Is Accounting Software Enough?
Based on my talk at Mumbai University, addressed to commerce graduates.
Accounting is the heart of a company's knowledge system. We need an accounting solution to analyze our financial standing over the period of time, and also for fulfilling the statutory requirements. If we see the trend of software in last decade, accounting software is the clear winner.
But, is just an accounting solution for a company sufficient to fulfill it's accounting needs?
For the detailed analysis, let's assume that we run a mobile phone manufacturing company. We procure raw materials, assemble them into a phone and sell these phones to our distributors. For us, accounting software will help us managing the following requirements very efficiently:
- Chart of Accounts, master which carries all our accounting ledgers
- Sales Invoice, which helps you track receivables from your customers.
- Purchase Invoice, so that can schedule payments to your suppliers.
- Journal Entries like payments, expense transactions, contra-voucher etc.
- Accounting reports like Profit and Loss statements, Balance Sheet, Trial Balance etc.
Woah! That sounds like tons of features is a single piece of software! But just like all road leads to Rome, the company also has many roads (operations) which ends up in Rome, which is accounting. Following are the few scenarios of the company which cannot be addressed by an accounting software alone.
To manufacture mobiles, we will need to purchase raw materials, like mobile's motherboard, processor, RAM, screen etc. On receipt of purchased materials in our warehouse, Current Asset account should be updated. But, if we are restricted to accounting software, then our latest purchases won't reflect in the current asset account in real-time.
Same goes with the delivery entries. We would want expense for the finished goods to be booked on their delivery to the customer. It would be way beyond the accounting solution to honor it.
In the manufacturing process, we have to manage costing of raw materials and operations. Hence, to have a real-time tracking of our manufacturing operations, it's imperative that our manufacturing transactions should have the impact on the relevant heads of accounts.
Operations of HR module has the extensive impact on the books of accounts, especially for the services company. Employees' salaries, expense claims, loan management and incentives, all of them are completed only with an accounting entry.
Then we also have projects, services, and a bunch of other operations connected to accounting in some way. Hence established that:
If we are restricted to an accounting software , then we won’t even get our accounting right.
We need something more than that. Something which touches each aspect of our business operations.
Introducing, Enterprise Resource Planning (ERP). Software for everything.
As the name suggests, one software to manage all the resources in our company. Since it’s managing your stocks, accounting for stocks comes out-of-the-box. Tracking costing related to manufacturing will never be so easy. Human Resource? Your employees will make half of the entries you need for accounting postings. Take Expense Claim for an example.
Then why not everyone using an ERP?
Credit goes to SAP, Oracle and other players in that space. Following are some of the myths people wrongly pursue about an ERP software.
Big Company: You don’t need an ERP solution unless you are a million dollar enterprise.
Price: Even if you are a big company, you can’t afford to buy an ERP solution without digging a big deep hole in your pocket.
Usability: Price is not the only thing you need to earn an ERP. You should have a good eye for the monumentally disastrous user interface.
But now, thanks to the cloud and open source technologies, ERP software industry has experienced a paradigm shift.
Cloud-based ERP solution has brought down a licensing cost the level that even a small business can afford it. You pay as you go.
Also, the cloud-based application has its own merits like accessibility across various location and devices. It also saves your costing on hardware infrastructure and managing the same.
Open Source software gives you lots of flexibility in terms of how and where do you want to deploy your company’s ERP instance. Also, with open source application, you get whole community and not just the private limited company for your support.
Combine all the goodies discussed above, and you get what? ERPNext. The one true open source software, also available in a hosted environment. It has multiple modules to address all your business needs, integrated with the accounting module where needed. Get started right now by creating a free trial account for your company.
Thanks to Fosslipy and Mumbai University for allowing me to present the benefits of an ERP software over an accounting software.
Umair is Frappe's co-founder, VP - Partnerships, and mentor for Frappe School team.