs and answers all your questions.
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