02 November 2009
Whether you’re a well-established business, or about to open the doors for the very first time, there are a lot of boxes to tick when it comes to choosing an accounting/financial software package. And with many solution providers now offering the option of online, rather than desktop delivery, or a combination of both, there have been even more boxes added to the checklist.
Our aim is to answer as many of your questions as possible surrounding accounting software, and we thought it logical to begin with start-up businesses. What factors should they consider to ensure they have a solution that’s easy to work with, easy to afford and easy to growth with?
Accredo director and co-founder Paul Heinz understands that many people go into business undercapitalised and default to a cheaper product that delivers all the basics such as GST, invoicing and statements, but no analysis.
“Unfortunately down the track, they’re then faced with high switching costs to a fully featured product and it’s a pain to make the change. Suddenly those costs have swamped what you saved in the first place with the cheaper product. So on start-up you should ask ‘where is my business ultimately going?’” Heinz says a modular system like Accredo’s provides a range of flexible licensing options that can be tailored to the resources and needs of a business, whether they’re a startup or a medium-sized business. “One size most definitely does not fit all - and that goes for licensing too.”
Julian Smith, MYOB’s GM New Zealand, believes putting a sound financial system in place should be a priority for all new businesses. “Eighty percent of businesses fail because of cashflow problems – therefore cashflow, what it means, and its management should be top of mind.”
Central to this is an accounting solution that will work for your specific business, and here’s where a great accountant can also help advise you, says Smith. He adds that around 80 percent of accountants in this country use the MYOB Accountant solution in their practices – so to say they’re familiar with their products is an understatement.
“Whether it’s a basic cash-in/cash-out cashbook concept or a full blown double-entry accrual based system, your accountant should be able to make a reliable recommendation.” Failing that, he says, try your business mentor, consultant, coach or an approved MYOB partner. Think about the functions and features you need; think about where your business will be in two, five, ten years; and think about the support the package comes with.
MYOB and QuickBooks are two of the favourites of start-up businesses and accountants alike – but there are many other players who have product ranges starting with entry-level start-ups.
Grant Hewson GM at Accomplish, the name behind CashManager, says simplicity and user-friendliness is the key. “If you’re not an expert, look for a package which is easy to learn and use – avoid anything too complicated.”
Peter Whalley, MD of Sybiz Software agrees that simple is best for start-ups, and believes that it’s start-ups in particular that are having a close look at some of the online SaaS (software as a service) options out there, often on the recommendation of their accountants. (More on SaaS later.)
Perhaps the best attitude for a brand new business owner is to treat their accounting system, like all IT, not as a cost but as an asset for improving the efficiency of their operation or taking advantage of opportunities. This is the view of Richard Goodwin, client systems manager for Concept Engineering – creators of the Advanced Business Manager (ABM) accounting solution.
“While expenditure of any kind needs to be managed – it’s often not good to pinch pennies where investing a little more could produce a significantly better result.”
Don’t be afraid to invest in necessary infrastructure either, warns Goodwin. “It may seem cost-effective to get cheap hardware or network infrastructure or set things up ‘in house’. Consider the cost if anything goes wrong, particularly with a server, as it is very important to have an effective disaster recovery plan and adequate backup or support for the infrastructure.”
And a final note for start-ups; consider the stability and profitability of the vendor.
“This is sometimes overlooked but you need a stable partner you can count on to be there in five to 10 years time,” says Mike Lorge, GM Sage Business Solutions Australia and New Zealand.
“The partner network the vendor has in your local area is important to ensure your business has ongoing support,” he says. “You want local support to manage you through the upgrade process and as you continue to grow.”
The upgrade process
In an ideal world accounting software should be updated regularly, with updates slotting in around the business’s financial reporting cycle, to cater for tax or legislative changes. For example, in 2008 alone, says MYOB’s Smith, there were two major tax amendments and a couple of payroll changes.
But sadly, this is not the ideal world and many businesses only consider an accounting software upgrade (or switch to another provider) when they’ve reached a certain pain threshold – pain in the form of demands from IRD and the bank that can’t be met, a slow system, or, as Accredo’s Heinz points out, when the owner feels out of control – he/she no longer knows how the business is doing because the software is not producing the right information. In which case the business owner will regard the new software as a ‘pain-killer’.
“Here at Accredo, we specialise in finding ways to take the pain away, whatever shape it takes, hence our tag-line: ‘Taking care of business’.”
Heinz says be wary not to lose the parts that work well within your current system when you migrate to a different system. “Don’t assume that all of what you like will be there and everything you don’t like will be fixed. Involve all your key stakeholders so you don’t miss those little things.”
He also sounds a caution on taking advice from someone with a conflict of interest – for example, someone handling compliance accounts – “the software may make it easy for them to do the books but it may not be in tune with the operational needs of your business.”
Sybiz Software’s Whalley implores business owners not to wait until they are distressed before upgrading their software. Interestingly, his firm regards its biggest competitor in the market as indecision. “Thirty to 40 percent of people who come through our doors looking for a solution, make no decision at the end of the process. In fact we followed up all our unsuccessful sales to ask why they didn’t opt for us. The number one reason was that the decision was too hard, so they simply decided to hold off making it. Then what often happens, of course, is it turns into a distress decision down the track.”
Whalley’s firm provides The Empowerment Pack free to accountants – which contains a Business Software Growth Check, allowing a client to regularly review his/her software for minimal time and effort, ideally with the accountant.
Sage’s Mike Lorge believes increased reporting times and costs are a clear visible indicator that it’s time for change or moving up. “The best time to update your accounting processes is when you see reporting times and costs spiral out of control each month as the accountant or owner/operator spends days chasing information stored in disparate databases.
“As a business grows exponentially, the software can’t always keep up and you begin seeing disparate Excel documents and tables mushrooming all over the business.”
In regard to timing, ABM’s Richard Goodwin says if you are going to cut over to a new system right at the start of the financial year, the preparation should be comprehensive and well-rehearsed. “Every process needed to get the system up and running and all of the necessary information moved over so that operations can continue on day one should have been tested and the whole process documented so that you can tick each required task off and there are no surprises.” For this reason, he says, the actual software selection process should be completed well in advance so that all of the training can be done and all of the processes worked out prior to the go-live date. “While that’s true of any upgrade, it’s particularly important if you are going live at the start of a financial year. For this reason, often upgrading one or two months after the financial year start is preferred as it is less likely that the extra work involved with financial year end will disrupt the process. Basically, try to pick a time of the year when people are going to have enough time and mental energy to focus of the upgrade process,” says Goodwin.
His key ‘need-to-upgrade’ warning signs are:
Over reliance on a complicated series of steps to get things done (often “owned” by one person) – for example, a lot of manual processing or checking of figures.
Unable to provide key management information quickly and easily.
Obvious limitations reached in your existing system, or lack of specific functionality (e.g. support for foreign currency, multi-location stock, serial or batch tracking, etc)
Inability to react to changes required by key customers or suppliers.
Failure of the incumbent software to provide new business functions to address changes in the business environment or to provide meaningful new features.
Expensive accountant bills for bookkeeping services you could manage yourself.
The online option
It’s early days and the jury’s still out on whether online (on-demand) delivery of accounting functions will eventually take over from desktop (on-premise) delivery. But most members will agree that this new online (also known as SaaS or cloud computing) channel is where the most potential for growth lies. Indeed, New Zealand company Xero, founded in 2006 by entrepreneur Rod Drury and accountant Hamish Edwards, has been somewhat of a pioneer in this space.
So is online accounting the way to go?
“For smaller businesses it comes down to choice,” says MYOB’s Julian Smith. “Either option gives something unique. Online is constant and access is easy. Desktop offers agility, more features, and great integration with other parts of the system.”
He believes online solutions may not be as responsive as a desktop version, and the speed of the Internet needs to be factored in, particularly for larger companies.
With the need to retain financial records for seven years, long-term data security also needs to be considered – is the solution provider there for the long haul? If not, find one who will be or perhaps look at a hybrid (online/desktop) model says Smith, which he thinks will form the next generation of solutions. “Credibility and local presence is important. Our software, for example, is developed here in New Zealand, we have a big footprint here, and that’s reassuring for business owners.”
Other red flags for users, according to Smith, include back-up – are there regular automatic backups of data to the cloud? – and price. “Remember that subscription-based solutions can add up over a lifetime.”
Heinz, meanwhile, is sceptical about the service aspect of SaaS – likening this delivery more to self-service or calling a call centre. It’s his view that you generally won’t get personal service.
“Often you sign up for the software and are then left to figure out how it all works. To my mind service really involves real people, who talk the same language – so analyse the service, and ask yourself ‘could I still run my business should there be an outage for several hours?’. If you’re taking orders, but can’t see what’s in stock or see the account balances, for example – could you cope, its it a deal breaker?”
Heinz also sounds a word of caution on who has control over your data in the cloud – after all, you don’t own the software, you just lease it, so what happens if the provider gets sold or bought out? SaaS is not about dealing with individual needs either, he says – it’s generally one size fits all.
“SaaS is an appealing and often viable option for small businesses first starting with a business software solution,” says Sage’s Mike Lorge. “The start-ups costs are inexpensive and the roll-out is rapid. But for SMB’s, you do need to remember that this first step needs to be considered a building block for the future – it’s the foundation on which all your other business software upgrade and purchasing decisions will be built. Be aware that the bigger your business gets the more complex the solutions required to manage your transactions and processes will become. Building that complexity into a SaaS solution is not always possible. Inevitably you end up with a scenario where you have some components of your solution hosted and others on-premise – a hybrid mish-mash built on top of your original foundation which is now becoming shaky.”
Grant Hewson believes remote access and the convenience of one monthly subscription to have the latest software version and all support included, are pluses for online delivery.
“But if your business is based predominantly in the home or office, you may prefer the PC-based version – software is purchased outright for a one-off cost and the annual support and update membership is optional.”
Hewson also suggests comparing the automatic backup arrangements of the online version with how you backup your own PC files. “By backing up your files you also give yourself a ‘restore point’. So if something gets ‘mucked up’, you can restore your data and start again. If deciding for an online product, you should ensure that this functionality is available. And ensure that you can ‘take your data with you’ should you want to change to a different product at some point.”
In assessing whether to go online, Hewson also suggests you consider factors such as time spent online to complete transactions; on-line costs; speed and reliability of your Internet service; ability to backup and restore; and the terms and conditions of data use. “With some providers, there is room for loss of data, loss of access to data, and loss of integrity of data without any repercussions on the service provider. In addition, should you want to cease using the online service, there seems to be doubts with some providers as to whether your historic data files will be made available in a format you can actually use.
“One major advantage of the online service is that you can allow your accountant to gain online access to your files at any time, so he or she can keep close watch on your progress and provide timely advice should any problems be identified.”
Hewson says Accomplish CashManager now has an online version – which has the same look and feel as the standalone PC-based version. (For a full list of which providers offer online hosting, refer to the 2009 Small Business Accounting Software Guide.)
Sybiz’s Peter Whalley believes there’s no clear-cut benefit of one form of delivery over the other. The nature and size of the business in question and what they are setting out to achieve will help determine what option is best. “Put the emphasis on ‘what’ the software does for your business, as opposed to ‘how’ it does it.”
Costs may be more palatable and flexible with SaaS and cloud options for some businesses, says Whalley. “Primarily the initial investment will be lower as there is no actual software purchase. Additionally, costs can be planned and budgeted for. From an accounting perspective, the investment can be expensed as opposed to capitalised. It’s to be expected that costs such as user licences can be adjusted periodically up or down as needs change.”
His online pros also include accessibility, easy implementation, setup and support, and scalability. Cons include less product choice, loss of control/ownership, potential Internet connection issues, and process/query speed. “There’s also the not knowing. The analogy of a ‘black box’ is spot on here. You don’t know what is going on at the other end and there’s a peace of mind that comes from knowing your data is safely backed up and you’ve done it yourself.”
Questions to ask, traps to avoid
So what are some of the questions to ask when narrowing down the options in accounting software? The experts are all agreed on the big one. How does the product fit in with the way you do business? And drilling down further; does it fit the business sector you operate in? Will it make life easier? Will it grow with your business? Assuming, of course, that you want your business to grow.
Other questions you’ll need to ponder include, what is your business’s relationship with the IRD? Complex or simple? Do you require a high level of automation?
Startups especially, says Smith, need to get up to speed quickly. “So look for features that make life easier, and query the level of support – is it just by phone or email or is it face-to-face, which inevitably you’ll need at some point.”
Think about your company’s USPs, suggests Heinz. “Will the software enhance or hinder those USPs – will it support all those things you do differently – things you do well? Will it support your growth plans?”
Determine how well the software will manage the complexity of your business partnerships too, says Heinz. “You don’t want to be rekeying data between disparate systems – that’s when mistakes happen and mistakes can be costly.”
Will the solution you choose ‘talk’ to your other business management processes, such as CRM? “This will ensure there is no duplicating of processes and you have a complete picture of your customer in a single snapshot,” says Mike Lorge. His other question for buyers to ask is: “Will the solution enable your business to move between on-premises and on-demand platforms seamlessly as the business grows?” (There’s just no getting away from that cloud.)
Heinz outlines some of the mistakes he sees businesses making: making assumptions, not involving stakeholders, not looking at the bigger picture, and skimping on training – ongoing training by someone who knows the product.
“It’s interesting that traditionally, on average, most businesses will stick with the one accounting software product for five to seven years before switching. Now after two years we’re seeing businesses spit the dummy and switch. Business owners are more aware of what technology can do. They no longer just look in the Yellow Pages, they network, they do their own research, and they’re willing to cut their losses and switch to a better product if they have to.”
If you don’t understand double-sided accounting (most small businesses don’t and don’t need it anyhow!) you do not need a general ledger based package, says Grant Hewson.
And he warns against going for a system that appears to have the most features for the price – chances are you won’t actually use all of those features.
“Value for money is not about getting more in the program for your money. Value for money is all about getting a product that will do exactly what you need it to do, quickly, efficiently and painlessly, so that your overall operating costs (including your time and your accountant’s) are minimised.”
Don’t get caught up in marketing hype either, says Hewson. “Find other businesses using the product. Ask them how long it took to get up and running. Ask them how they have found the training or helpdesk support – is it really useful or have they been left to struggle? Do your homework, review the company’s website to find out all you can about the enterprise, its products, pricing, levels of service, any contract terms, and look for user testimonials as well as any website forums or blogs.”
Beware of software dealers too, says Sybiz’s Peter Whalley, intent on merely showing you a sexy piece of software, rather than solving your business challenges. “We prefer to show you the software, determine what your problems have been, and then show how the software can solve them.”
The final set of key questions to ask your vendor or consultant are courtesy of ABM’s Richard Goodwin. These are:
Core functions. Debtors, creditors, cashbook, general ledger, stock (if required) and job costing (if required) are all core functions that accounting solutions should include. Make sure all of the basic functions are present and that they are easy to use.
Database technology. Does the system use a readily supported database technology? Is the technology stable and robust?
Ability to customise. If changes need to be made to the standard system functionality can this be easily done and what sort of options are available?
Reporting. What sort of reporting functionality is available? How easy is it to change reports?
Hardware requirements. What are they?
Scaleability. Can the system grow with the business?
References. Ask for some reference sites and if they can be contacted to discuss the system. Quiz them on ease of use, training requirements, customisation requirements, support processes and cost effectiveness and any issues and problems that have been experienced.
Glenn Baker is editor of NZBusiness.