Choosing Between Accounting Software or an ERP Product

Updated: May 05, 2009

Issue

It's a decision more businesses are facing: Stick with traditional finance and accounting software or pull out all the stops and commit to a full-fledged ERP (Enterprise Resource Planning) product.

A good case can be made in favor of either approach, and that makes reaching a final decision difficult. To help you choose the right financial software foundation for your business, here's an examination of the advantages and drawbacks of both technologies.

Analysis

Many smaller businesses simply don't need an ERP product. If your business is very small, or has only basic accounting needs — and if this situation isn't likely to change at anytime soon — basic finance and accounting software is likely your best choice.

If your business is larger, or is expected to expand in the near future, an ERP solution might be the better option. By providing software modules spanning finance, human resources, sales, manufacturing and other key business activities, ERP opens new doors in terms of coordinated day-to-day management, strategic planning, information access and data visibility.

Scalability

Scalability — the ability to add users and to handle an increasingly higher workload — varies widely between different finance and accounting applications. Check with vendors to see if their products can scale to meet your business's current and future needs.

Most ERP products, on the other hand, offer a high degree of scalability. But be sure to question vendors about any absolute ceilings on the number of users or tasks.

Expandability

Finance and accounting products usually offer only a limited number of software expansion options, primarily focused on accounting and finance-related tasks.

Most ERP product lines include modules covering an extensive array of applications and tasks. Check with each prospective vendor to see if its lineup includes the modules that your business may someday need. This is important, because it can be shocking to suddenly require a particular type of software only to discover that your ERP vendor can't provide it.

Cost

Due to its inherently limited scope, a finance or accounting program usually costs far less than an ERP suite consisting of several modules.

Nevertheless, it's important to remember that an ERP product may replace several standalone applications supplied by different vendors. The cost of licensing, supporting and maintaining the individual products may exceed the ongoing costs of an ERP suite.

Training

As long as the user has a solid grasp of basic financial and bookkeeping principles and practices, learning the ins and outs of most finance and accounting programs usually isn't very difficult. This means that training tends to be simple and inexpensive. Training is often included in the licensing price.

Because ERP modules cover a wide range of applications, training can be complex and costly. On the other hand, the specialized nature of individual ERP modules means that users only need to master the part of the ERP product that pertains to their work, not the entire suite. As with accounting software, training is often bundled into the licensing price.

Interoperability

A finance or accounting application may or may not work well with your business's other software tools. To verify whether swapping and sharing data between the application and other programs will be possible, talk to the vendor and then run some interoperability trials.

The modules in a vendor's ERP suite are designed to be fully compatible with one another, functioning as a whole rather than as a collection of units. On the other hand, there are occasional exceptions to this rule and, if your business continues to use programs from other vendors, interoperability may still be a concern.

Vendor Support

All finance and accounting software vendors pledge full and total support for their products. Such promises are not always faithfully fulfilled, however. The only way to protect yourself is to read product reviews, seek opinions from other users and to get the vendor to incorporate its promises into a legally binding contract.

ERP software support also must be carefully investigated and verified. The stakes will be even higher, however, as one software vendor will be responsible for software spanning multiple tasks and departments across your business.

Next Steps

After determining which software solution is right for your company, it's time to investigate the market further and identify an appropriate product. Focus has developed comprehensive research pieces to help your buying process in both of these fields. Consult the Accounting Software Resource Center to find our Market Primer, Buyer's Guide and Comparison Guide, as well as several Buyer's Checklists, topical research briefs and advice from Focus Experts. If you're in the market for an ERP solution, you'll find similar research and supporting content in the ERP Resource Center.

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