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5 Critical Questions to Ask Before Investing in a New Accounting System

New Accounting System | Finance | Fahrenheit Advisors

To illustrate the importance of making a careful, educated decision about whether to invest in a new accounting system, I will share a cautionary tale and offer five critical considerations before making a switch.

A few years ago, a client of mine took me to lunch in his new Porsche 911. The car was gorgeous. It was fast and it was as fun to drive as I imagined Luke Skywalker’s land speeder to be as a kid.  My client was an orthopedic surgeon and fiscally conservative when it came to operating his medical practice. He wasn’t outrageously wealthy and he was quick to remind me that he rarely made such a splurge given his humble beginnings. We both knew he could easily afford the $1,626 monthly payment and he seemed relieved that I didn’t disagree. It was his dream car. Who was I to crush the achievement of such lofty Porsche goals? After all, there is no substitute.

Fast forward a year and I run into this same client backstage at a concert. I immediately inquired about the Porsche. His posture shifts and his smile fades as he gives me the awful news that he had to sell his dream car. For the next ten minutes he tells me that while he could indeed make the payments, he never took into consideration the full costs of ownership. Oil changes on a new Porsche weren’t $40. They were $300. Insurance was outrageous and he had some speeding tickets that made it worse. The back tires on a 911 are larger than the front tires so rotation was not easy. The cost of tire replacement was borderline extortion. From routine maintenance to property taxes, everything about the new Porsche was destroying his budget. He was forced to sell his dream car and he lamented his lack of foresight and the giant blind spot he’d had around total cost.

The cautionary tale of the sad Porsche owner came to mind while consulting on a large ERP conversion for a new client. Like a dream car, the client knew exactly what they wanted: a shiny new integrated accounting system that folded in all the existing feeder systems. But in their haste to get to the finish line, they never truly measured the massive impact on their operations and their bottom line. We were able to fix a lot of what had gone wrong, but, in the end, the outcomes could’ve been infinitely better had they assessed the actual costs involved before they started.

To that end, I’ve compiled a short list of critical questions and tasks every organization needs to address before taking on that shiny new accounting system promising to fix all reporting issues.

 

5 Critical Questions to Ask Before Investing in a New Accounting System

1.) What about legacy data?

Most of the software technicians I’ve dealt with over the years are working at breakneck speed to get the conversion to a ‘go live’ state. Their focus is rarely on historical data. In some cases, that’s not a problem. An organization experiencing accelerated growth or growing rapidly through M&A activity may have absolutely no use for historical financial information. It’s not a great indicator of future budgets, costs, or revenue. But others rely heavily on historical results to set the agenda moving forward. If decision-making depends on past performance and the ability to compare old results with new results, the new accounting system will need the ability to compile legacy data. This can be expensive and time-consuming to bring in. It absolutely must be considered despite frequently not being given much thought at all.

2.) Is now a good time to scrub your data?

If your general ledger is like most organizations’, it wasn’t designed with the great foresight of a city planner. It more likely grew organically, in a patchwork fashion…like Homer Simpson’s car. When new expense came in, in service of expediency, new accounts were simply added with little consideration of how they would logically roll up or fit in the financials. In other cases, miscellaneous accounts were used indiscriminately to stockpile questionable expenditures or research projects and they’ve become all but useless. I’ve found that conversion is the absolute best time possible to put a magnifying glass to the logic and purpose of every account…why bring bad data into your shiny new accounting system? Start fresh by making the effort to scrub your existing GL and avoid kicking the can down the road. (WARNING: Be ever-mindful that consolidating three accounts to one or vice versa will impact legacy comparisons…I’ve learned this the hard way). And not to put too fine a point on it, but streamlining the GL accounts is also the right time to scrutinize the overall quality of the system data. There is a very good chance in any organization that old vendors need purging, naming protocols were not followed, inventory items no longer exist, and inactive customers are dragging process speeds. Take the time is now to fix or eliminate bad, stale data, and you can kickoff conversion with a clean slate.

3.) Custom build or off-the-shelf?

I’m sure I will hear from plenty of dissenters on this topic, but it’s my firm belief that customization should be a measure of last resort, and only after trying out absolutely everything else. Custom systems are VERY expensive to service and maintain. They frequently do not interface with most 3rd party add-ons. The pool of qualified experts needed when it comes time for repairs or expansion is extremely limited. Conversely, the world is full of great vendors who can service the larger ERP systems (Oracle, Great Plains, Sage, etc.). Just the implementation/test phase can be daunting and plenty of custom systems fail spectacularly before they’ve even processed a single transaction. Also, I’m not oblivious to the seductions of a tailor-made and expertly designed system. I’ve come to this conclusion despite years of experience with CEOs/CFOs who simply can’t find systems that are a great fit for their unique business models. I’ve heard their struggles and I’m sympathetic to their issues. But custom systems are still a hard pass for me. Lest we forget, most off-the-shelf software solutions (and their related best practices) benefit greatly from the expertise and knowledge of their design teams. The experience of creating solutions for such a vast customer base over many years can only serve to squeeze dust into a diamond when it comes to the effectiveness of their products.

4.) To parallel, or not to parallel?

In 2022, this critical question is likely only being asked at smaller-to-midsize companies. Large companies adopting new accounting software don’t flinch when asked this question…because the answer is always “yes.” But large companies have large budgets and smaller organizations don’t always have the bandwidth to generate two sets of books on two separate systems until they know with 100% certainty the new system is ready for “go live.” A hard cutover to a new system can spell absolute doom if financials can’t continue to be produced as a backup in the old system. Finding the budget to parallel process for at least a few months is really the only reasonable choice here.

5.) Can legacy systems talk to the new one?

Lastly, it seems self-evident that the best systems minimize manual entry. The more human interaction, the more inefficiency and error. That is why the first step to any conversion is identifying every single feeder system or application the company is currently using to deliver supporting financial data. Upon doing such an inventory, every entry on it needs to be assessed for its ability to interface with the new system. I’ve seen plenty of instances where the efficiencies gained when a new system goes online…are quickly offset by an increase in manual entry because integration of existing support systems was not sufficiently scrutinized at the start.

This list could likely stretch another 10 pages but these are the five issues that make repeat appearances year in and year out despite a disparate client base in a multitude of industries. When leadership decides to dive headlong into the murky waters of new ERP systems or a GL conversion, the list of questions can feel overwhelming and all over the map. But a good start is addressing the issues I’ve laid out.

Feel free to reach out to me at rgambrel@fahrenheitadvisors.com, or connect with our expertise related to selection of software, preparing for conversion and implementation at Experts@FahrenheitAdvisors.com.

About the Author

Russ Gambrel is a CPA with over 22 distinguished years of accounting, auditing and information systems experience. He has spent the last ten years working with a who’s-who list of Virginia-based start-ups and large companies consulting extensively as both a fractional CFO and Controller. Prior to moving to Virginia, Russ tracked countless miles from his start in Silicon Valley to Washington, D.C. leading both small and large companies in their Sarbanes-Oxley compliance efforts. Before joining the private sector, Russ worked and lived in the European theater as a Budget Director with the DOD. Additionally, he is a former University accounting and finance instructor whose Masters studies in Information Systems focused on relational database design.

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