Can Your Company Afford Not to Use an Accounting Software System?
There are still many small businesses that begin operations using paper-based manual accounting systems, and for very practical reasons. For the smallest of companies, even the cost of an inexpensive accounting software program is money that might be better spent elsewhere. At some point, however, a growing company must consider whether or not it would be more efficient to purchase and implement an accounting software system.
Small business accounting software systems provide a proven value proposition of efficiency, accuracy, and speed. It is a crucial tool that contributes significantly to a company’s efficient operation. Yet, that does not always mean a small company should invest in an accounting software system, or more often, upgrade to a more powerful solution. Switching to a different accounting software system, whether it uses automated software or pen and tablet, is an investment of time, resources, and money. Before investing in an accounting software system, determine the real costs of doing so.
Calculate the Cost
A few years ago, implementing a computer-based accounting software system required a relatively significant investment. Much of the costs for computers, software, networks, and technical services were incurred up front. Future expenses were unpredictable. Business owners also assumed risks for system failures, even if vendors sold and installed the systems.
Today, software publishers provide accounting software systems as a Web-based service. Your company can subscribe to the service for a monthly fee, and the service provider assumes all costs, responsibilities, and risks as the owner of the system. Ideal for small businesses, these online solutions are used many mid- and large-sized companies as well. In calculating the cost to switch to a new accounting software system, that subscription price is a good basis. Can your company receive more in benefits from using the online application than the subscription cost? If not, you may not be able to afford to migrate.
Indirect Costs to Migrate to an Accounting Software System
Even if your initial calculations indicate that you will receive more value from accounting software than the subscription cost to a Web-based solution, don’t commit yet. Consider, instead, these indirect costs as well.
- Data conversion – whether it’s converting records from paper to digital, or one file format to another, a new system requires data manipulation.
- Business disruption – if valuable resources are redirected to the accounting software implementation, other aspects of the business suffer.
- Management focus – similarly, if senior management has an eye on the current accounting project, it’s not looking as intently to the future as it should.
- Risk management – there are costs incurred to mitigate risks, and taking responsibility for implementing and supporting a new accounting software system has risks.
Benefits of Accounting Software Systems
Before deciding to invest in an accounting system, analyze your business needs and to understand which benefits associated with a new system will deliver results. Small business owners who lack the knowledge or ability to efficiently organize finances should receive great value from accounting software systems. If your business is losing customers and revenue as a result of poor financial organization that is affecting customer relationships, an accounting system should help. Accounting software effectively organizes and promotes streamlined business operations when traditional methods have lost their efficiency.
To be able to determine if a business can afford not to use an accounting software system, it requires an understanding of the pros and cons of the new system, a proper cost-benefit analysis, and possible risk assessment regarding the switch are essential factors in the decision. Most importantly, the choice needs to be based on the needs and practices of the business.