By Gregory Coats

This article was published in The Productivity Institute newsletter

As companies grow, they should regularly evaluate their software and assess how well it can meet their needs.  In some cases, the software limitations, if severe, can constrict a company’s growth and efficiency.  In this article, I will identify key areas to focus – in detail - on some key areas.

The first area most companies focus on is cost.  Cost is important and you should have a budget when you do your evaluation.  However, if you do not know what products are available and what your needs are, how can you accurately determine cost?  There will be some obvious limiting factors, but be reasonable.  I have seen many businesses budget $10,000 to $30,000 for computer and network upgrades, but very little for software.  For less than $1,000, you can buy any number of accounting software packages.  But, if they don’t meet your needs and you end up doing a lot of extra work because of software limitations, how worthwhile was that investment?  Buying inexpensive software now and then having to buy an entirely new product several years later is often very costly.  These additional costs can include: learning/training to use two software packages, data conversion (which can be very expensive), required software and process customizations, and lost productivity because of initial software limitations and compromises. 

So, when evaluating accounting software, what factors should you look at?  Here are several factors to consider. (I will provide more factors in part 2 of this article.)

• Number of users – how many users will access the system? Will this total number of users be simultaneous users?  Does the software use named seats? This is an important question because you may have some users who will only need to run reports and sporadically access (limited) information. Also, software licensing costs usually vary greatly between concurrent and named users.

• Number of locations – this may be critical in deciding which software to select. Furthermore, if you have multiple locations, can the database be split up?

• Should you buy or rent the accounting software? (Note: usually, rented software is hosted.)  The advantage of using hosted accounting software is that you don’t have to worry about updates, backups and network incidents. Furthermore, the upfront cost of hosted software is significantly less than purchased software. Disadvantages of hosted software include: lack of direct access to the database (usually), some companies are leery of security issues, limited customization and integration with other software products and add-ons.  Sometimes, it is also difficult to download properly formatted data from a hosted environment. Conversely, the advantage of purchasing accounting software is the ability to customize it your specific needs, to enable add-ons and to have all aspects on-hand.  Several studies have also shown that the price crossover point between purchased and hosted software is about four years. (For the first four years, it is cheaper to use the hosted version. After that, the overall cost of purchased accounting software is lower.)  Downsides of purchased accounting software includes: initial cost, hardware and software cost, impact on your server(s), maintaining of updates and tech support costs. Using outstanding consultants – in either case – can help ensure that your system is properly configured to meet your needs.

In part two of this article, I will continue to list important factors when evaluating accounting software and system configuration. What is important, regardless of whatever software you select is that you have a clear understanding and list of your specific needs that you can use during your search.

Gregory Coats is president of D & G Accounting Solutions, and has been involved in implementing and customizing multiple accounting software systems for over 20 years.  Mr. Coats can be emailed at gregory.coats@comcast.net .