Don’t decide it’s time to upgrade from QuickBooks by looking at your annual sales number!
It’s common to hear that any company that’s approaching the magic threshold of $10 million in annual sales has enough change happening in the business to justify moving off QuickBooks to a larger system.
We’ve seen that $10 million actually isn’t a magic number. In fact, sales volume isn’t even the metric to look at.
Your “number of accounting users who are processing transactions” is a better measurement than your annual sales number!
Do you have more than 5 accounting people processing transactions?
These are the folks doing order entry, purchasing, payables, work orders, inventory control, RMA processing, payroll, journal entries, etc. They could be handling a small number of large orders, or a large number of small but complex orders.
A small business accounting system like QuickBooks handles up to about five administrative people and the volume of transactions that they create.
Why is the magic number around 5?
Five people can talk to each other and keep things moving without a lot of computer support or automation, and nothing slips through the cracks.
Marie in sales administration notices that Stan just closed a big order. She calls Harvey to check the on-hand inventory. She’s been working with Harvey for 16 years. He’s in the warehouse, counting and keeping track of items. Harvey says, “Hmm, looks to me like there’s enough on this shelf but it will almost wipe us out, so it’s time to reorder.” He sets aside the items for Stan’s new order and tells Marie that fulfillment will be no problem.
Doubling the accounting staff from 5 to 10, more than quadruples the channels of communication!
Five people talking to each other adds up to 20 channels of communication, 4 x 5. That’s manageable. But when growing beyond five people, the number goes up exponentially. With ten people, there are 90 channels—Ouch!
When you’ve grown beyond 5 people in the accounting system, it’s no longer possible to keep everything flowing well via personal conversations.
You’re also likely a more distributed organization today than you used to be. You may only have four or five accounting staff, but if three are working remotely from their kitchen tables, then verbal communication and hallway conversations happen a lot less often and you need a “central nervous system” to keep all units of the business connected.
Plus, those processes that are done outside the system on spreadsheets and sticky notes and by the seat of the pants while looking at items on the warehouse shelf—start to fall apart. Multiple people now need the information that’s on those sticky notes, or they need the information that’s in the head of Harvey in the warehouse, who knows about the secret stash of items tucked in a back corner.
Yet those manual processes are typically critical. They’re workarounds to compensate for the small business accounting system that isn’t flexible enough to fit the growing business. For example, the spreadsheet that Harvey uses to calculate the best way to load shipping pallets without exceeding the maximum allowable pallet weight.
It’s hard to get good data that will give you a clear picture of the status of your orders, your inventory items, and your money. The manual processes start collapsing under their own weight. Details get missed, communications get delayed, mistakes get made, people quit referring to the QuickBooks system as the de facto source of reliable business information and it’s tough to train new employees. Technology integrations are now needed to keep everything flowing in the business.
Flexible Cycle Counts
A client which maintains and services water filtration systems discovered employees regularly not invoicing filters.
We set their system to trigger frequent cycle counts for “high turn” items, which helped them quantify the problem and secure their inventory.
Technology integrations become key when your business grows
Integrations are what make it possible for different parts of the system to pass data automatically to other areas that need the data. Integrations allow you to stay on top of the details as your transaction volume goes up, and they give access to everyone who needs always-current data.
QuickBooks offers strong core accounting for one company, with a nice selection of solid add-ons that go beyond the accounting department, like CRM, warehouse management, and time tracking.
Yet QuickBooks isn’t designed to integrate departments, functions, and data across the entire organization.
QuickBooks is limited when it comes to:
- Integrating more departments with the accounting department
- Integrating complex businesses that have multiple entities and currencies
- Integrating customizations to make the system align with a company’s unique workflows, requirements, and innovations
- Integrating comprehensive reports and data across business functions to allow deeper business analysis and management
These integrations are invaluable once your accounting staff grows beyond five people. Integrating processes and data across your organization is a strength of bigger accounting and ERP software systems and a major reason to move up.
QuickBooks is accounting software; it’s not an ERP solution
An ERP solution is an end-to-end business management tool that connects multiple departments and applications, providing a 360-degree-view of the business and real-time access to synchronized data.
An ERP solution includes accounting software, plus the ERP takes that functionality further. For example, if your business is in the manufacturing, distribution, or commerce industries, then you’re dealing with supply chain logistics, inventory tracking, warehouse management, and more. The ERP solution will help you manage those evolving needs with advanced financial management capabilities (e.g., using accounting data for planning, investing, and compliance processes) as well as with industry-specific modules. Your basic accounting software will not. Think of ERP as extending the flow and reach of your data to everywhere that it can add value.
Unlike a full-featured ERP, QuickBooks doesn’t provide automated communication with customers, doesn’t offer sophisticated reporting and dashboards, and doesn’t scale with growing companies. It’s ideal for smaller, simpler businesses—until they’re ready to take their success to the next level.