Entry level systems that suit an early stage business tend to focus on the bookkeeping essentials and are not really designed or equipped to support a company when it approaches its next stage of maturity and is experiencing, say, rapid growth in volumes and there is pressure to automate its processes. In this white paper, Gary Simon, FSN’s managing editor considers how a Cloud-based solution such as FinancialForce.com can provide the detailed insights that management need to steer the business and provide the process support to ensure a high level of responsiveness, competitiveness and customer service.
HAVE I OUTGROWN MY ACCOUNTING SYSTEM?
THE TELLTALE SIGNS
WHAT CAN YOU EXPECT FROM A BUSINESS SYSTEM?
SO YOU NEED A BUSINESS SYSTEM – WHAT NEXT?
THE OLD WAY OF DOING THINGS
THE NEW WAY OF DOING THINGS
THE NEXT STEP
The expression “From little acorns do mighty Oak Trees grow” captures the essence of business – the desire for healthy (profitable) growth. But it also underlines one of the key challenges for business, which is managing that growth.
Whether you are a young start-up, a thrusting and ambitious mid-sized business or a fully fledged multinational looking to go public, every business, whatever its stage of maturity, faces the organizational, technological and economic challenges of growth. It is this excitement that motivates entrepreneurs, business owners and professional managers to recast ideas and dreams into business plans and action.
All businesses progress through well defined stages of maturity, commencing as a ‘start-up’ (based in the garage and dining room table), taking on the first fulltime employee, moving into proper premises, the first bookkeeper, accounting package and so on. But as an organization matures and grows the first cracks often start to appear.
Are stress fractures appearing as your company grows?
The entrepreneurial skills that drove initial success become stretched. More formal human resource procedures, audits, regulatory compliance and banking covenants take owner managers into unfamiliar territory and away from running the business. At the same time rapidly growing volumes and diversification of the business mean that proprietors no longer have personal knowledge of every business deal or visibility of cash flow, new prospects, the order pipeline and processing backlogs.
Errors start to creep in. Some purchase invoices may have been paid twice in error and the company’s auditor expresses concerns for the first time about controls. Gaping holes in processes start to appear as the company’s systems struggle to keep up with the demands.
The business is showing signs of distress and is running faster to stand still. With every advance in growth, your managers scream for more staff to increase capacity. Most critically of all, nobody seems to have the time to introduce better systems and processes. Ironically, the business probably planned when and who it was going to hire, its new premises, the products and the markets it was going to attack – but it didn’t consider fully the systems and processes it needed to underpin and sustain scalable growth.
So how do you avoid a crisis? How do you know when you have outgrown your accounting system?
HAVE I OUTGROWN MY ACCOUNTING SYSTEM?
A clue to the answer lies in the question itself, especially the term accounting system. Most early stage companies start trading with a bookkeeping or accounting package. There are a number of justifiably popular low cost, entry level systems for small businesses. They typically perform an excellent job of keeping the books straight and the taxman happy. They enable, amongst other matters, a small business to maintain records of who owes money and how much the business owes creditors; to generate sales invoices and essential reports such as a Profit & Loss Account and Balance Sheet.
But there comes a point when a company needs more than an entry level bookkeeping system. Companies that are well established need a “business system”, i.e. one that supports the full range of its activities, i.e. how the business operates in practice rather than limiting it to the narrow confines of a conventional bookkeeping/accounting package.
So what are the tell-tale signs that a company needs to progress from one of the popular entry level bookkeeping/accounting systems to a more comprehensive business solution?
THE TELLTALE SIGNS
Growth in transaction Volumes
Transaction volumes on their own can drive the need to upgrade from a single user entry level system to a multi-user system that allows several users to post transactions concurrently to keep up with the volume of work.
It is also worth noting that volumes can be a proxy for increased accounting, process and reporting complexity. Perhaps the business now offers more services, has opened new offices and now trades through sales offices abroad that have local accounting needs. If this is the case a more comprehensive business solution is almost certainly required.
A compelling need for process automation
Increased volumes often force a business to acknowledge its business processes for the first time – to think about efficiency not just transactions. Higher volumes, the need for duty separation, and a desire to instil approval controls creates the need for a formal workflow process to execute a process from ‘soup to nuts’. Historically, companies have suffered gaps in processes as they seek to hand-off physical documents from one person to another or one department to another. Each gap in the process causes delay because people are not always around when they are needed and physical documents have a habit of getting lost. Eliminating the gaps by automating the process reduces delays, errors, queries and telephone calls, allowing staff to concentrate on more productive activities such as customer service.
Work-arounds and spreadsheets are mushrooming
All businesses, regardless of their size, rely on work-arounds to some extent. But these should cover idiosyncrasies within the business – things that are unique to the business and not normal aspects of core business processes. Problems start to emerge when data is duplicated, for example, ‘customer records’ in the accounting systems, the CRM (Customer Relationship Management System) and the job/project ledger. Databases start to spring up all over the organization, physical lever-arch files (binders) are growing to a bursting point and complex spreadsheets are taking over routine calculations such as salesman’s commissions.
Lack of integration is becoming costly and disruptive
Lack of integration, especially on the revenue side of the business, between your Customer Relationship Management (CRM) and financial systems becomes more burdensome as you grow. Re-keying and lack of synchronization between sales and accounting databases introduces the potential for errors and the dreaded “multiple version of the truth” problem. This leads to invoicing errors and a series of issues such as higher costs per transaction, perturbed customers and delayed cash flow.
Your IT “staff” can’t keep up
In most small and midsized businesses, IT staff are consumed with desktop support, keeping the network from falling over and trying to build new applications. The “staff” might be a single person or an outside consultant. Unfortunately, things like database backups and application upgrades don’t always make the weekly to do list. Hence, many companies are running behind the current release of the accounting software because nobody has the time to install the upgrade.
You no longer have your finger on the pulse
The more you grow, it seems the less you know. The lack of business information is becoming troublesome, despite all the spreadsheets you’ve concocted. You are not sure why your percentage gross profit has gone down. You don’t know why your operating expenses have suddenly shot up. You don’t know whether your business is generating or consuming cash and you can’t see which are your most profitable customers and product lines.
Your auditors are asking more questions.
Your accountant is concerned about the rising level of credit notes. He asks why there are so many errors and you do not have the answer. They want proof that you have solid accounting controls in place including separation of duties and the ability to properly close users out previous periods and years (a weakness in many bookkeeping systems).
Staff are burning the ‘midnight oil’
Your personnel cannot complete their work in a normal working day. The number of disputed sales invoices and unreconciled supplier accounts is growing. Suppliers are threatening to reduce supply because they are not being paid on time. What is worse is that you cannot move staff from one role to another to meet peaks and troughs in the workload because they are all using different software packages.
Your accounting system is holding the business back
Just when the business is really taking off, going multi-site, expanding abroad and preparing to go public your business advisors are saying you are not ready. As part of going public they will have to sign-off that you have robust business systems and processes and that is clearly not the case.
It is clearly time to upgrade to a fully fledged business system.
WHAT CAN YOU EXPECT FROM A BUSINESS SYSTEM?
The typical ‘entry level’ system available from many software vendors is primarily designed to satisfy basic accounting requirements and allow managers to keep adequate records and books of control. In effect they are ledger systems with little support for the wider business. As such, expectations are modest and most small businesses expect to outgrow their entry level systems within a short period of time.
By contrast, Business Systems are expected to last an organization many years – it is simply too disruptive for a business to keep changing its core financial systems. So they must be capable of growing alongside the business and changing as the business changes.So what are the cornerstones of a progressive business system?
Broader process support
Modern business software recognises that organizations carry out their work in well defined business processes, say, the ‘Opportunity to Cash’ cycle, whereas entry level systems typically encourage users to think in transaction terms, for example, an invoice, sales quote or order in isolation. But in practice these documents are closely interlinked and share most of the same information. For example, a sales quote normally holds customer details, the products or services they want to buy and the price at which they are being offered, i.e. the same information that would appear on a sales invoice. Therefore in the majority of cases, a sales quote can be ‘converted’ straight away into a sales invoice. In other words there is no need to re-type the information from one document to another, or worse still maintain separate manual files and databases. Furthermore, full-fledged business systems have workflow automation built into them, enabling things like transaction approvals, separation of duties and cross department communication.
The table below illustrates how process support and integration can save time in the ‘Quote to Cash’ cycle.
Scalability and productivity
The implications of providing process support across the quote to cash cycle for efficiency and productivity are immense. Integration and process support allows individuals to multi-task, i.e. take responsibility for a whole raft of activities rather than employing extra people - even on a part time basis. The smooth running of the process means that a small business can absorb more growth before it has to consider employing additional people.
Flexible chart of account structures
Small businesses normally start trading with a relatively modest chart of accounts. In fact, it is often expedient for early stage businesses to adopt the standard chart of accounts offered by an entry level package. But the chart of accounts (the backbone of the general ledger) helps define the quality and depth of analysis in the business. In broad terms, more established organizations need more detailed analysis to capture each nuance in the nature of their income and expenses, supported by additional analytical capability around individual transactions. More granular analysis often requires more complex multi-segment account codes, so that results can be viewed by, for example, department, division, region, country and so. In addition, statutory accounts and regulatory requirements add to the complexity, for example, multi-GAAP reporting in companies with overseas subsidiaries.
Insightful business reporting
The fulsome integration, broader span of applications and more comprehensive coding structures in a business system brings with it the opportunity for far ‘richer’ reporting over the limited scope of a typical entry level system. Managers are able to review the business in different dimensions, for example, profitability by sales region, office, employee, project, product/service group and sales team. There is more support for multiple currencies and tracking of business statistics such as square feet, number of employees etc. for use in allocations and management reports. Performance can also be tracked against multiple budgets and re-forecasts which are important in more volatile trading conditions.
And finally, business systems provide a richer set of tools to build customized dashboards and reports suited to the exact needs of your business.
SO YOU NEED A BUSINESS SYSTEM – WHAT NEXT?
The market for business software has gone through profound changes in the last few years. The old way of doing things was to run your own system in-house on site; the so called ‘On-Premise’ solution. But the new way of doing things is increasingly to let someone else have the hassle of running your business solution, which you and your personnel access over the web; the ‘Cloud–based’ solution.
THE OLD WAY OF DOING THINGS
The ‘upgrade’ path for most businesses transitioning from an entry level system to a more comprehensive business solution is to look at the incumbent supplier’s product portfolio. In many instances this means upgrading from one ‘on-premise’ solution to another ‘on-premise’ solution. (Even where a vendor offers a Cloud-based alternative there may be no easy way of transferring your data).
So what’s wrong with an ‘on-premises’ version?
The move to Cloud based computing is one of the most significant developments in computing over the last decade. There is nothing inherently wrong with an on-premises solution after all it has served many companies very adequately for decades. It is just that Cloud computing offers so many advantages over ‘on-premise solutions’ and some suppliers have taken advantage of the shift to Cloud technology to completely redevelop their products, not merely re-purpose them for the Cloud. Additionally, younger businesses are in a much better place to take advantage of the Cloud because they are not encumbered by legacy applications.
The limitations of ‘on-premise’ solutions are manifold, some are as follows;
• the need to take responsibility in-house for maintaining hardware, software and database backups
• the need to maintain adequate IT resources and expertise in-house (or on call) to manage networks, firewalls, physical security, IT infrastructure, software upgrades and patches to the operating system, databases or applications
• the burden of providing secure, 24x7 remote access for browser based and mobile devices
• the inability to adopt new technologies to improve company collaboration such as workflow, enterprise social media and mobile apps
• the overreliance on a IT consultants or single IT person to manage everything from laptop support to networks to application development
• The requirement to buy so called ‘perpetual software licences’ and pay for them upfront
THE NEW WAY OF DOING THINGS
There is now an apparently unstoppable trend towards Cloud computing. According to Gartner the Analyst firm, “Worldwide cloud services revenue is forecast to reach $68.3 billion in 2010, a 16.6 percent increase from 2009 revenue of $58.6 billion. The industry is poised for strong growth through 2014, when worldwide cloud services revenue is projected to reach $148.8 billion.” At its simplest, Cloud computing, or more specifically, the Software as a Service (SaaS) model of computing provides applications that are delivered from the software vendor’s server over the internet. Usually, but not exclusively the applications are purchased on a subscription basis, rather than the perpetual software licence which is customary in the traditional ‘on-premises’ world.
Many organizations consider the ability to offload business applications to a Cloud vendor to be liberating. The cloud application supplier assumes all of the obligations of overseeing, managing, operating and supporting the computing environment as well as responsibility for securing the confidentiality and availability of the user’s data.
In marked contrast to traditional on-premise solutions the user organization does not need to retain any dedicated IT infrastructure (server capacity, networks or the like) or the in-house IT resources that usually accompany it. The user organization also ‘escapes’ responsibility for software upgrades, implementing software patches, IT security, introducing regulatory changes, or providing more server and network capacity. For smaller businesses with limited IT budgets and resources, these benefits assume even greater importance.
The Cloud subscription model also removes a layer of cost uncertainty. The business is no longer saddled with the unexpected costs of hardware upgrades or support costs and furthermore the subscription model makes it particularly easy to identify the cost of adding users as the application grows. The ability to ‘pay only for what you need’ allows organizations to avoid the high upfront costs of on-premise solutions (which are fixed) and to align computing costs more sympathetically with the business as it grows.
There are also significant advantages from an operational view point. Applications, such as FinancialForce.com hosted in the Cloud are usually available and supported 24/7 which is a major advantage for distributed businesses working in different time zones. Furthermore access to the applications requires no more than a browser on a PC, or more likely, a mobile device such as a laptop, iPad or mobile phone. Such flexibility not only suits a mobile workforce but also empowers employees to work on a self-service basis as and when they like.
Consider FinancialForce Accounting on The Force.com platform
The FinancialForce.com solution takes matters a stage further by not only providing all of the advantages of the Cloud but also the benefits of a unified business ‘platform’.
Run your whole business in one cloud
FinancialForce applications are built on Force.com, the industry leading cloud platform from salesforce.com. FinancialForce applications live alongside Salesforce CRM, salesforce.com’ popular Customer Relationship Management (CRM) system. Vitally, FinancialForce Accounting shares the same login, user interface, workflow, reporting, social media and customization capabilities of Salesforce CRM. The CRM and Accounting applications are not just interfaced; they are embedded, sharing information such as customer records and pricing tables. This eliminates the need for rekeying between systems or complicated synchronization routines. Processes such as the ‘opportunity to cash’ process are streamlined because invoices can be created from salesforce opportunities, quotes or other objects in a single click. This ensures accuracy and eliminates the multiple version of the truth problem - because there is only one shared database.
Real time information
At the heart of FinancialForce is the concept of the ‘unified ledger' which helps to simplify multi-source transaction processing while simultaneously opening up the possibility of more sophisticated analysis. Transactions posted to receivables and payables are updated in real time in the general ledger. This shortens the period close process and provides drill down from the general ledger accounts to the underlying transactions. The unified ledger design is also inherently versatile. Whereas most business software packages were developed with separate modules governing the main accounting ledgers and sub-ledgers, FinancialForce’s single ledger design, accompanied by multidimensional chart of accounts enables the package to satisfy the complex accounting and reporting requirements of the rapidly growing business. It can fulfil a wide range of needs such as project accounting and diverse multi-company structures.
Customization and Integration
But suppose you need to add your own application? You first might look at the AppExchange, a collection of over 1,300 business applications that run on the Force.com platform. The AppExchange is akin to the Apple AppStore, but for business applications. These applications are certified to run on the platform and plug into the Force.com environment. There are a wide variety of applications to choose from to handle tasks ranging from electronic document management to marketing automation.
If you want to add your own applications or customize FinancialForce.com’s accounting application, the Force.com platform provides a ‘light’ development environment allowing end users the ability to extend and customise the financial database with point and click tools and wizards to make it easy to add fields, change pick lists, change text without programming. This ability to customize the solution often eliminates the need for special spreadsheets that sit outside an accounting system. The custom fields share the same login, security, reporting, workflow etc. capabilities as the financial and CRM system and can be reported in conjunction with the financial and CRM data.
Integrating custom apps are easily accommodated with ClickLink™, a tool from FinancialForce.com that allows users to easily link two applications on the platform. The integration is done through an application without coding and can be performed by anyone with Force.com administrator skills. And for more complex custom applications and integrations, FinancialForce.com and Force.com also provide an Application Programming Interfaces (API) that allows developers to build applications in and around FinancialForce Accounting in a style that is compatible with the business rules of the application
Mobile computing increasingly goes hand-in-hand with the Cloud. The iPad, iPod (and Blackberry) are not only seen as the optimum way to retrieve information on the move but are also very effective tools for entering information such as time cards. Everybody is aware of the uniqueness of the user interface on an iPad but moving it into the realms of business takes the user experience to a new level. The same responsiveness and clarity of display allows:
• users on the move to make enquiries on the CRM application and accounts receivable before visiting a customer
• the management team (or anyone authorised) to review KPI’s in real-time anytime and from anywhere (because the unified ledger is always up to date)
• the ability to authorize or approve transactions outside the office
• the ability to communicate with teams via the Chatter, the social media application embedded in the financial and CRM system
• users of the FinancialForce.com ‘s Professional Services Automation application can enter timesheet and expense data while on the road
In fact, for mobile workforces with indeterminate demand on the system or fast growing businesses that cannot predict usage in advance, the virtually limitless scalability of the Force.com cloud provides certainty that growth can be readily accommodated.
Collaboration with Embedded Social Media (Chatter)
The use of Chatter, an ‘Facebook” style of application, can improve organizational responsiveness, competitiveness and customer service at a stroke. With chatter embedded in the application, any of the users in your company can correspond and create chatter streams around accounts, projects, customers, suppliers or transactions. This means, for instance, that sales, service and accounting teams can all become aware and work together to resolve a customer situation, such as a late payment by conversing on the Chatter stream.
Because Chatter streams are attached to objects (such as a transaction), they can become part of the audit trail. This is in stark contrast to emails, IM’s and other communication mechanisms which sit outside an accounting system. Chatter streams are a great and easily accessible source for audit backup documentation.
Accounting departments can also create Chatter groups to stay in touch as a team on various subjects such as the period close or audits. Issues and items needing resolution can be surfaced early, giving controllers and CFOs visibility to the whole process. In fact, the opportunities for collaboration are virtually limitless opening up standards of operational efficiency that users cannot begin to approach in the ‘on-premise’ world.
Adding to the collaborative capabilities and responsiveness of the organization, the Force.com platform supports complementary workflow capability for directing and routing transactions, forms, approvals and rejections around the applications and to mobile devices.
Because all your applications are in a single cloud, the platform lends itself directly to reporting, score-carding and dash-boarding across your entire business. Reporting tools on the Force.com platform are able to support user defined reports that reach right across the applications because they all share the same unified database. And for those special needs that fall outside of the scope of regular operational, audit, management and statutory reports, FinancialForce.com offers bi-directional (read and write) capability with Microsoft Excel.
As businesses grow they face all kinds of organizational, technical and economic pressures, but in the pursuit of growth, systems often gets left behind and neglected. Entry level systems that suit an early stage business tend to focus on the bookkeeping essentials and are not really designed or equipped to support a company when it approaches its next stage of maturity and is experiencing, say, rapid growth in volumes and there is pressure to automate its processes. In these circumstances ‘work-arounds’ start to spring up to pave over the cracks in integration, customer service starts to slip under the growing workload, errors start to increase because of the strain on employees and business owners begin to lose sight of how the business is performing.
This table illustrates some of the principal reasons why a business should consider FinancialForce.com as the next move after an entry level system.
When a business has outgrown its entry level system it needs a more accomplished system such as FinancialForce.com which has more flexible accounting structures, can provide the detailed insights that management need to steer the business and provides the process support to ensure a high level of responsiveness, competitiveness and customer service. Cloud computing, with all of its advantages adds to the attractiveness of an early move to the FinancialForce.com platform. It means that business owners can concentrate on what they are good at and cede responsibility to look after their technology needs to a safe ‘pair of hands’ in the Cloud.
THE NEXT STEP
Moving from a typical entry level system to a fully fledged business system such as FinancialForce.com is an important step that requires careful consideration. Whilst this white paper outlines some of the important issues at stake every company’s circumstances and needs are different.
So it is essential that having read this white paper that you do your own research, look at solutions available from your incumbent supplier and take suitably qualified professional advice to help you decide whether FinancialForce.com applications best meets your needs.
FSN Publishing Limited is an independent research, news and publishing organization catering for the needs of the finance function. This white paper is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than 27 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.
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Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. The publisher and author make no representations or warranties with respect to the accuracy or completeness of the contents of this white paper and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. FSN Publishing Limited and the author shall not be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.