Only the smallest companies can rely on spreadsheets or basic financial packages for their business accounting. The natural step beyond that is to implement some more sophisticated and powerful accounting software. The dilemma facing many SMEs is how do they choose between the options. Do they go for a fully-featured ERP or best-of-breed Financial Management Software?
What is best-of-breed Financial Management Software (FMS)?
FMS – or Financial Management Software – focuses on the financial and accounting aspect. It manages general ledger, accounts payable and receivable, cash flow, purchase management, invoicing, VAT, budgeting, forecasting, financial planning and reporting.
Depending on your industry, you may also utilise sales management functionality to help you take control of sales, purchasing and inventory. And companies that sell services would want project management tools, like project accounting, billing and expenses.
Some industries have very specific requirements that cannot be met by an ERP. In those cases, standalone FMS is essential. For example, with specific software, charities and other third sector organisations can report on individual fundraising efforts. An ERP system would usually focus on helping a company to see how it can maximise profit. But these not-for-profit organisations need to keep track of grants, donations and other fundraising, as well as expenditure against a particular fund.
Best-of-breed financial management software is one that is the best product of its type. A company may need specific features or reporting tools due to its industry or sub-sector niche, and in these cases best-of-breed financial software would be a necessity.
ERP or FMS: which is right for you?
There are several considerations when deciding which type of software is right for you. Here are some of the key factors. You can assess each of these against your own needs to help make the decision.
Degree of fit
You should consider which type of software solution fits your company best.
Best-of-breed FMS is designed especially for managing the finance and accounts for a business. As a stand-alone software solution, it meets just the specific financial and accounting needs. It is specially configured - or more often built by design – to address a company’s unique financial requirements. Some company and industries have individual needs that only a specialised financial management system can meet.
ERP works across the whole enterprise, combining functionality for all areas of your business, including the accounting side of things. You won’t need separate systems for each of your departments. All of your company data is all held in a single database and so there’s no worry about whether systems will talk to each other. ERP is considered to give company executives greater visibility over their operations and in turn, greater control.
ERP packages have become more complex over recent years. Many systems have incorporated extra functionality as they try to compete with the best-of-breed software for various industries or for functions within a business. Consider whether you need a fully featured ERP package if you’re only going to use it for its financial and accounting features. If your requirement is niche or industry specific, then remember you will require heavy customisation, which may become complex and expensive. In these situations it is always worth considering single purpose or best-of-breed applications. For instance, law firms have specific practice management challenges that demand complex management and processing of timesheets to ensure accurate billing by client.
For example, if you’re not a manufacturer, then you won’t need the material requirements planning, bill of materials or capacity planning elements of an ERP. And if you don’t have a warehouse or sell any physical products, then you won’t need inventory planning.
Due to its complexity, ERP takes longer to implement than best-of-breed financial management software. It’s not unusual for a project to involve a full review of a company’s business processes so that these can input into the ERP project scoping. And sometimes a company might choose to adjust its processes to better fit with how the ERP works. An ERP implementation project can take anywhere between three months and several years to complete, depending on the size of an organisation, its geographical spread and the complexity of customisation required. Although a typical, mid-sized project might be 6-12 months.
Putting in place a best-of-breed financial management system will be far speedier. Because such a system sits just within the finance department, and doesn’t affect the wider aspects of the business, it can be far more quickly planned and implemented. It won’t be reliant on deadlines or subject to constraints from other departments, and the decision-making and project management can be contained to just a handful of individuals within the department and the IT department.
Due to its scale, complexity and the time it takes to implement, ERP systems are more costly than systems that specialise in just finance and accounts.
Equally, when you’re buying an ERP system, you’re paying for all manner of functionality that may never be used by your business. It typically comes with CRM, manufacturing, stock control, HR and other elements that you simply may not need.
Aside from the implementation costs, other costs should also be considered. Total cost of ownership across the life of the software will include maintenance fees, upgrades costs and user licence fees.
ERP upgrades can sometimes be costly and involve you incurring consultant time for a large upgrade. However, the true cloud-based systems are upgraded in the background without any involvement from you, so there’s absolutely no time or cost involvement on your part for that.
Single, best-of-breed software packages are smaller in scope, and affect fewer users, so maintenance, upgrade and user costs are lower.
Ease of use
When you’re only using software for finance and accounting, the features are necessarily fewer. So there is less to learn and the packages are – generally – easier to use. Plus, if it’s considered to be best-of-breed, then it will have been designed to be easy to operate.
However, if you require many best-of-breed systems for different aspects of your business – like finance, CRM, purchasing, manufacturing, warehousing, HR, for instance - then if you have users who work across functions, they will have more than one system to learn.
ERP is generally harder to use, because its functionality is that much greater. So user training will often be longer and more involved. However, data only needs to be entered once into an ERP system, and it is then available right across the business. So in terms of simplicity here, an ERP system may represent a better solution.
If you do use an ERP system, another benefit is that it’s only one system to learn for all users across your company, and so everyone will become conversant in the one, same package.
You need to consider whether an ERP system will bend to your business processes, or if you will have to adapt your processes to fit the software.
ERP systems are designed to be fully customisable, but tailoring the software will cost you – either upfront, or later on when your business needs have changed.
Equally, financial management systems don’t need much flexibility. The features required for most companies are fairly standard. If you find you do require functionality that goes beyond financial and accounting needs, or which needs tailoring for your particular business processes, then a best-of-breed financial package will be far cheaper, easier and quicker to adapt.
Make your choice
Having analysed these considerations, you will want to weigh things up and make a choice. The best way is to draw up a checklist of functionality that you need and grade it according to your needs. Decide which features are vital, preferable to have, or just nice to have as long as it doesn’t cost anything extra. That should help you decide whether you need a single, best-of-breed financial system, or a fully-featured ERP.
Don’t restrict things to the present though. Consider the future too. Your need might change over the years as your company evolves or grows.
Ultimately, if you need a financial system for fairly standard accounting, as well as other systems for other functions of your business, then maybe an ERP might be best. But if your company or organisation has more specific, or industry-relevant needs, then choose a best-of-breed package.
Need help making your choice? Get in touch with Software Advisory Service today - we can provide you with expert, non-chargeable, impartial buying advice to businesses all over the UK!