For many years, we have heard about ‘advisory services’ and becoming your client’s ‘trusted advisor.’ For most of those years, the focus has been on using the client’s accounting platform, with perhaps a few plug-in apps (aka: ‘your recommended app stack’) to provide those advisory services.
But I am here to tell you that the times are changing, and unless you are totally familiar with all the aspects of your clients’ businesses, you may not be aware of how much and what kind of advice your clients need.
It may be, for more than one reason, the advice your clients need from you is that “it is getting ever closer to the time they need to change their accounting platform completely.”
The old saying, “Size doesn’t matter,” has less to do with a client’s accounting system than their business requirements.
In simple, some platforms work for some clients regardless of their size, and some platforms will not work for others regardless of their size. Generally, requirements are the deciding factor.
Some clients need a simple accounting system, out of the box or in the cloud. But many clients need much more, and all the plug-in apps and add-on solutions won’t change that, only delay the inevitable and potentially tarnish your ‘advisory role’ over the interim.
If you are recommending ‘stick with what you’ve got but let me plug this in, or add this on,’ you may find that with each new piecemeal app, you are turning your clients’ trust in your advice into their insecurity over you and their system.
There comes a time when clients need to go from an accounting platform to ERP. While ERPs are well suited for enterprise-level businesses because they integrate business processes and workflows into a single system, they can also be the solution of choice for medium-to-small companies for the same reasons.
An ERP makes it easier to view and control critical functions like customer relations, marketing, sales, accounts receivable, inventory, order fulfillment, accounts payable, human resources, payroll, and financial reporting.
Typically, businesses that grow from small to medium to enterprise level attempt to provide all these functions using the same accounting platform they started with. They then add spreadsheets, or multiple apps, to manage their growing complexities. Many accountants, bookkeepers, and business advisors make a living off of ‘advising’ their clients regarding these plug-ins and add-ons.
By now, you are wondering, “When does a business get big or complex enough to warrant transitioning to an ERP?”
The question may not be so much one of ‘big enough’ or ‘complex enough.’ The real question is when a business either loses enough potential revenue or spends too much internally to support itself without an ERP to warrant an ERP.
Despite their significant growth and revenue increases, many businesses can’t see the value in upgrading from a ten-thousand-dollar-per-year solution to a fifty or one-hundred-thousand-dollar-per-year ERP. They fail to recognize the lost revenues and additional costs that their existing configuration manifests.
If you are truly going to be a 'trusted advisor', you need to determine if your clients' existing accounting platform is really what they need, or if the return on investment warrants their switching to an ERP.
For example, let’s take a $35-million per year net revenue business. Assuming there is an under-billing situation due to a lack of information related to costs, profitability, and sales pricing of just 2 percent, the business is losing $700-thousand per year due to inadequate (or non-billed) customer charges.
If you combine that with 2 percent overcharges by suppliers due to inadequate cost monitoring, stock failures, and not ‘shopping around,’ the business is paying out $280-thousand per year in excess costs of goods sold.
Combined, these two ‘financial glitches’ resulting from a lack of in-depth business cost information and perspectives, is costing the client nearly $1-million per year in net revenue.
Even if a comprehensive ERP costs the business $120,000 annually, they would still be more than $860-thousand ahead by recognizing and resolving these issues with the new ERP.
That’s a substantial return on investment, and we haven’t even begun to look at how the ERP could streamline business processes, potentially allowing for more significant customer sales and staffing reductions.
OK, you think 2 percent is too high! Then let’s say just 1 percent. Under this scenario, the business is still profiting by nearly $500-thousand per year with a comprehensive ERP solution resolving their revenue and cost issues.
The calculations above assume minimal (modest at best) valuation losses. Many companies of this size could be experiencing as much as 8 to 12 percent. And, as I said, we haven’t even looked at how the ERP could resolve the workforce inefficiencies and required over-staffing, which is most likely occurring.
With significant changes ahead in the accounting solutions many small, medium, and enterprise-sized companies have been using for their accounting platform, 2024 may be the year when more accountants, bookkeepers, and business consultants should be focused less on advising their clients ‘in their current platforms’ then helping those clients find alternatives that better meet their requirements and produce substantial returns on investment.
In many cases, those alternatives will be ERPs.