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 pricing and cost as it relates to selecting an accounting system.
The first comment we will make is that it is extremely important to analyze your accounting system selection in terms of total cost. That means looking beyond just what you will pay to the software vendor for the accounting system itself. In addition to the cost of the accounting system or software itself, total cost analysis should factor in costs for maintenance & support, computer and IT costs (how will the system be hosted, is it cloud based, how much time will it require from our IT department), implementation and integration costs, cost of add-on or third-party applications, cost of payroll processing if you are not doing payroll through the accounting system, cost of labor to perform accounting functions, and other consulting costs associated with the accounting and financial reporting function.
Since we are looking at building the best possible accounting and finance function from the ground up, we are assuming that all costs are variable. Specifically, this means our labor cost, or consulting cost if using third-party services, is a variable cost. When looking at total cost of the accounting system, potential cost savings or additional costs associated with labor and transaction processing should be factored in. A lower-tier accounting system may save the company $8,000 annually in license fees compared to a more robust software system, but if the more robust system provides certain features that can automate processes, increase transaction speed, and decrease manual reporting processes to the extent the company can save in excess of $8,000 in labor cost, then that should be factored in. Some other considerations when evaluating pricing include:
Fixed software license fees: If you are using a cloud or SaaS accounting system moving forward, there is a good chance you will be paying monthly, quarterly, or annual license fees. Make sure you evaluate the contract you are signing to determine if the license fees are fixed, and if so for how long. The most commonly used accounting system is QuickBooks, and they are pushing customers to their cloud product, QuickBooks Online. There is heavily discounted initial pricing and special offers, especially if you sign up through an accountant, but these are temporary offers that will expire at some point. You are also not locked in to a fixed price over the long-term with QuickBooks Online. Rather, it appears that they have tried to gain customers with low pricing, and those customers will be forced to make a decision in the future to either accept price increases on the monthly/annual fees or switch accounting systems. That is not to say you shouldn’t use QuickBooks Online; the price increases should be reasonable. But it is just a warning to consider potential increases in license fees with any vendor over time depending on the nature of the contract your company signs.
Implementation Costs: These costs can quickly add up if proper planning is not in place. You should consider how much customization of the accounting system will be needed, as more customization will likely require more implementation and consulting costs. Also, be sure to compare prices between what the accounting software vendor would charge you for implementation services (as they usually have their own team that can perform this) vs. what a reputable third-party service provider would charge. If one of them is willing to commit to a fixed fee as opposed to hourly billing, then it will be easier to factor implementation fees into your total cost analysis. Lastly, factor in any potential savings from being able to use internal resources for the implementation. If you have a Controller or Senior Accountant that has used one of the systems you are considering, they may be able to perform parts of the implementation. They may also be able to train the rest of the accounting team on some of the functions of the new system, which can decrease third-party training costs.
Support & Maintenance: Make sure you get an understanding as to what is covered in your Support & Maintenance contract, if you have one. It also helps to find reviews and speak to other companies about the quality of the support. Once you are up and running on the new accounting system, you are certain to run into issues that you need assistance with. However, a misunderstanding of what is covered in your support contract could lead you to believe that support for these issues would be at no additional cost, only to find yourself stuck with a big bill for services provided outside the scope of the support contract.
Automation, automation, automation: The importance of this really can’t be overstated. Our team has worked with clients over the years where we took a process and reduced the time it took to perform the process by 50-90%. All it took was an understanding of how certain systems worked and how we could use functions within the software that were not previously being utilized. Not only can these functions reduce the time spent processing transactions or performing other activities, but because they are typically reducing manual entry, they will most likely reduce errors and increase accuracy. Make sure you identify what processes in your accounting function take up the most time or cause the biggest headaches. It could be customer invoicing, reconciling bank accounts, job costing, financial reporting, or a combination of other items. Once you have those items identified, you can evaluate which of your possible accounting system selections best address those issues and allow you to automate the most time-consuming or difficult processes. The savings from the automation may be a little difficult to quantify, but you could start by estimating how many hours the automation would save you in labor and multiply that by the labor rate for the personnel that would have been performing that function.
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 across all divisions in your company, and to unbiased service providers. Read reviews, take demos, and take plenty of time before you decide so that you have the best possible foundation for building your accounting and function.
Stay tuned for future articles!