Choosing between an accounting and ERP system is a critical step in establishing your financial function. Folks often confuse Enterprise Resource Planning Software as just the fancier version of your run-of-the-mill accounting software. While the two do share some common features, at their core they are very different both in terms of security that they provide and the functionalities they support businesses with.
A robust ERP software can offer you far more than the humble accounting software ever could. Before we get into how different they are, let’s learn more about what each software has to offer.
Typically used by SMEs and family-run businesses, an accounting software is used to track financial transactions. It includes sections such as a ledger, accounts payable, accounts receivable, invoices, payment entries, etc. You can easily use this to generate reports required by finance teams such as a Profit and Loss or Income statement, Balance Sheet or Cash-flow Statement. It pretty much manages just the transactional basics of a business.
Enterprise Resource Planning Software
ERP software, like the term encompasses, is an all-inclusive management software that connects all functions of your business. It automates inter-departmental data and processes in a way that you can create data outputs with inputs from other components of your business.
It is ideal for businesses that are scaling.
Key differences between ERP and Accounting Software
Comparing an accounting software to an ERP solution is like comparing apples and oranges – they are quite different. Two key aspects that set them apart are:
An accounting software does just what it says it will – manage accounting and help you track your transactions, profit and loss, and your budget, whereas an ERP software will focus on aspects over and above accounting and finance, such as purchasing, operations, warehousing, sales, CRM, and so on.
For example, a small thrift store could do with just an accounting software, however, a growing e-commerce company may need ERP software to track stock and shopping trends as well, aspects that impact revenue.
An ERP software can be tailor-made to suit an individual business or industry’s requirements and can provide solutions that cater to the market needs of your industry. An accounting software on the other hand will have limited capabilities and it usually has a one-size-fits-all approach for industries or businesses.
Accounting Software vs ERP – what should you choose
The real question for choosing a software that is suitable for your business, based on these differences, is in which stage of growth you are at and what kind of analysis and reporting you need now and in the future.
A typical accounting software will help a business manage, plan, and budget its finances. However, with an ERP software, you can expect all this integrated with supply chain management, reporting, analysis, HR management, IT management, and lots more. A robust ERP software will also sync up more parts of your business such as point-of-sale data, RFID scanners, etc., and scale your backend operations as you scale your business.
If your business needs simple accounting systems in place, an accounting software will do. However, if your business needs a system to track data across functions, generate inter-functional reports, predict patterns, reduce stock wastage, and so on, it’s time to get an ERP solution.