Accounting system selection mistakes to avoid

Selecting a new accounting or enterprise resource planning system is one of the most important business decisions you will make for your organisation. This article offers advice to help you make the right choice.
Accounting system selection mistakes to avoid

For management accountants, selecting an accounting or enterprise resource planning (ERP) system can be a daunting — and intimidating — task. The stakes for this decision are huge. Choosing the wrong accounting or ERP system can be disastrous for your organisation and might reflect poorly on those who made the selection.

Using an appropriate selection process can help accountants make a decision that will best benefit their organisation — and themselves. To help you conduct your best accounting or ERP system evaluation-and-selection process, this article examines eight common evaluation and selection mistakes, with suggestions for avoiding these errors. Please note that, for the most part, these common mistakes are presented without mentioning specific accounting system or ERP brand names.

1. Hiring a selection consultant who is not independent.

Unfortunately, truly independent accounting system and ERP selection consultants are hard to find. It has been my experience that selection consultants who also sell or implement a specific product will recommend the product they sell nearly ten out of ten times. Therefore, by picking the system's selection consultant, you have unknowingly selected your accounting or ERP system, though that consultant may take six to 18 months and charge hefty evaluation fees before ultimately rendering recommendations. Even if you engage a large consultancy that works with multiple accounting system or ERP products, you will likely be assigned a team to your selection process that has expertise in a single solution; hence, the inevitable recommendation may be finalised the moment that selection team is assigned.

Further, assuming you can find one, hiring a consultant who does not sell or implement any accounting system or ERP products often (but not always) results in hiring a consultant with limited knowledge of the product(s) being considered; this is important because implementation experience is crucial to fully understanding an accounting system or ERP product. Finally, even if you find an impartial selection consultant, they may tend to favour those few products they know best and that have worked well in the past. For all of these reasons, you may be better off researching this decision yourself rather than hiring a selection consultant.

If you do engage a selection consultant, they should be as independent as possible and should possess expert-level understanding of a wide range of accounting and ERP solutions that might meet your specific needs. If the consulting team that works with your organisation is proficient in only one solution, it may conduct a lengthy and costly evaluation and ultimately recommend a system that does not fit your needs. The results are wasted months, wasted money, and a biased recommendation that likely will not be your best solution.

Solution: If at all possible, conduct your own accounting or ERP system search the best you can. Identify all possible candidate solutions, eliminate obviously wrong solutions, rank the remaining candidates based on your impression of best fit, then have consultants representing each of the top three candidate products come in to present their best educational sales pitches. If a stellar solution does not emerge from this process, then evaluate your fourth or fifth options. In most cases, this process can work, though it places greater demands on management to identify the best candidate products and carefully study their capabilities. Make sure to ask each product consultant to compare their solution to the others you are considering. As the process continues, you will become better educated and ultimately be in a better position to make the best decision. Even if this process fails to produce an obvious answer, you will then be better prepared to hire an independent evaluation-and-selection consultant to assist you. Your prior evaluation efforts should arm you with enough knowledge to make more-educated judgements about the independent consultant's evaluation processes and recommendations.

2. Selecting an unproven accounting or ERP system.

Some companies make the mistake of selecting a new, relatively unknown accounting system product based on a single new, exciting feature, such as a dazzling interactive online store, impressive customer relationship management (CRM) integration, or advanced cloud-based technology. Almost every new accounting system that hits the market seems to offer a handful of new features that can certainly catch your attention, but didn't we learn long ago to be careful about buying version 1.0 of anything? It takes time for a new accounting or ERP system's flaws, bugs, and missing features to emerge, and you do not want your company to be the one that discovers them. While the new product's marketing may make a good impression from a distance, virtually every newly introduced accounting or ERP system in history was not fully ready at launch. As a result, in some cases companies that purchased those new products suffered for years as those products were slowly improved and brought up to higher standards.

Solution: My general rule is that, if possible, you should only purchase an accounting or ERP system that has been around for many years and has at least 3,000 verifiable customers. In this circumstance it is far more likely that the thousands of customers before you have helped to ferret out and correct many of the product's initial bugs, issues, and shortcomings. This will help ensure that you are investing in a proven solution that functions properly and is more likely to be around for years to come.

3. Buying an industry-specific solution.

Some company officials mistakenly believe that an accounting or ERP system specifically marketed for their industry is a better choice than a more generic accounting or ERP software system. In some cases, these company officials may be falling for clever marketing in which the accounting or ERP vendor has gained traction by targeting their generic product towards a certain industry, even though the product was not originally designed for that industry.

Solution: Check to ensure your industry's most critical needs will be met by the product you select. It's often true that industry-specific accounting or ERP solutions contain at least a handful of industry-specific features and terminology, but in many cases those same products may be missing a substantial amount of overall accounting functionality, such as payroll, inventory, CRM, allocation calculations, advanced reporting, support for electronic transactions, etc. Fortunately, plenty of well-respected industry-specific solutions are available (such as Blackbaud for not-for-profit accounting, SYSPRO for manufacturing, and Prophet 21 for distribution, to name a few).

4. Selecting an accounting or ERP system based on the hardware you already own.

It can be a problem if management views hardware as the most important component of a company's computer systems, because usually it's not. In most cases, it is a company's accounting software or ERP system that contains the most critical components that make or break a company. Often, prior investments in hardware are best treated as sunk costs, or at least should be considered less important than the capabilities of the new accounting or ERP systems. Another problem is that some company officials seem to believe that accounting or ERP systems that don't run on mini- or mainframe computers are inadequate or beneath them. To the contrary, it has been my experience that there are many quality PC-based systems that cost far less than the traditional high-priced ERP solutions, have just as many features, and are far easier to implement and operate compared to minicomputer- or mainframe-based solutions.

Solution: Selecting a simpler application based on the hardware and platform you already own might seem to make sense, but because the accounting or ERP system is your organisation's lifeblood, this important selection should not be handcuffed. To avoid this mistake, start your selection process by focusing on all of the top available accounting or ERP systems regardless of the older equipment you own. Once you have made the best selection, try to incorporate your older hardware or, if necessary, secure the new appropriate hardware you need to run your new system.

5. Overbuying or underbuying.

Many companies purchase entry-level accounting systems because they perceive those options will save them money, but often their accounting needs surpass the features offered by those low-end products and they end up paying a bigger price in missing functionality. Generally, entry-level accounting system solutions should be considered only by entry-level companies. By comparing lists of features, we find that midrange accounting solutions typically offer about a thousand more features compared with accounting solutions marketed towards smaller organisations. Further, these midrange systems typically include superior infrastructure and database technology sufficient to handle a midsize or larger company's higher volume of transactions.

In other cases, some companies purchase the most expensive ERP systems available, only to later discover those systems are far more complicated and costly to operate than they ever imagined. There are dozens of less expensive, top midrange accounting systems that provide features similar to those found in systems marketed as ERP solutions. (In the past, so-called ERP systems included advanced inventory and manufacturing capabilities for scheduling, ordering, and managing inventories while midrange accounting systems did not. However, for the past two decades, many midrange accounting systems have offered these advanced inventory and manufacturing capabilities, blurring the distinction between these two classes of products.) Several top midrange accounting systems have larger customer install bases of tens of thousands of customers, and those products tend to be well-proven and well-suited for traditional ERP situations.

Solution: If you are a smaller company, include at least one midrange accounting system in your list of possible solutions, as this might help you better judge the suitability of your entry-level candidate products. If you are a larger company, include at least one midrange accounting system in your list of possible solutions, as this will help you better judge the suitability of your traditional ERP candidate products. If you are a midsized company, include only midrange accounting systems in your list of possible solutions — you likely do not need either an entry-level or traditional ERP solution. If your company does grow so fast that a more powerful traditional ERP system is soon warranted, then consider that to be a good problem to have.

6. Falling for the modification trap.

Some companies love to hear consultants say, "We are going to modify and customise your accounting or ERP system so it works the way you do." Unfortunately, what often happens in this situation is companies find that the consultants undergo a long and expensive process to modify the newly implemented systems with a plethora of enhancements that transform the product into a one-of-a-kind system. As a result, the company finds itself forever dependent on the consultants for all future upgrades, modifications, and support work — no matter the cost. Even worse, in some cases companies discover they can no longer upgrade their accounting systems without losing those costly modifications. That leaves company leaders with the equally poor choices of remaining on the modified version of the older product or paying their consultants large sums to migrate and adapt the prior modifications to work with the new accounting or ERP system versions. The reality is that most popular accounting and ERP systems employ industry standard "best practices" that would probably work fine in your organisation.

Solution: After successfully installing your new accounting or ERP system, wait six months to make any customised modifications — you might find that you don't really need many, or any, of those modifications.

7. Failure to consider third-party add-on products.

One top accounting and ERP vendor (whose product is one of the most robust in the world with approximately 60 modules) reports that 80% of its customers purchase third-party add-on products to supplement their accounting or ERP system needs. (For this article, third-party add-on products are defined as proven add-on solutions created by third-party vendors that enhance the functionality of a widely available accounting or ERP system.) This statistic suggests that third-party add-on products are commonplace, and companies should be open to incorporating add-on solutions. For example, Mike Nelson, president of US-based residential rental company Excalibur Homes LLC, maintains that one of his company's most important accounting system features results from add-on functionality to its PropertyBoss Solutions accounting system. By default, the PropertyBoss accounting system publishes customers' available rental homes to the Excalibur Homes and Zillow websites, as well as about 25 other websites. However, an add-on product pushes and publicises those same ads to multiple additional websites, such as rent.com, trulia.com, hotpads.com, and others. As a result, on average, Excalibur Homes experiences far fewer vacancy days per year for each of the 1,300-plus rental homes it manages. Nelson credits this add-on functionality as "saving hundreds of labour hours each year by eliminating the need for staff to post listings individually to those varied websites".

Solution: Realise that third-party add-on solutions are commonplace and worthy of consideration. Be sure to read industry magazine ads and attend industry conferences where you can learn about the available options specifically designed for your industry or niche.

8. Buying a legacy accounting system.

Hundreds of accounting and ERP systems are on the market, but many of them are positioned as legacy products that receive minimal attention from the parent company. Though accounting and ERP companies don't publicly say so, often when rival accounting or ERP systems are purchased, the purchaser's intentions are primarily to eliminate competition and systematically convert the customers of the acquired product to their own flagship accounting or ERP system product(s). In many (but not all) cases, newly acquired accounting systems face an uncertain future, and it's difficult to know how hard the acquiring company will work to support and improve that product down the road.

Solution: Be wary of purchasing an accounting or ERP solution that has been recently acquired by a rival company or another company with no experience in the accounting or ERP system marketplace.

J. Carlton Collins, CPA, (carlton@asaresearch.com) is a technology consultant, a conference presenter, and an FM magazine contributing editor. To comment on this article or to suggest an idea for another article, contact Jeff Drew, an FM magazine senior editor, at Jeff.Drew@aicpa-cima.com.