What are the main differences between

SMB accounting software and an ERP system?

Contents

Introduction 3

What is ERP? 4

What is accounting software? 4

The key differences between ERP and accounting software 5

Multiple interfaces vs single interface

Full access vs approval workflows
Multiple syncing vs single database

Timing the switch from accounting software to an ERP system 6

Incomplete syncing between multiple applications

Periodic syncing is too slow
Reporting lacks detail
Unable to track multiple entities
Cost of training and using multiple applications
Stuck on desktop systems

Conclusion 8

Why Mons Royale Moved from Xero to NetSuite 9

 3

Introduction
As small business applications such as Xero, MYOB and These expanded features and integrations have made it
QuickBooks have grown in feature sets and capabilities, it difficult to know where small business accounting
has become more difficult to tell the difference between software ends and ERP systems begin. As a decision
accounting and ERP (Enterprise Resource Planning) maker, it can be overwhelming, too. Thanks to this
software. “ecosystem” of cloud accounting apps, many thriving
businesses are able to continue to use accounting
At one time, accounting software just handled the software even after they’ve outgrown the feature set of a
General Ledger – the debits and credits necessary to typical small business accounting application.
produce financial statements for a business. But over
the last few decades, accounting software has expanded However, stringing together a set of separate apps
to include more advanced features such as integrated presents its own challenges. Information may not flow
payroll, invoicing, payments, quotes, purchase orders, and cleanly or quickly from one application to another.
inventory – features that previously were the exclusive Employees may have to learn a variety of systems, each
domain of ERP systems. with a different user interface. And it simply may not be
possible to keep track of complex capital structures in
Now, with the industry trend toward cloud-hosted accounting software that is designed for small businesses.
applications, it’s possible to augment the capabilities of
accounting software even more through integrations with At some point, small business accounting software and
third-party programs. For instance, many small business integrations with third-party apps can’t do the job
CRMs integrate with accounting applications to sync anymore. That’s where ERP comes into play.
customer contact information, thus minimising or
eliminating data entry. Almost every e-commerce
shopping cart will sync orders with a separate inventory
application and send sales figures into the accounting
system.
4

What is ERP?
ERP stands for Enterprise Resource Planning. An ERP A key word in ERP is “Resource”. Inside the workflow for
system is a set of integrated applications that collect, the business, an ERP system should also track all business
store, manage, and interpret data from all sorts of resources (assets) and commitments of resources
business activities. These activities include sales, (liabilities and equity).
marketing, purchasing, manufacturing, inventory
management, shipping, payment, and more. In essence, An essential part of an ERP is a common database
a well-designed ERP system should encompass the entire accessed by all the applications in the system. One
core workflow of a business from the initial purchase of benefit of a common database is that information added
the product to the customer order to final delivery and through one business function is instantly available to all
customer service. other business functions.

What is accounting software?

Accounting software is, in essence, a subset of the Because small business accounting software is designed
features available in a larger ERP system. primarily for owner-managed businesses, approval
workflows are often minimal or non-existent for items
The primary purpose of accounting software is to record such as customer invoices or vendor purchase orders.
financial transactions in the General Ledger, which
provides the basis for the core financial statements A business using accounting software that wishes to
(income statement, balance sheet and statement of cash expand beyond the capabilities of the built-in modules
flows). may have the option of integrating with third-party
applications (referred to by some vendors as add-ons).
In addition, most small business accounting software In this instance, the accounting software exchanges data
provides modules that take care of invoicing, payables with the add-ons through software connectors called APIs
and payroll. Some will also provide additional sales and (Application Program Interface). The accounting software
ordering tools such as quotes and purchase orders. and the third party application each still maintain their
Inventory is typically very simple, often with no own separate database.
manufacturing or assembly capability.

ERP
Multiple entity Financial
ledger system modeling

Accounting
Software
• General Ledger (single entity)
• Invoicing (Accounts Receivable)
Complex Complex • Bills (Accounts Payable)
commission
inventory, including • Payroll Human Recurring revenue
purchasing, receiving,
management manufacturing, and • Quotes resources management
order management • Purchase Orders
• Simple inventory
• Basic payments
• Expense claims

CRM Revenue
recognition

Fixed asset
management
 5

The key differences between

ERP and accounting software
Today a small business can connect a number of 3. Multiple sync vs single database
third-party cloud programs to their accounting software
that will replicate many of the functions of an ERP. While ERP systems are designed to handle all aspects of the
there may be similarities on paper, an ERP has several business, so it is not usually necessary to integrate with
advantages. third-party applications (although this is now possible
with ERPs as well). A significant benefit of an integrated
1. Multiple interfaces vs single interface system is that information is stored in a single database.
This ensures that information is current and up-to-date
A well-designed ERP system will track all key informa- across all functions within the ERP.
tion relating to resources in an organisation in a single
interface. Accounting software often needs to integrate with
third-party applications to add in-depth inventory, CRM
Accounting software focuses on financial transactions, and other business functions. While this extends the
so non-financial information – such as notes essential to viability of the accounting software, the business has to
proper customer relationship management – is usually now deal with multiple databases.
not stored in the accounting software. Instead, users must
access multiple systems in order retrieve information Information may not flow quickly and evenly among
necessary to accomplish their work. applications connected in this way. Especially if you’re
attempting to integrate more than one business
Impact: Switching between multiple interfaces to carry application with the accounting system, as is often the
out a core business task can reduce efficiency. case.

2. Full access vs approval workflows Impact: A business may need to wait for multiple
databases to sync data, or deal with occasional glitches
Accounting software is designed for small organisations in syncing caused by updates to connected applications.
so approvals are often minimal or non-existent, and
typically cannot be customised. In contrast, ERPs allow for
customisation of sophisticated approval workflows.

Here’s an example: In Xero, any user with “Standard”

permissions has full access to sales invoices, quotes, bills
and purchase orders. These users can both enter and
approve any transactions in these modules.

Impact: Accounting software doesn’t require users to

seek approval by an administrator. Access is either all or
nothing.
6

Timing the switch from accounting

software to an ERP system
One of the most important factors in a growing business As a result, third-party programs typically sync
is making sure it has systems that can support it as it information sporadically. Inventory management
expands. Small businesses often try to squeeze as much applications usually sync no more than once per day, and
performance from their existing systems to delay e-commerce applications may limit the periodic journal
investing in more powerful systems. entries to once per month.

When a small business pushes an accounting system Many businesses require real-time, up-to-date
beyond its limits it can hobble its growth. The business, information. Thanks to a single database, information is
in effect, may sacrifice more lucrative opportunities if it shared among applications in the ERP system instantly, or
avoids investing the capital and effort in suitable business with minimal delays.
software.
• Reporting lacks detail
So what are the tipping points in accounting software?
When does a business need to step up to an ERP? If you’re thinking about switching to an ERP system, you
probably have one or more inventory, e-commerce, or
• Incomplete syncing between multiple payroll system syncing with your accounting software.
applications The odds are that those systems don’t sync all transaction
data to the accounting system. Instead, they sync a daily
The proliferation of third-party business software lets or monthly journal entry to record sales, cost of goods
small businesses do an amazing range of activities. sold, inventory changes, etc.
However, it can be a real challenge to keep information
in sync between separatesystems. Information may only One challenge of this approach is that detailed
sync in one direction, for example. Or some fields will information that may be useful to decision makers is not
sync while others will not. available via accounting reports. Users seeking detailed
information have to search for it in another application.
The result is often inconsistent databases, and there is This may be time consuming or impractical.
no certainty that the information is consistent across all
systems. This commonly presents a problem for customer
contact information stored in the CRM. A benefit of switching to an ERP is that it is possible to
“drill down” from a high level view to the original
If the accountant updates the customer phone number in transaction detail, including source documents.
the accounting system, does that sync back to the CRM
so the sales people see the updated information? If the • Unable to track multiple entities
sync is one way from the CRM to the accounting system,
as is often the case, then it will not. Or perhaps the Most accounting software is designed to track the assets,
information isn’t synchronised. liabilities and equity of a single entity. However, for many
reasons it is often preferable to structure a small business
ERP systems solve the problem of inconsistent customer using more than one legal entity.
data by unifying all CRM information in a single database
linked to every other module (accounting, inventory, help One way to attempt to track the activity of multiple legal
desk, etc). entities in accounting software is to segment transactions
by an additional dimension other than accounts. By using
• Periodic syncing is too slow “classes” or “tracking categories”, as they are often called,
it’s possible to produce a segmented income statement
Another factor to consider if you’re using third-party and balance sheet.
programs with your accounting software is the
frequency and speed of syncing data. Due to inherent There are limitations to this method, though. For
limitations of APIs, accounting software vendors limit the example, it is difficult to report easily on financial activity
frequency with which third-party applications exchange when there are different ownership percentages among
information with the accounting software database. various affiliated entities.
 7

ERP solves this problem by allowing “multi-ledger” • Stuck on desktop systems

accounting functions. This tracks transactions by each
legal entity, instantly consolidates the data and reports Small businesses are often as guilty of hanging onto
on the business as a whole. outdated technology as large enterprises. An enterprise
may stick with legacy software beyond its useful lifespan
• Cost of training and using multiple applications because the application was custom created for a specific
purpose.
It’s harder to train employees when they have to learn
many different applications with different user interfaces. A small business may keep using old software running on
ERP systems generally present a similar user interface and a server because of the hassle in retraining on new
navigation structure across all the modules. This makes software, or the time it would take to find a suitable
it easier for employees to work across different modules, program as a replacement. The business may even be
since they don’t have to learn a new interface for each reluctant to pay a monthly fee for an alternative cloud
function. software system if it is already using software under a
perpetual licence at no addtional cost.
Multiple separate databases also present a security risk.
When employees resign, it can be difficult to ensure that Cloud computing has revolutionised the delivery of
access is revoked to all systems. software, as the business no longer needs to own a
server, and the associated expenses of maintenance and
When an ERP is in place, access to all modules may be upgrades. Cloud software has many other advantages; it
revoked by deactivating a single login. This also makes is accessible from anywhere on any computer or device
it easier to audit access permissions among current with an internet browser, it can be used by staff on their
employees who have changed jobs and should no longer mobile phones or tablets, it connects easily and often free
have the same levels of permissions. of charge, and so on.

For example, a sales agent may move into a customer

service role. If the CRM is separate from the support
ticketing system, IT or managers may neglect to remove
the former sales agent’s access to the CRM application.
8

Conclusion
Cloud computing has brought to small businesses a dizzying array of business applications that were previously unaffordable or
non-existent. The number of ways to extend accounting software is nearly limitless.

However, business owners need to be very aware that just because it is possible to integrate multiple applications to support
their operations, it may not be the most effective or efficient approach.

A small business often shies away from investing in a single system because it is unaware of the hidden costs in working with
multiple applications. These untracked costs – delays in information, troubleshooting issues between applications, higher
training costs and time lost switching between systems – can far outweigh the sticker price of an ERP.

An ERP system customised to a company’s exact business processes can give it a platform for many years of growth.
 9

Why Mons Royale Moved

from Xero to NetSuite

Company: Mons Royale Distributors: Scandinavian markets, Germany,

Head office: New Zealand Austria, UK and Canada
Industry: Action sports fashion Date of implementation: May 2015 (go live)
Manufacturing: China Staff: 27
Direct markets: New Zealand, Australia, United
States, Switzerland and France

In December, 2014, Mons Royale, a small but ambitious Mons Royale decided to move their operation to NetSuite
manufacturer-wholesaler with seven staff, was using Xero instead. “The implementation cost was significant but we
cloud accounting software to manage a complex operation. immediately saw results. It gave us a backbone to our
business that we just didn’t have.
The brand manufactures in China and sells apparel
throughout Europe, UK, North America and in its home “We were also seeing a $20,000 a year saving. It became a
market, New Zealand. no brainer. We were taking our business to the next level and
we were using an ERP system to get there.”
Mons Royale used an inventory program called Unleashed
that synced stock information with Xero. However, the By August 2016 the company had tripled in size to 27 staff
company had pushed it to the limit. and was about to register a third trading entity, in the US.

Unleashed struggled to support multiple currencies and The biggest advantage of moving to an ERP was using a
stock locations. Mons Royale had warehouses in New single database as “a source of truth”. “There is one
Zealand, North America, Switzerland and Austria, and a customer record, one item record, one transaction record, all
virtual warehouse in Australia. consolidated in one view,” Irving says.

“We couldn’t get accurate stock reporting,” says Ben Irving, This has made it easier to automate a fundamental workflow
Mons Royale’s COO. “We need access to real-time stock to the business. “We wanted efficiencies in key operating
reporting so we know where we have stock around the areas; taking an order, processing, fulfilment, billing and
world.” receiving payment. Anything we can do to optimise that
process is a big time saver,” Irving says.
Calculating tax was a time-consuming activity. The team had
to export data from Xero, format it in Excel and run calcula- Mons Royale has set up an automated picking system in
tions to determine the tax position of each subsidiary. NetSuite. NetSuite directs staff to the exact bin locations in
the warehouse to find clothes for customer’s orders. “It’s far
The integration between Xero and Unleashed and Mons superior to having a guy wandering around with some boxes
Royale’s CRM, Salesforce.com, was less than perfect. “We in a room,” Irving says.
had three sets of customer records which didn’t always sync
properly,” Irving says. “The integrations don’t always work. The next step is to add an e-commerce site using NetSuite.
They will stop automating and you won’t know.” Mons Royale had budgeted tens of thousands of dollars to
build an online ordering and inventory system but could
The company calculated that to hire an employee to now use NetSuite out of the box instead.
manage the three systems, pay for technical support and lost
productivity would be around $140,000 a year. Even then, With the mechanics taken care of, “all we need now is a
this would only go to supporting a unscalable system. beautiful design” for the storefront, Irving says.