In this series of articles, we are going to offer some practical advice for how to build a best-in-class accounting and finance function. The first few articles will cover accounting system selection. This article will specifically touch on features and add-on applications, as it relates to selecting an accounting system.
Selecting a new accounting system serves as a perfect time to evaluate your internal policies, procedures, and processes. Depending on the industry and nature of operations, companies have drastically different needs as it relates to transaction processing and financial reporting. Some companies in the government contracting industry have $20 million in service revenue but have less than ten customer invoices per month. For these companies, because of the regulatory requirements and need to track individual projects, one of the most important features within the accounting system will be integration with a timekeeping system and automatic calculations of labor allocations based on timesheets. If the timekeeping system is integrated and the information automatically flows to customer invoices, you can save hours or days in processing time and calculating invoices each month. On the other hand, it is not important for a company like this to have a process that automates sending invoices to customers. The company will only be sending a few invoices each month, so this feature would have minimal benefit in terms of time saving. Meanwhile, a software company with $20 million in annual revenue that has a recurring revenue model may have 500 customers that are billed each month. Their customers likely are billed based on contracted prices for software, and therefore integration of timekeeping would not be essential, but an automated invoicing and revenue recognition feature within the accounting system would be of significant importance. Imagine the time saving if instead of manually generating 500 invoices each month and sending each of the invoices to a customer, you had a system that automatically generated those invoices each month and emailed them to customers.
The features within different accounting systems are going to vary, as well as the quality of each of those features and the ability to integrate them with third-party applications if needed. Therefore, you first need to identify what are the most important and most time-consuming processes for your company, and then see how the accounting systems you are evaluating addresses those needs.
Another thing to consider is the increasing prevalence of third-party applications that integrate with accounting systems. QuickBooks Online has built out an entire “app store” because there are so many third-party applications that can be fully integrated to meet the needs of various customers. These applications can integrate your payroll, import credit card and bank transactions, manage inventory, automate financial reporting, and perform a host of other functions. Some robust accounting systems may have inventory modules and various other modules that the vendor has built out, which may be important for your accounting function. But because there are now so many applications that can be fully integrated into various accounting systems, you may find yourself able to build a much better system by using a simple product like QuickBooks or Intacct and customizing those systems with a variety of third-party applications, as opposed to if you used a “high-end” accounting system with various modules already built into the software.
If you go the route of using third-party applications, the following are some common areas and processes that you might consider using an application for:
- Timekeeping systems: If a company needs to record labor costs by project or job, you need your employees to record their time appropriately. There are tons of online timekeeping applications that can integrate with accounting systems so that you don’t have to manually record the labor costs by project or job. These systems can also be set up so that proper approvals of time by supervisors are in place. And many of the applications now let employees access their timesheets on their phones so that they can go in to the system any time and from anywhere.
- Bill payments: Applications for vendor invoice and payment processing can save your organization significant amounts of time on a daily basis. Many of these applications will scan your vendor invoices and give you a clean interface to code the transactions and then import into an accounting system. You can also then approve invoices for payment, and these applications will process the payment so that you don’t have to physically prepare checks or initiate ACHs anymore.
- Customer invoicing: As discussed above, this is especially important for companies with recurring revenue models or with a significant amount of small dollar-value transactions with customers. There are generic applications where you can simply set up a customer invoice and have it billed automatically to a customer each month. There are also a lot of industry specific systems that integrate with the operational side of a business. For example, if a company provides limousine rides, they may have a booking and dispatch system that tracks where their limos are, which customers have booked rides, and the pricing for those rides. That system may be integrated with an accounting system for revenue purposes, or you could run a system like that as essentially a sub-ledger for revenue and accounts receivable.
- Inventory management: If the company runs a business that requires inventory, then this will be an important component. The application or inventory module will vary depending on the nature of the inventory. For example a company selling high-dollar value items with no components has different needs than a company selling small items with tens or hundreds of components in each finished product.
- Expense Reporting: Many applications exist now that allow you to take a picture of a receipt and have that expense then flow into the application, where you can code the expense and then seamlessly export those transactions into the accounting system.
We hope this information can help serve as a starting point in your evaluation for potential accounting systems. It is a critical decision that impacts almost all areas of your accounting and financial reporting function. Make sure you speak to as many people as possible as you start to evaluate your options. We recommend talking to people both inside and outside of your industry, to personnel inside and outside of your internal accounting department, and to unbiased service providers. Read reviews, take demos, and take plenty of time before you make a decision so that you have the best possible foundation for building your accounting and function.