How to Select the Right Accounting Software

here’s an old saying, If you ask the wrong question, you’re likely to get the wrong answer. That certainly applies when CPAs ask which accounting software product is the best. The fact is, there is no best . There is no single product that suits everyone’s needs, but there are probably several that suit one company’s specific requirements. So, since the problem is matching software products with a user, the correct question is: How should I go about finding the packages that are right for my business or client?

When it comes to accounting software, the search begins by examining both the products’ features and the vendors behind the products. Because accounting software contains hundreds—if not thousands—of features, this may seem like an overwhelming task. While such assessments are not exactly easy, they are not overly difficult, because only a handful of features are critical to making the right choice—and we will focus on those features. In evaluating a package, here are the key questions you should ask:

• Does the software provide customization tools?
• Is the vendor financially sound and reliable, and can it provide the technical resources my organization will need?
• Can the product deliver the type of financial reporting I require?
• Will the underlying technology meet my current and future needs?
• s the product’s account-number structure suitable for my business?
• Since e-business has become so important, does the package provide Web integration?
• Can it handle foreign currency?
• Is it easy to use?
• How much does it cost?

The articles in this series examine all these questions—with the goal of providing directions for identifying software products that meet your requirements.

CUSTOMIZATION

The single most important question you need to resolve before deciding on an accounting software package is whether it can be customized—and, if it can, whether the customization will meet your requirements.

In the 1980s, the most successful accounting software developers allowed users to modify their products’ source codes—the underlying programming that could be altered only with the vendor’s permission—and even then only a programmer with knowledge of the product could modify the source codes to add fields, calculations and capabilities to the product.

Many users accepted vendors’ invitations to modify the software. But they soon discovered modification was a very expensive and complicated job, involving months of programming. Worse, while such efforts were successful for many customers, others were left in chaos when the modifications didn’t work properly, leaving their financial recording and reporting tools inoperative or badly compromised.

Source code modification had an even graver drawback. Once a code was changed—even slightly—the product no longer could be upgraded without losing those modifications. So the product’s users faced a no-win choice: If they wanted to upgrade, they had to forgo all the modifications that had made the product fit their specific needs. The vendors also were unhappy: They couldn’t generate new revenue because, after spending a fortune modifying a product, users generally opted to stick with the old version rather than risking—and financing—a second source code modification.

A further complication was the fierce competition among vendors to add as many features to their software as possible on the theory that, if they didn’t, their products wouldn’t rate well against the competition in the comparison reviews featured in many professional magazines and trade journals. And as more features were added, the software became more difficult to use.

Today, most of the leading accounting software products offer a good alternative to source code modification. Instead of changing the underlying codes, the developers now develop their products with built-in customizing tools that are easy to use. For example, many of today’s products provide user-definable fields—those that aren’t earmarked for any particular function but that allow customers to attach their own custom functions and labels to them. Thus, users can create special fields to accommodate additional information for customers, vendors, employees, inventory items and jobs. User-definable fields now are found in accounting software packages of all price ranges including the economy-priced Peachtree Complete Accounting for Windows, the mid-priced RealWorld Expertise and the higher-priced Great Plains Dynamics C/S+.

HAVE IT YOUR WAY

There are many levels of customization. For a summary of the customization capabilities of some of the popular accounting software packages, see exhibit 1.

Financial reports. The most commonplace customization capability is the ability to create new financial statements or edit existing formats. Some products also allow users to change fonts, add lines and even insert a company logo. However, although such customization is widely available in today’s top packages, some products still can’t produce custom-tailored financial statements.

Forms. With this feature, a user can tailor a program’s forms formats, adding or rearranging information on payroll checks, invoices and packing slips. For example, a user might want to continue using old preprinted checks or invoices even though the company has just upgraded to a different accounting system. This customization feature allows the user to adjust the printing to fit the old design.

Input screens. This lets the user customize input screens—a feature that many leading vendors have added in the last few years—so fields can be added to track additional data about a customer, an inventory item or a job. Users typically can rename, rearrange and even hide existing fields. More sophisticated customization tools allow the user to validate data entered into the system, force (override) data and even calculate data based on other information entered elsewhere in the system. Other sophisticated features include the ability to set the tab order of user fields, insert drop-down boxes (menus) and embed third-party software applications that will appear on the input screen.

Source code. In many cases, it’s possible to purchase the rights to modify a product’s source code. While this isn’t as necessary today as it once was, some companies have unique needs that require it.

Some accounting products allow users to implement customizations for just one user, a specific group, or all users. Others provide the customization tools as part of the standard product or they sell special software tools for that purpose. Still others discourage users from customizing their software, leaving that to their value-added resellers (VARs). For example, Solomon IV provides extensive customization tools for users while SBT Professional Series provides its VARs with a customization tool kit designed to help them implement custom changes for their customers.    

VENDOR RELIABILITY  

No matter how good a product is, users still must rely on continued support from the vendor. For this reason, you want to be sure your vendor is reliable, has the resources to meet your requirements and will be available when needed.

Many first-time accounting software users are inclined to disregard vendor reliability—focusing primarily on the product’s quality, price or both. However, selecting a product and then entrusting it with all your financial data is not unlike the goals of a marriage: You want a fruitful, long-term relationship. Once the product is installed, the customer depends on the accounting vendor to supply updates for payroll taxes, sales taxes and even depreciation rates. The customer also must rely on the vendor to fix the inevitable bugs, provide support and continually enhance the product to run on the latest platforms and operating systems. The continued success of the accounting software vendor has a direct bearing on the customer’s continued success with the product.

The bottom line is that it’s usually best to avoid vendors with limited resources. Typically, the best accounting software vendors are profitable and supported by staffs that are both knowledgeable and large enough to meet the needs of its customers. In addition, they should have large distribution channels. Those that sell software as a sideline tend to be less committed to the business. If the vendor is publicly traded, it’s relatively easy to gather information about its financial health. But if the vendor is privately held, you’ll have to do some investigating: calling on its current customers and insisting that they provide sufficient in-depth information on its resources.

FINANCIAL REPORTING

A primary objective of any financial accounting system is to provide accurate financial statements on a timely basis. A frequent complaint is that a product won’t produce the kind of financial reports a company wants. Yet, considering the importance of financial reporting, users typically fail to fully consider financial reporting capabilities when evaluating products.

When it comes to financial reporting, many accounting software products incorporate two third-party products—FRx and Crystal Reports—into their packages rather than develop their own. And in recent years those two products have become industry standards. Both work seamlessly with more than 25 top accounting software packages. So dominant is FRx that some products, such as Great Plains Dynamics, Platinum for Windows and Solomon IV, rely on it as their primary financial reporting tool. (For more information about all the products mentioned in this article, see “How to Contact the Vendors” on page 64.)

When evaluating software, you should ask whether it works with FRx or, if it doesn’t, whether the built-in module exhibits comparable features. Here are some of the key capabilities of FRx:

• Produces financial statements with up to 256 columns.
• Links financial data from either a general ledger or other products such as a spreadsheet or database application.
• Creates calculations such as expenses divided by units produced.
• Produces provisional financial statements—that is, as if all unposted transactions have been posted.
• Views reports on screen and easily drills down from financial summary information into account and transaction details.
• Sends e-mail reports directly to remote users from the report preview screen.
• Exports and imports reports to and from spreadsheets.
• Handles complex calculations such as conditional if–then statements.
• Provides a drag-and-drop utility in the reporting tree so users can see the financial effect of restructuring.
• Creates virtual roll-up structures for reporting at different levels—that is, by store, city, state, territory or country.
• Prepares and distributes presentation-quality reports using customized fonts, colors and other formatting options.
• Compares revenue and expense figures for different organizational departments by creating side-by-side reports.
• Operates in a client-server environment.

As powerful as it is, FRx primarily offers superior reporting capabilities only from the general ledger module; it’s not designed to extract data easily from other modules. This is Crystal Reports’ forte. It’s superb at extracting and reporting transactions from all modules. For example, it can produce a set of mailing labels for all vendors that received more than $600 for the year but failed to provide the proper taxpayer identification number. It also can produce a report for each salesperson, displaying his or her top 10 customers in terms of total sales, the outstanding amounts receivable and the profit margin attributed to each customer. Like FRx, Crystal Reports works with many of the top accounting software packages. Some products such as MAS 90 and Acuity Applications have even gone so far as to use Crystal Reports to develop all its module reports.

Over the years, I have encountered many clients who thought they had to replace their accounting software because of inadequate financial reporting. A number of them, however, resolved that problem simply by adding FRx and Crystal Reports.

For a summary of the financial reporting capabilities of selected accounting software packages, see exhibit 2.

RATING RATIOS

Another important aspect of financial reporting is built-in ratio reporting. Unfortunately, most accounting software and third-party application developers either ignore this function or don’t give it the attention it deserves. Exhibit 2 shows that many vendors say they provide built-in ratio reporting, however, in my view, the number of ratios most of them provide is hardly adequate.

One of the few products that does adequately addresses this need is BusinessWorks for Windows—a product that serves the low-end market. Each of its modules contains a flash report function that summarizes key financial ratios and highlights key information. The general ledger flash report displays 20 key ratios for the following periods: current, year-to-date and prior-year. Also displayed are sales histories and balance sheet amounts for the past 24 months. The inventory flash report provides, among other things, inventory ratios, days in inventory, a reconciliation of the inventory account for the month, inventory and cost-of-goods-sold balances as well as highlights of the fastest selling and highest profit items. This is vital information that helps management detect problems in time to take corrective measures. In any company, it’s important for management to receive a set of financial statements at least monthly, complete with financial ratio reports attached.

GRAPHICS

A picture is indeed worth a thousand words , but it’s probably worth several thousand numbers . You should check to be sure the package you’re considering can convert numbers into graphics. Several accounting packages can produce pie, line and area charts from the numerical data. Exhibit 2 lists which software products also include graphic capabilities.

PIVOT TABLE

One of the most powerful analytical tools is pivot tables—a tool used in spreadsheets that allows the user to take data and pivot , or turn, it in many different ways so the information can be viewed from different perspectives. For example, it can show the relationship between, say, sales in various cities and sales of individual products; and then, by pivoting the data, it can compare sales broken down by cities with those by individual outlets or by individual salespeople.

Many companies praise pivot tables; for example, Microsoft claims the pivot table is its primary vehicle for analyzing financial data. (For more on how Microsoft uses pivot tables in its financial reporting, see “Accounting—the Digital Way,” JofA, May99, page 99.)

ACCPAC for Windows offers an excellent reporting tool called BrioQuery, which is basically a pivot table function. This tool queries the ACCPAC database using virtually any criteria desired. The resulting query may then be displayed as raw numbers, charts or in a conventional spreadsheet pivot table format. Other accounting packages allow the user to export data into Excel, which has its own pivot table features, but ACCPAC’s pivot tool is much faster and easier to use.

HOTLINKING

Another important financial report feature is the ability to hotlink accounting data directly to an Excel or Lotus 1-2-3 spreadsheet—a feature first found in Platinum for Windows. Such a feature allows the user to export financial statements directly to Lotus or Excel as easily as sending the report to a printer. Once in Lotus or Excel, Platinum for Windows automatically inserts the @SUM formulas everywhere, a feature that makes what-if scenarios a snap to create.

EVENT-TRIGGERED REPORTING (ALARMS)

Many accounting software products have the ability to alert users to predefined financial conditions. With such a feature a CFO can create simple calculations that the accounting software continuously compares against a preset value. When that value is exceeded, an alert pops on the computer screen. For example, a CFO might create calculations to sound an alert if cash on hand falls below $100,000, gross margin drops below 20% or the number of days in inventory exceeds 80. In most cases, there is no limit to the number of triggers that can be established.

SBT ProSeries, for example, not only monitors custom events, but it can alert managers by sending them e-mails. As you would expect, many high-end accounting products—the so-called beginning enterprise resource planning (ERP) products, such as Platinum ERA, offer event-triggered reporting. (For more on how accounting software is classified, see the sidebar “Classifying the Accounting Software Market: From Low to High End,” above.) However, this high-end feature also can be found in an entry-level product, Peachtree Complete Accounting for Windows.

For accounting packages that don’t provide event-triggered alarms, a third-party solution often is available. For example, Forest & Trees (from Computer Associates) can extract data from a host of accounting software packages, spreadsheets and other databases. In addition, the software can dial your phone or beeper if it spots a potential problem. Thus, it can warn of impending problems on a real-time basis, whether you’re in a meeting or on the golf course.

WHAT DO YOU NEED?

As you can see from even this first article in the series, making a buying decision requires close investigation of many diverse areas. One area that often gets lost in the technical assessments of the products is the long-term needs of your organization. It’s critical that you evaluate your requirements beyond the immediate future. Businesses grow—and so do their accounting software needs.

Also, you must assess how others in your organization use the application and be sure they are included when you make the buying decision. That is not to imply that everyone’s needs should be given equal weight. For example, bookkeepers and data-entry staffers tend to place more emphasis on the data-entry task of getting cash and inventory in and out the door, while CPAs focus on providing management with the necessary financial reports. Too often those making buying decisions rely heavily on the bookkeepers’ and data-entry clerks’ assessments of needs—giving short shrift to the product’s reporting capabilities.

Don’t make these common mistakes.