Entry-level accounting software can be a very effective tool for small or startup businesses, and it will serve many functions and meet many small business’s needs up to a certain point. As a company grows, however, a time will come when the software will no longer have the functional capacity to meet the business’s evolving requirements. How do you, as a business owner or manager, know when that time has arrived? There is no specific revenue number or other metric that will tell you that it is time to pull the trigger, but there are indicators that you can look for so that you know when to prepare for a transition. It is important to pay close attention to these indicators so that you begin to make the transition before issues arise, and before you put aggressive growth strategies in place that will be hindered by inadequate systems.
Entry-Level Accounting Software – Who Needs It?
Entry-level accounting packages have several features that are attractive to small or startup businesses. They are inexpensive to acquire, easy to set up, have extremely user-friendly basic functions, and have adequate growth capability to accommodate the needs of small businesses during their early growth phases. The software typically offers a variety of standardized report templates for many of the simpler business models (simple from an accounting perspective), and an extensive knowledge of bookkeeping and accounting is not necessary to generate these reports.
The reports that come from basic accounting software provide basic data that is used only to support or confirm management decisions, rather than more specialized data that could be used to strategically drive business performance.
Company Growth and Evolving Needs
As a company’s revenue grows, the complexity of the company grows as well. More people are involved in the business, responsibilities are divided and delegated, transactions increase in volume and variety, and inventory and other working capital management becomes more complex and important. Eventually departments will be created, locations may be added, and product lines or services may be expanded. A larger organization generally means that more users will need access to the accounting package, and basic software packages typically can accommodate only a limited number of users that can have access to the system at the same time.
Also, as the company grows, the system’s primary purpose will shift from maintaining the accounting records to being a primary operating tool. With greater size and complexity, operations become more difficult to manage, and more review and supervision are needed. Management reporting tools will become essential to effectively make decisions and to drive performance and strategy.
Indicators That It’s Time for a New System for Your Growing Business
There are several simple indicators that you’ve outgrown your entry-level accounting software.
• The number of users on your system or the volume of transactions begins to cause noticeable issues in system performance.
• Necessary add-on packages begin to become time consuming and expensive, and they may also cause performance issues.
• You begin to use industry specific operations software, and you are having integration and data transfer issues.
Those three issues are fairly obvious indicators, but hopefully you will have realized your need for a more sophisticated system before you waste time and money trying to make too many small fixes to problems that will become larger.
The best way to know if you have outgrown your entry level software is to understand what a true management reporting system can do for you, and then think about the level that your business has reached and what your short- and long-term goals for the business are. In order to grow, you must be able to manage your business effectively based on specific, timely, and relevant information, and an entry-level accounting system will not provide the key reports and performance indicators that you need.
