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An organization's accounting system is an integral piece of its operations and should evolve with its needs. Most companies start out using an accounting system specifically designed for small businesses, such as QuickBooks, Peachtree, or FreshBooks. As an organization grows and becomes more complex, new business activity can put a strain on a basic accounting system which is not designed to handle the workload in a more complex environment. While accounting systems setups will vary from business to business, a general rule of thumb is that companies tend to upgrade to a new system once they reach $10M in revenue. Similarly, companies of a certain size or complexity may find they need to upgrade to ERP-level packages at a certain point.
This article will focus on companies approaching the $10M mark (or ones that have surpassed it and are already feeling the constraints) and help them decide if now is the right time to move from a basic to a more complex accounting package.
3 Signs You Need to Upgrade Your Basic Accounting System
1. Creating "Patches" and Workarounds When accounting systems begin to reach their functional capacity, most companies do not immediately upgrade. Many organizations will attempt to "get by" with their current system in order to delay the time and expense of an upgrade. As a result, they end up creating workarounds to accomplish their needs. However, the downside of this type of patchwork system is that members of the accounting team can potentially spend more time trying to use the current system, along with other tools (i.e. Excel), in an attempt to make their system meet their current needs, instead of upgrading to a new and more efficient system. For example, employees will perform account reconciliations outside of the accounting system. This creates several potential issues: - Greater chance for errors
- Extra time required may create the need for additional staff members
- Reposting is done on an ad hoc basis and is not standardized
- Documentation may suffer
2. Inadequate Information Overall, the most common issue that companies with too-small accounting systems run into is that they simply cannot get the detailed information that the company needs in order to continue to grow. Regardless of any workarounds employed and additional time spent piecing together information; the financial reports may not have an adequate level of detail. The reports may not be able to be delivered in a timely manner and are not helpful in guiding senior management's decision making process. For example, a Chart of Accounts may not have been originally structured with sophisticated business reporting in mind. Therefore, the system cannot produce the information that the business leaders may require. The true value of an accounting system is its ability to help a company manage its business, and this constraint could have a negative impact on the company. 3. Inefficient Accounting and Finance Operations Another problem that many organizations face is limited access to their accounting system. In a small company, there are usually only a small number of individuals that need access to the accounting system to record and process transactions. However, as a company grows and business transactions become more detailed, more employees are likely to need access to the system. Since small business accounting systems place limits on the number of users that can simultaneously access the system, it becomes problematic; many systems only allow one individual to be logged-in at a time. In addition, having too many transactions in an accounting system can start to impede performance. Accounting systems can only process a fixed number of transactions from a fixed number of accounts, which may start to slow down as business operations expand and grow. Conclusion If your company is showing these signs, it is likely time to begin examining options for an upgrade. Putting the appropriate level of effort into researching and selecting the most appropriate upgrade path for your organization will ultimately benefit your company in the long run. Remember, however, that system integrators do not necessarily employ finance experts and accountants to help ensure the new system will deliver all of the reporting capabilities you will need. A good place to start is with your accounting team. Work with them to map out how the new system can provide meaningful output both today and in the foreseeable future (The last thing you want is to begin your relationship with a new system realizing you will need to upgrade again). Working with both a systems integrator and an experienced accounting person will help ensure a smoother process and better final outcome. | 
