ERP or Accounting Software – What’s the Difference?

April 25, 2011

Those of us in the software industry tend to use industry jargon so much that we sometimes forget that not everyone knows what we mean by terms such as “ERP Software“. This was brought home to me when an acquaintance asked my advice regarding her company’s accounting software needs. She’d assumed that any accounting software package should be able to handle all inventory management, purchasing and other logistical requirements, yet she’d had several recommendations from industry insiders to look at software that turned out to handle all the basic accounting functions really well, but had limited or no functionality in the supply chain and logistical areas. She was not familiar with the expression “ERP Software”.


To many people the two terms are interchangeable. But if you’re in discussion with a potential vendor, or a consultant / recommender, they can mean very different things.  Accounting software generally covers areas like accounts receivable and payable, banking, financial reporting and some basic revenue / sales recording and tracking. ERP software, which will always include the functionality of accounting software, adds onto that the supply chain, logistical and / or manufacturing functionality required to provide its target industry types with a fully integrated comprehensive, end to end solution that covers all (or almost all) facets of the business.

Question (please answer only if you’re NOT in the business software industry):  what does ERP stand for? (Or even better, what SHOULD it stand for?) Comments below, please.

SaaS (Hosted) ERP: How Safe is Your Data?

April 17, 2011

The trend towards SaaS (software as a service) / Cloud Computing / hosted software continues, although in the ERP and Accounting software space, it’s an evolution rather than a revolution. In dealing with smaller owner-managed companies, I note that one of the ongoing reservations that business owners have about going the SaaS route is the whereabouts of their key business data.

Sometimes its the geographic location of the data – such as the concern that if data is physically located in a different company, it may be subject to laws of access different from those in your own country – the very legitimate fear that a foreign government may be able to legislate its way into your confidential business information. But more commonly, the concern relates to not having the data in their own building. and not knowing where it is.

saas-hosted-erp-safe-dataIn a typical SaaS implementation, the data is housed inside a very secure data center, usually employing multiple levels of firewall and up to date security, whereas most smaller businesses have network and server infrastructure that is much more vulnerable to hackers. Additionally, the odds of someone breaking into the average small business and stealing the actual server (or storage array) are much better than getting into a secure data center. So realistically (for the most part) your data is actually much safer and more secure in a cloud computing environment than in-house.

However, there is a question around backup strategy in the hosted environment. This post was inspired by a story I heard last week (not sure how true it is, but it could happen): a company provides SaaS using a 3rd party data center, but managing their own equipment in the data center. All is very secure and safe. However, the company’s strategy for off-site backup of client files in the data center is to back it up onto removable media and store than removable media at an employee’s house. What this means is that someone who breaks into that house, presumably less secure than a data center, might walk away with the business data of multiple companies on transportable magnetic media. (Now of course the same often applies non-hosted situations with off-site backups.)

My opinion on this is that, if your data is in a secure and credible data center, and the offsite backup plan involves multiple-encryption and / or equally secure offsite backup locations, then there is no way that your data is less secure in the hosted (SaaS) arena than it would be on your own premises – in fact the opposite is much more likely.

3 Great Sources of Business Advice

April 14, 2011

3-great-sources-business-adviceThe internet is stuffed to the point of bursting with business advice. These days, the problem is not finding advice but rather sifting through the vast amount of information available. To make it easier to find valuable information, I thought I would outline several sources of business advice related to the wholesale/distribution/retail industry. In each of their respective areas, we found these blogs to be particularly useful.

  1. 1.       WholesaleAce is a wholesaler with a large variety of items for sale. They have a number of great blog posts regarding retail and wholesale operations. Learn how to survive the economic downturn, buying strategy and more. This blog is not software-oriented so is useful from a non-software point of view as well.

  1. 2.       Demac Media

Demac media “designs, develops and delivers” eCommerce solutions. That being said, they have great experience in the eCommerce arena. To find some of their best posts on eCommerce you may have to dig through to some of their older posts but the advice is invaluable.

  1. 3.       Virtual Logistics

Virtual logistics specializes in data integration and their blog focuses on how to avoid some costly mistakes in this regard. Learn how to keep your data costs low and good business practices.

Honourable Mention is a robust repository of articles written by professionals on a variety of topics. Content that is submitted is verified that it is professional in nature and not “salesy”. Be sure to check out my Profile for articles posted there

Accounting Software Solutions: Cash ain’t Profit

April 12, 2011

As someone who first qualified as an accountant, I tend to sometimes forget how difficult it can be for the entrepreneur to distinguish between profitability and cash flow. You can run a profitable business while running out of cash – and conversely you can experience positive cash flow, while your business slides inexorably towards a loss situation.

For clarity, by profitable we mean that total revenue exceeds total costs / expenses. Cash flow is positive if you’re taking in more cash than you’re paying out, and negative if vice versa. They are not always linked, which is one of the reasons why a proper accounting software solution is so important for a business.

Accounting-Software-Cash-not-ProfitHere’s a common example: a growing business that sells products, and is profitable (income exceeds costs / expenses), is cash flow negative. Why? Two reasons: firstly, as the business grows they need to increase their inventory levels, so they have a lot of inventory in their warehouse that they’ve paid for (cash out) but not yet sold. And as the business grows, so does the inventory level, and consequently the amount of cash tied up in unsold inventory. And secondly, they extend credit terms to their customers that are more favourable than the terms they get from their suppliers.

Consider the simple case of purchasing a product for $100, and selling it for $200. That’s profitable, right? But if you have to pay your supplier COD, while allowing your customer to pay net 30 days, then for at least 30 days, your cash flow is negative by $100 – yet you actually made a profit.

Conversely I’ve often seen project-based companies – such as software developers – under-estimate a quoted project, so that on a $100,000 project they make no profit. But they take a 25% down payment, and progress payments during the project, which for the first 70% or 80% of project duration keep the incoming cash ahead of their expense outlays (usually salaries). So until close to the end of the project, if you only look at cash, it looks like a good project. But if you correctly and accurately account for revenue and costs as they are earned and incurred respectively, then even halfway through the project, while cash is positive, you’d probably know you were in a loss-making situation.

Yet in my years as a vendor of accounting software solutions, I’ve seen so many entrepreneurial business forego accurate management financial statements, and simply manage the bank balance. Why? And what can we do to change this?

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