Now, this is a topic that hits every company: what accounting system should your purchase? There is no question that technology has changed the way we do business. When I started working in the late 80’s, we had our first system implementation in an oil and gas company I worked for. It was a huge server(s), and they mainly ran our accounting system. It was an oil and gas producer, and we had thousands of joint interest billings and partnerships to account for. Before this, it took an army of bookkeepers and accountants to track this information manually via Green Bar Paper, written ledgers, etc. The revolution of the computer has changed the world – especially the accounting world.
As companies grow, their needs will change. We do not promote any software, but our professionals and myself have had great experience with everything from Spreadsheets, Quickbooks to SAP and Oracle. I would not recommend that anyone keep their accounting records on spreadsheets, but Quickbooks, SAP, and Oracle are all great systems. Here is the kicker… Which accounting system should I purchase ? It depends on your unique situation. Unfortunately, we see companies make two mistakes over and over again.
What are those two mistakes?
You need to understand if you need just an accounting system or a full blown ERP system. There are also big differences in just accounting systems and you still need to understand the different accounting systems through a system selection process.
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I have made it a hobby of mine to observe how CEOs, Boards, and business owners go about decision making for an accounting system. And most of the time, these are some of the ways they have made their decision:
These experiences that other businesses have lived through resulted in very costly experiences. I have heard horror story after horror story and millions of dollars wasted in cash, productivity lost, and many sleepless nights for those involved. Also, lost jobs. There is a right way to acquire an accounting software system.
Everything below are real stories that have happened to me or a client.
Background: Company X was recently acquired by a fund that was managed by a large well-known equity group. The representatives running the show and giving orders to management were three 30-something-year-old (the three musketeers) highly intelligent individuals. They only had a couple years of experience in the real world outside of their protected environment.
The three musketeers hired a salesman to act as, “interim President” and chairman of the board. The chairman, a dominating personality, with 40 years of sales experience convinces the young lads that he will take control and make their problems go away. The three musketeers were told by a friend running another portfolio company, that they really need to implement “Software S$!”. The chairman salesmen hires his buddy, a former school teacher, to run the “Software S$!” implementation. This is not a knock on “Software S$!”. It is a fantastic system but only for the right company and when implemented properly. Unfortunately, between the three musketeers, the chairman salesman, and the school teacher, this accounting system implementation was doomed from the beginning.
The original budget for the system implementation was $8 million dollars. Even for this $220 million revenue company, this was a major part of their CAPEX. But the following are other mistakes that compounded the problem with the implementation:
The resulting consequences were that the implementation of the system escalated to over $30 million in costs and the system did not work. The company had service contracts in place and the system did not generate a single report that was correct. The services contracts were all terminated within a 90-day period. The company lost 50% of its revenue in 90 days. This caused the cash flow to the company to be cut in half, and they defaulted on debt covenants. The company was now in a tailspin out of control. The financial crisis escalated and the finger pointed started. The company would have ended up in chapter 11 if it were not for two very patient lenders that modified covenants and believed the long term story of the entity.
I mention this story because it could have all been avoided. There was no need to go through all of this and 1,200 employees lost their jobs. These are some suggestions to CEOs, CFOs, and business owners about selecting a system.
There are many good companies out there that can assist you with a system selection process. Do not do it alone, and make sure you go through a detailed system selection process. Rely on the experts, they are your trusted advisors during this project. If you need any assistance with any part of this, then we would be more than happy to assist you and your company. In the meantime, access our free Internal Analysis whitepaper to assist your leadership decisions and create the roadmap to implementing a new accounting system.