Overview-
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 are into use. Businesses have decided to use at least one software to manage their data and run overall business operations successfully.
Now, there are numerous business software that come to mind almost instantly.
Out of all, accounting software, inventory software, payroll software, customer relationship management (CRM) software, specific software for planning and scheduling, are the popular ones.
And, the most widely-used one among all is- enterprise resource planning (ERP) software.
However, the scope of this blog doesn’t allow us to discuss the other software at length. Instead, it drives 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. Later, we will proceed to the differences between them.
What is an Accounting Software?
As the name suggests, is an accounting system software predominantly used to manage the accounts of an organization.
Right from cashflow, journal entries, accounts receivable/accounts payable (AR/AP) to generating balance sheets, income, and profit/loss statements, audit file of taxes, etc.
It keeps track of all the financial transactions of a business.
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.
It helps monitor revenue, record sales, and track invoices, apart from generating 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 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.
This software comprises of different business functionalities including
- Procurement
- Sales
- Accounting
- Inventory
- Production
- supply chain
- quality control
- compliance
- CRM
- Human resource management
In a nutshell, ERP software runs 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 collaboration.
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. An accounting software focuses only on the financial aspects of the business, while 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 specifically on the financial performance of a business.
It doesn’t offer cross-departmental insights by itself, unless integrated with an ERP.
On the other hand, ERP 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 the former can’t help with planning, budgeting, and forecasting.
While 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.
It can 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.
This reduces the chances 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.
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.
This will help them have 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 an ERP Software?
Every business starts at very modest level. The management of accounts, materials -everything is very ad hoc.
As the business grows, managing inventory in, inventory out, sales, purchase, and other activities on ad hoc basis or on paper can be detrimental for health of the business.
With growth in business, manpower, resources like machines, warehouse, offices, assets everything grow. Managing all these on paper or spreadsheets manually can put you in eccentric situation.
Let us consider a situation where an organisation has one small warehouse, only 10 customers, very less raw material, limited product line, very few suppliers and just one logistics partner.
A simple spreadsheet is sufficient to manage the data.
As business grows from 10 to 100 to 500 to 1000 customers, complexity grows. Number of warehouses, suppliers, logistics partner, raw material, machines required to meet the demand increase crazily.
Managing these data on spreadsheets and judging the impact of one over other factor is very tough. Also, it is usually error prone and can lead to wrong inferences.
An ERP can pull you out of this mess!
An ERP organises data in a better way and provides ability to quickly access the correct information needed.
An ERP has many modules, like inventory, sales, purchase, planning, HR, etc, for every department of the business. Moreover, they are often scalable, growing as the company grows.
These modules are inter-connected and work on a centralized database.
Therefore, it is easy to see and track impact of change in one factor over the other, resulting in proper inferences. Also, since the changes in database are happening in real-time and automatic, so there is no scope of errors.
Suppose there is no ERP and a sales demand is generated. The sales demand generated must go to warehouse first. If the product is not available in sufficient quantities, batch must be created, and production must be done.
Upon availability of required quantity, a pick list is generated, meaning someone must take the product off the shelf, record it as reduced from inventory, and bring to the shipping dock.
When product is shipped, accounts department needs to send the invoice.
Doing all the processes manually is slow and often error prone.
On the contrary, if this is done using an ERP, the process becomes connected, unified, streamlined and error-free. Since an ERP works on a centralised database, it ensures real-time information flow.
Mirroring the above process with an ERP- when a sales order is generated, the sales manager can then and there check for the inventory on-hand.
The information goes to all the concerned departments like production, inventory, warehouse, etc.
As the requirement triggers, warehouse manager automatically knows about it and generates picklist automatically. As the product is lifted, the quantity is automatically reduced in warehouse and product is sent to the shipment.
With shipment, accounts department auto-generates invoice. Thus, process is fast and precise.
This way, the integrated nature of ERP helps organisation to work fast, collaboratively, accurately and above all as per the standard procedures.
Final thought:
So, if yours is a manufacturing business in search of a tool that can streamline your entire business covering every department (including accounting), you must invest in an ERP.
For process manufacturing businesses, the obvious choice is BatchMaster ERP.
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.
FAQs
Is accounting and ERP the same?
Accounting system has narrower functionalities than an ERP system. Typically, an ERP can encompass an accounting system. Accounting handles needs of finance department only, whereas, an ERP can manage all departments including finance.
What should I select- accounting system or an ERP?
The answer depends upon your purpose of investment. If you want to ease out with financial transactions, make your financial figures look clean and comprehensible with easy to track capabilities, go for an accounting system.
The ERP is useful when you want to automate processes of your whole organisation and not just that of finance department.
If you want to have control over your inventory, production, sales, customer relations, human resource and finance, an ERP is a perfect choice.
I already use an accounting software which I don’t want to discard yet I want to adopt an ERP. What choice do I have?
In that case you can choose BatchMaster ERP. It is on end-to-end ERP that can integrate seamlessly with a number of finance/accounting software including Tally, QuickBooks, Sage 50/100/200/300, Solomon, etc.
With this integration, you can enjoy best of both thee worlds- continue using your existing finance software and yet streamline all other processes like- manufacturing, distribution, quality, compliance and inventory management.
