How to Select the Right Accounting Software

he Internet is changing the way businesses do business, and that means business managers must rethink what they expect from their accounting software. The Internet is transforming the retail channel—from an elaborate distribution system with wholesalers, distributors and a vast array of retailers to a simplified system in which a growing number of sales are made directly to the consumer. For manufacturers of both consumer and industry products, that change translates into generally lower overhead—and new demands on accounting systems.

Recognizing this trend, many accounting software vendors have added features designed to accommodate the Internet. The new functions include the ability to

• Publish Web catalogs directly from, and make links to, the software’s inventory module. This means customers can see, among other things, real-time information on prices and quantities on hand. Retrieve orders directly from the Web site and import them automatically into the sales order module.
• Print all reports to a Web page format.
• Allow users to access reports and accounting data across the Internet using a password.
• Let remote users securely enter accounting data and transactions via the Web.
• Track an order automatically via links to tracking pages of Federal Express or United Parcel Service.
• Allow users to send e-mail reports to users or groups of users.
• Configure a system to automatically send e-mail reports and messages when triggered by predefined events.
• Exhibit 1 lists the Internet features of leading accounting software products. Three accounting software vendors at the forefront of Internet applications are Great Plains, SBT and RealWorld. All three provide Web sites where prospects can test the Internet features they’re interested in. At the Great Plains site, users can log on and operate Great Plains Dynamics C/S+ across the Internet. SBT’s site provides links to more than 200 companies that use the SBT WebTrader module to sell goods and services across the Internet. RealWorld’s Web site allows users to log onto a virtual Web store that can be created in less than 30 minutes using the RealWorld Expertise new Web site wizard. Simply answer a few dozen questions and Expertise generates a complete, ready-to-run Web site using data and graphics contained in the inventory module. The resulting site is linked automatically to the accounting data, as are sales tax, discounts and freight charge calculations.

So, whatever your immediate Internet plans, be sure to assess an accounting product’s Web-readiness. As Internet importance grows, Web-enabled features will become more critical to a business.

THE INTERNATIONAL SCENE

The international marketplace has never been stronger, and the Internet is making that huge market more accessible to even the smallest enterprises. Companies with Web sites suddenly find prospects from halfway around the world can order their products as easily as a customer down the street. Businesses that have never dealt with any currency other than the U.S. dollar are finding they must contend with pounds and rubles and yen and euros, and for the first time they must consider the need for accounting software that supports foreign currency transactions and reporting. Such support is more difficult than it first appears.

Only a handful of accounting packages process multiple currencies in compliance with FASB Statement no. 52, Foreign Currency Translation , Statements of Standard Accounting Practice 20 (the United Kingdom and Canadian authoritative pronouncement), International Accounting Standard 21, The Effects of Changes in Foreign Exchange Rates (the IASC’s authoritative pronouncement), or the European Community EC Directives 4, Annual Account of Certain Types of Companies , and 7, Council Directive on Consolidated Accounts .

Exhibit 2 lists how the leading accounting software modules handle multiple currencies.

The accounting software packages with the strongest international features are currently produced by ACCPAC International, Epicor Software, SAP, Great Plains and Solomon. Unfortunately, many other packages don’t provide multiple currency support at all, don’t support it fully or don’t support it in all relevant modules.

From a balance sheet reporting perspective, accounting for fluctuations in exchange rates became much easier in 1981 when FASB Statement no. 52 called for using the current exchange rate to compute both the value of the assets (and liabilities) and the related accumulated depreciation.

However, other foreign currency computations can be more involved. For example, the value of inventory held in foreign warehouses must be restated each reporting period when fluctuating exchange rates result in the recognition of an unrealized gain or loss. Further, international sales transactions that take place often aren’t processed until several minutes (or several hours) later, resulting in a gain or loss due to fluctuating exchange rates. Those adjustments also must be considered when restating data in foreign currencies.

To handle these complexities, Platinum’s multiple-currency module provides a screen to input the daily exchange rate for each relevant foreign currency. In that way, users can toggle between converting U.S. dollars to the foreign currency and converting the foreign currency back to dollars. Platinum for Windows can even deal with budgeted exchange rates, producing reports that show the effects of favorable and unfavorable exchange rate fluctuations.

Some smaller international companies attempt to avoid the complexities of foreign currency translation by offering goods for sale only in their base currencies and by accepting only credit card payments from international customers. With this strategy, they account for all receivables in U.S. dollars and the credit card company converts all revenue to U.S. dollars before receipt. While it may minimize the materiality of fluctuating currencies, this strategy doesn’t avoid the problem completely because transactions are seldom transacted and consummated simultaneously.

Beginning this year, foreign currency requirements became even more complicated as the euro became the official currency of the European Union (EU). Some EU companies already were adjusting for the euro. However, by 2002, when the new euro coins and notes enter circulation, all EU businesses must use the euro as their local currency. Currently, 11 of the 15 EU member countries have fixed their currencies to the euro: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The remaining 4—Britain, Denmark, Greece and Sweden—plan to participate in the euro conversion.

Therefore, if you plan to do business in Europe, your accounting software should be euro-compliant.

EASE OF USE

Another important feature to look for when evaluating accounting software is user-friendliness. Unfortunately, that feature is hard to quantify: What is user-friendly to some is of no significance to others, which means the only way to measure ease of use is to have every user group test a candidate product’s features—a task that may be unrealistic to perform. The basic areas to test are installation, setup and training and the day-to-day operation.

Here, using several products as examples, are some of the features that makes software easy to use:

Graphic guidance. Peachtree Complete Accounting for Windows offers the user two separate menus. The menu at the top of the screen uses just text, provides a traditional “look and feel” and can be operated without the mouse. The bottom menu uses flowchart symbols (invoices, journals, general ledger) that help a novice bookkeeper understand how data flow through the system. The text-only menu is designed for speed and for the more experienced user. The graphical menu provides much more help to the novice.

The following example illustrates how it works and why it’s important. Assume a novice bookkeeper assigned to conduct an inventory count discovers a discrepancy: The inventory report shows 15 lamps on hand; the inventory count shows only 12. To make the appropriate adjustment, the bookkeeper clicks on the graphic menu labeled Inventory, which displays flowchart symbols depicting the flow of transaction entries through the inventory system. The pictures suggest that an inventory adjustment flows to an inventory adjustments report, which in turn flows to both the general ledger and the item card. The bookkeeper clicks on the flowchart symbol titled Adjustments and the appropriate adjusting journal entry screen pops up. The bookkeeper selects Lamps from the inventory lookup list to display the item information, including the quantity on hand of 15 lamps. The bookkeeper enters a “-3” in the adjustment box and clicks the Post and Close buttons.

In recording that transaction, the bookkeeper didn’t have to know what to debit or what to credit—the place where some bookkeepers run into trouble. When a novice bookkeeper has to decide to which accounts transactions should be posted, he or she is likely to make errors. Here, our novice bookkeeper might not have known whether to post the debit side of the entry to purchases, to cost of goods sold or elsewhere. On many occasions, I’ve found bookkeepers mistakenly plugging into the other side of transactions to retained earnings. Such errors can go undetected for months or until yearend, when the accountant compiles or reviews the financial statements.

Default-rich settings. Peachtree protects against errors such as the above because the product is default-rich—that is, the product allows users to establish default settings that address that problem. Here’s how it solves the inventory problem:

The novice bookkeeper can’t determine the adjustment amount for the lamps. Assume the company currently purchases them for $60 each but had paid just $52 each for 12 lamps that are still on hand. Would the bookkeeper choose to adjust the books using the $52 price, the $60 price or the average price of $56?

In this example, the correct answer is none of the above; the company values inventory using the weighted-average method so the correct adjusting entry would be $57.33 each (4 purchased at $52 and 8 purchased at $60). Peachtree solves this problem by allowing the default setting to specify the weighted-average method.

Another example of default-rich settings can be found in Great Plains Dynamics. Setting up one inventory item in Dynamics requires the user to specify 15 different account numbers for each item entered. Even seasoned installers find this a formidable task. However, once the defaults are established, all future posting operations are easy, automatic and essentially error free.

Look and feel. Then there’s the look-and-feel factor—that is, how do the screens look to the user and how does the overall operation of the software feel? Is it hard to use the software? Are the screen labels and instructions confusing and complicated? Are the processes intuitive? Are the menus clear?

ACCPAC for Windows has a screen appearance that is easy for anybody to relate to: The screens look like a spiral notebook complete with user tabs. This may appear a bit cute, but the concept works very well for many users who find they are better able to understand the user screens, require less training time and are more comfortable with the software.

ACCPAC solves a problem faced by the entire accounting software industry: the efficient use of screen real estate. Ask yourself, How many screens would you prefer to input a single vendor invoice? Most people wish it was just one. Unfortunately, most of today’s accounting software packages have so many features that it usually takes three or four screens just to accommodate all data input options for a single vendor invoice.

Some accounting software vendors attempt to solve this problem by squeezing more data fields onto each user input screen. They may succeed in reducing the total number of screens, but those screens are so crowded they can be intimidating. ACCPAC’s design provides the illusion of one data input screen when, in fact, there are eight. Because of the notebook look coupled with the bottom tabs, the user doesn’t feel lost or buried in the accounting package.

THE Y2K BUG

Most of the accounting software packages written in the past used a two-digit field to refer to the four-digit year, omitting the first two digits that referred to the century—the Y2K bug. Such software interprets a 00 entry to be the year 1900 instead of the year 2000.

With the widespread publicity about this problem over the past decade, you might expect accounting software vendors would have solved this problem long ago. The reason they didn’t is because they found it easier to model new source codes based on the same flawed date syntax of the older code for the sake of backward compatibility.

Only recently did many accounting software vendors solve this problem. Others report that a fix effort is still under way. It’s possible some vendors won’t complete the fix by yearend, so buyers should check before buying.

Some vendors have made their products Y2K- compliant while others have made them Y2K- compatible . The difference is important. Y2K-compliant means the vendor rewrote the software to use a four-digit year—totally eliminating the problem. Y2K-compatible means the software uses an algorithm to get around the problem. Exhibit 3 lists how the leading accounting software vendors have addressed the Y2K problem.

A programming routine expected to trigger Y2K problems is the validation check. Many programmers routinely built in procedures to test data as they are entered into the system. For example, when the user inputs the year 84, the system tests to be sure the value falls between 00 and 99—the validation range. If the value falls properly within that range, the data are accepted; otherwise, they are rejected. Because some programs test for “greater than 00” or “less than 99,” this validation may improperly reject amounts entered either as 1999 or 2000. In many cases, programmers avoided this problem entirely simply by using the “greater than or equal to” and “less than or equal to” expressions.

It’s important to note that even if your accounting software package is Y2K-compliant, your computer may not be. The accounting software picks up the date from the operating system, and the operating system picks up the date from the computer’s ROM BIOS—a basic program permanently stored in a chip. Many of those chips will not be able to tell the computer the correct date on January 1, 2000. Half the PCs shipped in June 1997 reportedly contain such a flawed chip, while PCs purchased before then have a 70% to 90% chance of having it.

The extent of the Y2K problem varies from PC brand to brand. In some cases, although your computer may fail to properly calculate the new date on January 1, the problem can be corrected permanently simply by inputting the correct date. In other cases, your PC may require that you input the correct date each time you boot up. In extreme cases, your PC may not accommodate 2000 at all and replacement of the ROM BIOS chip—or the entire computer—will be your only solution.

During the past year, Microsoft has identified, and in most cases corrected, minor Y2K problems in Windows 95, 98 and NT; it publishes a list of all the known problems in its product line at www.microsoft.com/year2000 .

To help you determine the extent of Y2K problems in your PC, search the Internet for utilities available for download; when you run those utilities, you will learn what steps you need to take to ensure your computer will provide the correct date at the turn of the year.

Even if your company’s computer systems are completely Y2K-compliant, you still may fall victim to this bug. Every business depends on data from an intricate network of suppliers, distributors and consumers; Y2K problems may adversely affect any or every one of these organizations.

As you evaluate and select an accounting software package, make Y2K compliance a leading consideration.

Another anticipated date problem relates to date confusion . To illustrate, in the United States, the entry 3/4/2000 is commonly interpreted as March 4, 2000. However, outside the United States, this same date often is interpreted as April 3, 2000. Because no international standard has yet emerged, the potential exists for serious errors.

ACCOUNTING SOFTWARE COST

The cost of a new accounting system has three primary components—software, hardware and consultant fees. It’s important to understand how they affect the total cost of a system.

• Software costs. As shown in exhibit 4, the cost of accounting software varies widely and climbs quickly as the number of concurrent users increases. Companies purchasing low-end products can expect to pay from $149 to almost $5,300 for the product. Companies purchasing middle-market products can pay from $2,000 to more than $200,000. Companies purchasing beginning ERP market software can expect to pay between $22,500 and $450,000.
• Hardware costs. When purchasing a new accounting software package, it’s usually best—for a variety of reasons—to buy new hardware as well. First, if you are in the market for new software, chances are your hardware already is fairly old. In fact, it’s wise to replace hardware at least every three years as the warranty expires.

Another reason to upgrade hardware is because operating systems and technologies change frequently. Yesterday’s equipment was not designed to run today’s latest operating systems and applications. In fact, keeping old equipment is often more costly than just replacing it, especially after you consider how much you pay for system upgrades and a consultant’s time tweaking the systems to work properly. Keep in mind that hardware is the cheapest component of a new system.

Finally, hardware keeps getting faster. The time savings alone typically pays back the hardware cost in a matter of months. Over time, it gets expensive if an employee has to wait while an application launches, for screens to refresh, for data to post and for reports to print. Newer, faster hardware that crashes less frequently and causes fewer problems always results in time—and money—savings.

• Consulting fees. In many cases, consulting fees account for the lion’s share of the cost of implementing a new accounting system. Here’s why that is.

For starters, the term installation engagement is misleading. The actual time spent installing the software is minimal—less than 5% of the engagement. The vast amount of time spent “implementing” a new accounting system actually is spent training employees to assemble the various accounting data, to enter that data and to close out each period and produce the month-end reports. For this reason, it’s far more accurate to describe them as training engagements.

When installing a low-end accounting system, the seasoned consultant typically spends 40 to 60 hours on the job, most of the time training the client’s staff. On the other hand, the assignment might take as long as 100 hours or more if the staff is weak in bookkeeping skills. Assuming an average billing rate of between $75 and $150 per hour, you could pay a consultant anywhere from $3,000 to $9,000 to get the job done.

For larger accounting systems, the task at hand really remains the same, except the volume of data to be assembled is larger and there are more people to train and more modules to be installed. In the middle market, consultants usually charge fees equivalent to the cost of the software. For example, a customer paying $9,500 for a 10-user version of Visual AccountMate can pay an additional $9,500 in consulting fees. Many seasoned consultants in larger cities charge fees at the rate of twice the cost of the software. At that level, fees can run from $8,000 to $50,000 and up.

In the beginning ERP market, the 1:1 ratio still applies, with typical fees for installing higher end systems ranging from a minimum of $50,000 to $200,000 or more. These fees are dramatically higher due to the complexity of implementing the client/server technology and the advanced databases, tweaking the server operating systems and working out conflicts with other applications and printers. At this level, added inefficiencies relate to deploying systems in multiple locations and to tying those systems together. The consultant also must spend a lot of time granting user rights to appropriate servers, drives and folders and implementing the proper security measures to prevent unauthorized access to data.

FINDING HELP

To aid in your search for the best software for your organization, check out the following resources:

• My Web page ( www.AccountingSoftwareNews. com ) contains current information and opinions about the top accounting software products.
• The Accounting Library (804-330-0000) is a computerized buyer’s guide that contains an up-to-date list of accounting software features for more than 115 packages. Simply check what you need from a list of 1,750 features and the Accounting Library produces reports summarizing the products that best meet your needs. You also can produce a report summarizing the missing features in each accounting software package. Updated three times a year, it’s the most comprehensive product on the market and sells for $395. A client/server version, available for $995, profiles the high-end, enterprise-level accounting software packages.
• The Requirements Analyst (301-468-4800), published by Computer Training Services, Inc., is a loose-leaf book that covers approximately 20 products. It costs $595.
•  Software Compare, a software program from Practitioners Publishing Co. (800-323-8724), reviews 90 packages and sells for $300.
•  Local CPAs who sell and install accounting software packages. You usually can locate the top CPA dealers and installers in your area by calling your state CPA society.
• Accounting software vendors’ Web sites, which have up-to-date product information. In addition, you can ask vendors to send you evaluation copies of packages on CD. This allows you to install the product and give it a test drive.

Finding the right accounting software is a time-consuming, tedious job. If you do it correctly and follow the guides in this article, the payoff will be well worth the investment in time.