Over the years, the business environment has evolved to become multi-layered and complex. The explosion in data has only added to its intricacies. As a result, several software trends have developed and more businesses have resorted to using at least one software to manage their data, and run overall business operations successfully.
A few types of business software that come to mind almost instantly are accounting software, inventory software, payroll software, customer relationship management (CRM) software, specific software for planning and scheduling, and the most popular of them all- enterprise resource planning (ERP) software.
However, the scope of this blog doesn’t allow us to discuss the other software at length, and instead compels us to focus on the difference between accounting and ERP software. So, sticking to the topic, let’s first get some clarity on these two software solutions and how they function, before proceeding to the differences between them.
What is an accounting software?
As the name suggests, an accounting system software is predominantly used to manage the accounts of an organization. It keeps track of all the financial transactions of a business- cashflow, journal entries, accounts receivable / accounts payable (AR/AP), etc. apart from details about balance sheets, income, and profit/loss statements, audit file of taxes, etc.
Such a software is designed specifically to be used by the finance and accounting departments of an organization. It has tremendous utility in the day-to-day accounting operations, as it helps monitor revenue, record sales, and track invoices, apart from allowing generation of key financial reports.
The accounting software also provides a wide snapshot of an organization’s financial health, besides offering a number of benefits such as accurate decision making, reduction in labor cost, avoiding miscalculation, automated transactions, etc. QuickBooks is a prime example of an accounting software.
What is an ERP software?
**Statistics courtesy- Oracle NetSuite
These statistics underline the popularity of, as well as growing preference for ERP implementations, over other standalone software.
An ERP, in a layman’s language, is a business management software loaded with a set of integrated applications and modules that allow a business to collect, store, manage and interpret data from their different business activities, thus enabling business’ overall smooth functioning. It’s also used for planning and managing company resources.
Under its ambit fall the different functions of a business including procurement, sales, accounting, inventory, production, supply chain, quality control, compliance, CRM, and even human resource management. In a nutshell, ERP software run almost all operational activities that exist within the company, including accounting.
All the said modules of an ERP are connected to each other, and work in close tandem. For ex: an invoice created by the accounting division for goods purchases reflects an increase in the number of items in the warehouse or inventory division, all in real time. Streamlined processes, improved productivity & efficiency, enhanced visibility, reduced costs & risks, etc. are some of its benefits to the business.
So, what’s the difference between accounting and ERP software?
By now you must have realized that though the ERP and accounting software share some features in common, they have many differences. However, despite those differences, many people end up using the two terms interchangeably, which isn’t the right thing to do.
Accounting software and ERP software are not the twinsies for sure!
Having cognizance of those differences is essential in order to determine which of the two is appropriate for your business. Let’s understand how ERP is different from accounting software, in detail:
Account software vs. ERP Software
1. Scope of use: This is the most significant difference between the two. While an accounting software focuses solely on the financial aspects of the business, ERP systems not just include them, but go beyond them. Accounting software have utility only for the personnel from finance/accounts department, whereas ERP can be used by employees from any department across the organization.
2. View of the business: Another major differentiating factor between the two is the nature of the insights they offer. An accounting software throws light on the financial performance of the business, but it doesn’t offer cross-departmental insights by itself, unless integrated with an ERP, which, on the other hand, offers an overarching view of the business by integrating all the business data and providing the organization with a single, centralized source of information.
3. Ability to meet business needs: An accounting software has a limited ability to meet industry-specific needs of a business. For ex: it can’t track inventory for manufacturing and distribution businesses. But an ERP software can manage inventory, production planning, supply chain, production resources, customer data, shipments, and much more. ERP software can even be tailored to meet the most-specific needs of a business. For ex: there can be a different ERP for bakery manufacturer and seafood manufacturer within the food manufacturing industry.
4. Planning & forecasting: Another major difference between an accounting software and ERP is that while the former can’t help with planning, budgeting, and forecasting, the latter can help plan resources required such as raw material for production process, interpret the market trends and forecast using analytics, recognize the shortcomings, improvise business workflows, and even manage the highly-complex manufacturing operations at the shop floor.
5. Compliance: Compliance with industry/government & financial regulations is another major point of difference between the two. An ERP can help a business comply with standards and regulations including GAAP standards, tax laws, and financial regulations, and reduce chance of errors/recalls through its dedicated regulatory compliance module, whereas an accounting software can’t.
6. Cost of ownership: There’s a massive difference between the two software when it comes to the cost of ownership. The accounting software are cost-effective and quite affordable even for small businesses. On the other hand, cost of implementing and maintaining an ERP is comparatively higher. However, with the advent of Cloud and Web ERP, acquiring ERPs have become affordable.
7. Personnel required for managing: While the accounting software can be managed entirely by the small business owners, it takes a lot to maintain an ERP system. Mid- and large-sized manufacturing organizations require a team of IT professionals to keep it up and running.
8. Both ERP and accounting software are important software in their own right, and honestly, it’s unfair to make it an account software vs. ERP discussion. Actually, it all comes down to the needs of the business, whatever its size may be, as well its budget.
If the requirement of a business is to have a basic system that automates accounting and helps with financial reporting, going for an accounting solution could be a mindful investment. However, if the need is to manage all the aspects of the business, including accounting, ERP is the solution.
As far as budget is concerned, even small- & medium-sized businesses can avail the benefits of an ERP software such as improved and standardized processes, and compliance with regulatory requirements, among others, these days, thanks to the advent of Cloud ERP. As compared to the standard on-premise ERP solution, a Cloud ERP solution is light on pocket, and can fit easily into the budget of SMEs.
Why manufacturing industry requires ERP software?
In sum, an accounting solution software can only look after the things that concern the accounting and financial aspect of the business, and that too in isolation. It can’t track inventory, help with purchase & sales, planning & scheduling, CRM, quality control, supply chain management, meeting regulatory requirements, warehousing and traceability needs, and R&D and formulation needs (in case of process manufacturing businesses).
That’s precisely why manufacturing industry requires ERP software, which covers almost every need of the business. It automates every operational activity, and enables far greater integration of business operations into a single system by connecting one division with another, including accounting.
So, if yours is a process manufacturing business in search of a tool that can streamline your entire business covering every department (including accounting), your search ends here. Feel free to get in touch for a no-obligation discussion on how ERP is different from accounting software, and how our ERP solutions can offer holistic help to your business.