Business Financial Software – Justifying the Investment

August 27th, 2013 by

Business financial software doesn’t last forever.  If a critical mass of your employees have decided that your current business financial software might need to be replaced, what’s your next step?

Business Financial SoftwareMany firms just launch a search, assuming that at some point they will find the best suited business financial software.  Well….there’s just a tiny flaw in this approach.  How can you search for new business financial software if you don’t know what you are looking for?

Rather than just calling software vendors or resellers as your first step, you need to determine not only what you require in terms of functionality, but also the outcome you would expect/require.

What improvements do you require (operational, business intelligence/reporting, CRM, financial, process control, etc.) and how much is it going to cost to achieve this level of improvement?

Cost is But One Element When Selecting Business Financial Software

While cost and ROI is a major consideration, you must first educate yourself by understanding how this project should be organized and managed. If you are interested Wikipedia and Baesis provide excellent articles regarding business financial software (actually ERP software selection, but it’s all the same).  GoogleBlogSearch also gives you the ability to find other articles and blogs that relate to business financial software.

Knowledge is the key to a successful business financial software selection project.  Ask yourself if you really know how to manage such a complex project.

A key element of the knowledge acquisition process is understanding what’s possible in terms of functionality and reporting.  Internet research certainly helps, but maybe you should talk to resellers and vendors (informally at this point) so you can learn how their products may help you achieve greater success.

One of the last key tasks is defining your requirements.  Talk to people in your organization.  Ask them what they need to do their jobs better.  Executives and managers can give you the high level view (primarily data output), but staff people will give you the information your firm needs to operate more efficiently and effectively.

Business Financial Software Costs

It really doesn’t matter whether you are going to spend $10,000 or $10,000,000.  You need to determine exactly what you need in terms of functionality, by how much this functionality will reduce or increase your operating costs, how much these improvements will cost, and finally of course the net return for this investment in new business financial software.

Business Financial Software Monetary Benefits

The question now becomes simple.  How are you going to “find” the monetary gains that will be required to justify what could prove to be a sizeable investment in new business financial software?  The list that follows is but a few examples of how business financial software can help your firm become more profitable.

These are certainly not every cost reduction or cash saving and ultimately it’s up to you to determine how business financial software will benefit your unique firm with your unique employees and your unique way of doing business.

  • Reduce Days Sales Outstanding: Unlike operational improvements that can be counted on every year, a reduction in AR generated a one-time cash flow; substantial to be sure, but just once.  Since new business financial software consists of a substantial one-time cost (purchase and implementation), this cash flow can be used to reduce your up-front investment.
  • Improve inventory management: The other substantial asset that can drive cash flow is inventory.  If you can manage your inventory more effectively, you will be able to improve inventory turns and therefore generate a one-time cash flow just as I have suggested for Accounts Receivable.
  • Reduce the cost of purchasing: It’s amazing sometimes how expensive it is to purchase anything that is going to be consumed by a business entity.  Each time someone has to “touch” this process cost will be added to the material being purchased.  Given the sophistication of today’s business financial software, it should be possible to construct a process workflow that is based on the assumption that everything’s OK.
  • Increase the efficiency and effectiveness of the reporting system: Eliminate all printed reports produced by your business financial software, particularly those containing rows and columns (except audit and other regulatory reports).  Static reports are no more than a snapshot of a condition at a single point in time and you certainly should not make a decision based on a single data point.
  • Identify Key Performance Indicators (KPIs): Users waste precious (costly) time drilling down from static reports to underlying source data.  Why not just start with the source data? Identify those lowest common denominator values that represent critical operations.  Assuming that you correctly identify these critical values and concentrate on improving them, everything else in an income statement will take care of itself.
  • Utilize a graphical approach to managing your KPIs: Once you have defined your KPIs, track them over time.  Use a line graph to track these values and a second line graph to specify where the values should be (actual results vs. target results).  Now you have a complete time-phased picture from your business financial software that you can use to identify where you need to spend your time.  If the graph indicates no changes, a quick view is all you need and then you can go on to the next graph.

Summary

If you are contemplating the purchase of new business financial software, you have to specify precisely how you are going to be able to improve your business.  Each of these improvements needs to have a monetary value attached to them.  Your task at this point in time is defining a realistic transformation.

What do you really want?  How can you improve your business?  What cost saving or revenue improvement can be associated with each improvement?  If you don’t define what’s realistically possible, how can you possibly justify your investment in any business financial software?

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