ne of the most challenging tasks you could face in your professional career is selecting an accounting software package that matches the needs of your client or company. The product must be just right: It shouldn’t contain more features than you need (which adds to its cost and makes it more complicated and difficult to use), it should incorporate features that streamline the operation of your business and it should be easy enough to customize to your unique business needs so you don’t have to take on more manual accounting operations to compensate for the software’s limitations. Finally, you should feel confident during the many years the software serves you that its publisher will be able to provide upgrades and bug fixes as needed.

Follow the steps outlined in this article and you’ll be able to locate a package that meets your specific business needs within your budget. After you begin the search, you’ll discover it’s not enough to examine a package’s specifications and understand its myriad features; in fact, that’s just a small part of the investigation. To be able to recognize the right product, you first must have both a comprehensive and intimate understanding of your organization’s business operations, the various processes it uses and how they translate into business “solutions”—the industry term for how the software handles tasks such as payroll, banking, inventory, invoicing and accounts receivable. And for some businesses, that includes tracking and managing employees’ work hours, product-production cycles, sales commissions, Internet use as a marketing tool and the company’s various metrics as a way to evaluate its performance, to name just a few.

A PANORAMIC PICTURE
As you can appreciate, the search is not an afternoon assignment. It often takes months of arduous research and evaluation. But there is a bright side to this effort: If you do the job diligently, you’ll discover you’re developing a panoramic picture of your organization that is far more comprehensive and detailed than you imagined. In the process you will see how your various business processes interlace, or don’t interlace, with one another. Those insights will provide you with the opportunity to redesign processes that, in the long run, will make your business

You’re probably thinking, “But I thought today’s accounting software was so smart that it could adapt to run any kind of business.”

There’s some truth to that statement, but that’s not the whole story. Even today’s $99 accounting software is “smarter” and, given its capabilities, far less expensive than the most sophisticated packages of a generation ago, whose one and only job was to keep the company’s books. But price notwithstanding, users expect today’s accounting software to do more than just bookkeeping. Loaded into the latest packages are hundreds, if not thousands, of sophisticated solutions capable of fully running a multitude of business processes. Since each software product has its own unique set of solutions, in addition to basic bookkeeping—which remains common to all accounting software—it’s not hard to understand why the search for the right product, one that matches solutions to your needs, is so complicated.

Another reason why the selection process is so important: Fully installing a new accounting system is expensive and requires many hours of management’s and computer staff’s time. If you later learn the product is not up to the job, you may have to repeat the whole process. So you want to get it right this time.

In most companies, as time goes by, the software and the organization tend to accommodate each other—that is, management customizes the product to better suit its needs, while at other times, it may have to readjust its business processes to either compensate for the product’s shortcomings or take advantage of the software’s better way of undertaking a business process. At better-run companies that use relatively well-matched software to begin with, most of the adjustments result in streamlined and automated operations. In a less-well-run business with ill-fitting software, more of the tinkering to accommodate software deficiencies results in slower and more manual accounting processes. In effect the company becomes a slave to the software. If truth be told, many companies are either fully or partly enslaved by their accounting software, which is why installing a new system is an opportunity to redesign the business process.

THE STEPS TO FOLLOW
When you’re ready to determine which accounting software product best suits your business’s needs, as the project leader you should follow these steps to ensure a successful search, installation and implementation.

Establish a technology advisory committee (TAC). This first step is a must. The TAC’s job is to oversee the entire operation—from specifying the product to final implementation. The TAC team should be recruited from each major company division or department so the needs of every part of the company are considered. However, try to keep it to five to seven members. For large organizations this may mean creating subcommittees that report to the primary TAC. The committee should include a senior manager who has authority to act, the CFO or the accounting department manager and a representative from the information technology (IT) department.

Caveat: Be aware that when faced with a project as large and technical as selecting new accounting software, some managers try to avoid being involved because they feel insecure about technology. As a result, they may try to shift key decisions to the technical staff. There’s no doubt the IT staff should be fully involved, but since techies are not accountants, their counsel should be limited to the technology itself.

Prepare a needs analysis. Assign the managers of each division and department to prepare such an analysis for their sections. It should include all the things they do—from invoice preparation to inventory operations—and then have them separate the list of tasks into mission-critical (there is an economic impact if the task is not done) and those that are not mission-critical (it would be nice if it got done, but it has no major impact on the business).

Using the data, now ask them to prepare flowcharts to diagram how they perform those tasks—that is, the step-by-step processes for making decisions and the steps required for each action. In other words, you want a panoramic, full-dimensional map that shows how paperwork, information and decisions flow through the organization—or even how they get bottled up. The more detailed the flowcharts, the better you will be able to see how, or whether, a modern accounting software program can handle many of these duties.

During this analysis have the managers gather samples of every form (checks, invoices, picking tickets) and every report the current software produces. Don’t forget all those systems outside your accounting software that handle supplemental duties: spreadsheet reports and analyses and word-processing documents. The analysis likely will determine that some are not needed, but many of the necessary ones probably can be integrated into the new accounting system.

From this analysis you will be able to develop a requirements definition—a detailed document that defines what your business needs from an accounting software application. This document is the passport to a successful project. Don’t try to make a purchasing decision without it.

Consider engaging an independent consultant. After seeing how much time and effort must go into preparing a requirements definition and depending on how much time you have available and your technical resources, you may decide now that the project is beyond your capability. In that case, engaging a consultant is a wise choice. You will want someone familiar with your industry to prepare the requirements analysis and to help you make the final selection.

Caveat: Be sure that person is not connected to any specific software vendor or you’ll be getting a biased sales pitch rather than an independent product assessment.

Once you’ve made your product selection, you want a consultant who is familiar with, and even close to the vendor and has installed and implemented its software several times.

Talk with your current vendor. Unless you’re unhappy with your current accounting software vendor, now’s the time to see whether your current software product, or an update of it, plus some well-focused training, can spare you from having to go though the expensive and arduous task of buying and installing new software. The key to making that determination is the analysis you just went through. Present that detailed analysis to the vendor and see whether an upgrade will meet your needs.

 

WHERE DO YOU FIT? Assuming an upgrade is not the answer, you’ve now reached the point where the TAC must select candidates—that is, products that approximately fit your needs based on your organization’s size and complexity. Accounting software is designed to meet the needs of your business, and you need to determine which package is appropriate for you. The market is divided, more or less arbitrarily, into these four groups:

Exhibit 1: How the Accounting Software Market Is Divided Source: U.S. Census Bureau, 2002.

 

Entry-level (Entry) software is designed for smaller businesses—those with revenues of less than $5 million and with up to 20 employees. It’s estimated there are about 5 million U.S. companies fitting this profile.

Small to medium business (SMB) software is engineered for companies with sales of up to $100 million and no more than 100 employees. About 516,000 companies meet that description.

Small to medium enterprise (SME) software is designed for organizations with sales of up to $500 million and as many as 500 employees. Some 84,000 companies make up this category.

Enterprise resource planning (ERP) software is for the largest organizations with sales exceeding $500 million and more than 500 employees. An estimated 17,000 companies fit that profile.

The two middle groups—SMB and SME—make up what’s called the middle market. In addition, some products span the SMB and SME groups and they, too, are considered middle-market (MM) packages. Not-for-profit (NFP) organizations make up a separate final group.

If your business is complex, you may want to choose a software product one step up; in other words, if you fit in the SMB market, consider an SME product. Likewise, if your business operation is relatively simple, you may be able to drop down a size.

You will save money if you can use a product in a lower category. Recognize that a lower-category product has fewer features, but your analysis may show you don’t need those missing features.

The reverse is true for a higher category product. Generally, the higher the category, the more capabilities and features you have—such as workflow, imaging, business intelligence and sophisticated manufacturing or distribution components. Of course, the higher the category, the larger the initial and long-term costs you pay.

Be aware, too, that if you select a product with too little capability, you usually have to recruit other applications, such as Excel and Access, to perform tasks the accounting software can’t handle. Such fill-in resources are called “renegade” systems, and in the long run, they cost more to operate than systems built into the accounting software. That’s because data usually have to be reentered into them, and that can cause errors and duplications. It’s estimated the annual cost of running renegade applications rises exponentially as the complexity of the accounting software they support increases.

Exhibit 2, below, lists many of the major accounting software products, sorted by the above categories, that are on the market.

WHAT DOES IT COST?
While price is not unimportant, you should understand that price comparisons are difficult. First, some packages include modules or functions as a standard; others charge separately for them. For example, not all general-ledger modules include a report writer. In addition, often the listed price is just the starting point of a negotiation. For that reason, we excluded individual product prices.

 

However, exhibit 3 provides price ranges for each category. Use this as a guide for the approximate cost of products in each category. The price tag is only part of the product’s real cost. Other expenses, including maintenance and the long-term cost of operating the product, make up a significant portion of the full cost. Another factor that drives the total cost of a product is implementation—the expenditure, in dollars and in time—of loading the software and creating the appropriate data links. Again, there is a relationship between a product’s complexity and its implementation cost, as exhibit 4 illustrates. In addition, accounting software carries with it an annual maintenance fee that ranges from 10% to 20% of the retail price.

Exhibit 3: What It Costs

 

Consider this when preparing the budget: If you buy a new software application, will you need new servers, larger disk drives and upgrades to workstations? In general, hardware costs are relatively the same for most accounting software products regardless of segment. In a few cases, however, server requirements may be more expensive as the software solution progresses from SMB to SME to ERP.

Define your budget and projected milestones. Now that you have a rough estimate of total cost, it’s time for the TAC to prepare a preliminary budget—at the very least to establish how much the company can afford to spend. Plan the timing of the project, recognizing you have to work around seasonal dates—that is, busy periods.

List product features. The TAC’s next task is to make a list of all the products that might meet the company’s needs. In addition, TAC members should talk to others in your industry—even competitors—and ask what they use and for an assessment of the product.

 

So you can evaluate the products side by side, consider preparing a spreadsheet matrix listing key information for each product. For example, your spreadsheet might include information on modules, cost, platform, customization capabilities, certified payroll, time and billing and bar coding. Focus on the most important capabilities; don’t be sidetracked by insignificant shortcomings. This matrix also will help you share information with others in your organization who may be able to provide input into the ultimate decision.

Exhibit 4: Accounting Software Implementation

 

In addition, add to the matrix a list of the features and facts that impress you about the software vendor and the product. For example, mention key awards the product received, the fact that the company provides great support or describe an outstanding feature particularly beneficial to your company. Small companies searching for entry-level software generally do not need this level of detail.

Once your list is complete, eliminate the obvious poor choices—that is, those missing key modules and features or whose cost is beyond your reach. However, don’t eliminate on price alone. Prohibitive as some higher-end packages may seem, they may actually help you make money, thus giving you a good return on your investment.

As you cross out vendors, note why you eliminated them, in case someone in management asks later why you did not consider a specific vendor. Selecting the right package is mostly a process of eliminating the wrong ones.

Use the Internet to extend your research. Visit vendors’ Web sites, seeking the strengths and weaknesses of each product. To get independent reviews of products, use Internet search engines such as Google ( www.google.com ) to find articles and comments from customers. Print key pages from these Web sites for later reference.

Many vendors will offer downloadable trial versions of their products as well as case studies and references you can verify.

Prepare a formal request for proposal (RFP) or a less formal request for quote (RFQ) from the vendor. You now have a list of your requirements and the vendors that more or less meet those requirements, so you’re ready to begin more specific, hands-on evaluations.

Request product demonstrations. Invite the leading candidates to demonstrate their wares for you. Provide each with a list of the top 10 to 20 functions you want to see. The vendor should take time before the demonstration to ask you extensive questions about your company and your needs. Insist the vendor use live software to demonstrate the product—not some presentation software or a “canned” demo—one that promotes just the product in a general way; you want to see the product in action—showing how it handles your specific needs.

In addition, ask the vendor to demonstrate specific components that make the product better or different than the competition. Each vendor should be able to do a full demonstration in two to four hours, but some bigger programs may require eight hours or more.

Ask the vendor about its method of installation, its track record for getting its system up and running on time and a list of up to five references whom you can call. Customers usually are happy to share their own experiences and give valid tips so you do not make similar errors. Call as many references as you can, but focus on three specific types:

A customer who has been on the system for at least 13 months, because you want someone who has gone through a yearend closing.

A user in your industry and as close to your company profile as possible. That person will relate to your business, your language and your needs and tell you how close the product comes to meeting your specific industry needs.

A customer who has had the application for 120 days or less will be in the middle of an implementation and can tell you about problems discovered after starting the conversion. This information can save you a lot of money, time and headaches.

Ask people in your organization to call their peers in the reference company. For instance, the IT professional will ask different questions than the controller or the manufacturing floor supervisor. If each talks with his or her peers, writes up their responses and shares them with the TAC team, better decisions can be made.

Also consider

Prototype testing. When you download an evaluation copy, take the time to load it with your sample data to insure the software meets your specific needs. Such a test provides important information: It validates the software against your data and the difficulties you may encounter during the conversion stage of implementation. It also gives the IT staff an opportunity to develop deployment scenarios and determine how expensive the product will be to install. Do not underestimate, or skip over, this critical step. Even a small business should load the accounting software, enter some transactions, print reports and even simulate a month-end close.

A visit to the vendor or its agent. Consider traveling to the offices of the vendor of choice and touring the company. Satisfy yourself that it has the resources and strength to meet your ongoing needs. A little due diligence may go a long way toward helping you avoid a costly mistake.

If you plan to implement the program in many different locations, request from the vendor an implementation plan depicting the time line for bringing each location online.

Legal considerations. Before making any final decisions, have your legal counsel review the contract, including the ongoing support agreement. Check to see what kind of maintenance costs you are required to pay on an ongoing basis, what measures you can legally take in case the software does not work, find out who owns your data (some less-than-ethical vendors entrap your data as a way to keep you married to them) and what happens if the software supplier or its agent goes out of business.

Include in the final contract a copy of your requirements definition and your RFP or RFQ to be sure there is agreement between what you asked for and what you got. You may have to update the documents slightly to include any final changes or compromises. Make sure all communications, including the vendor’s response to the RFP, are part of the agreement you are signing. You want to be sure milestones and objectives are clearly defined so everyone knows what is expected.

Important: Spread payments out so the vendor still has an investment in the success of the project.

If you have followed all the steps above, you should be exhausted, but you’ll also be ready to make a qualified, informed decision.

And finally, good luck.