Gathering and analyzing financial data are central to the success of a business. However, information that is outdated, inaccurate, irrelevant or hard to understand can lead to costly mistakes.
Financial management software can help finance managers assemble accurate and clear data. With reports that pull real-time information from a company's various departments, the process of financial analysis can be simplified and optimized.
In this guide, learn about the functions and potential benefits of financial management software; discover tips on how to select a system based on a company's specific needs; understand how to enact a smooth implementation; and get a glimpse into the latest trends.
Table of contents:
Financial management software defined
The primary function of a financial management system is to help managers keep close control of a company's income and expenses. This is achieved through simplifying the billing process, minimizing accounting errors and providing accurate, timely reporting. With an organized system in place, the time of the accounting staff is optimized, with fewer hours spent researching tax regulations and issuing and processing invoices. In addition, accurate financial information makes it easier for the chief financial officer (CFO) to plan budgets and make important fiscal decisions.
Financial management software usually comes in a suite that comprises a number of financial applications. While offerings differ among vendors, most packages include several standard applications: accounts payable and receivable, general ledger and financial reporting. The software can be purchased as part of a larger ERP financial management system or on its own.
The importance of having a financial management software system
Ninety-seven percent of finance executives find some aspect of the financial reporting process stressful, according to a survey conducted by Dynamics Markets. The research showed that companies that don't use financial management software experience more difficulty generating coherent reports, which leads to confusion about the data and makes financial analysis an uphill battle.
Financial management software can assuage such problems. Financial reporting and analysis components allow users to generate real-time reports whenever they like and provide them with tools to help them understand the information. Vendors claim that the software, which now features simpler user interfaces, is easier for CFOs and other finance managers to use without the aid of the IT department.
While there are several significant benefits to implementing a financial management software suite, many companies continue to rely on Microsoft Excel spreadsheets to balance their books. Excel might provide all of the necessary functions for small businesses, but for companies that are expanding or whose finances are becoming more complicated, it may make sense to invest in more sophisticated software, according to experts. Reports from analysts describe the advantages of switching from Excel to a financial management system and provide tips for a smooth transition.
How to choose a financial management software system
There are many factors to consider when choosing financial management software. The size and complexity of the business are two major considerations: Small, simple businesses can adopt a single-purpose accounting package, while larger operations with more intricate financials will probably function best with a comprehensive ERP suite.
Other tips for selecting the right financial management software system include assessing the pros and cons of a cloud-based Software as a Service (SaaS) application; evaluating the product's ability to adapt to evolving reporting regulations such as the U.S. Generally Accepted Accounting Principles; and doing a trial run with a vendor.
Above all, experts say, it's important to keep in mind that a one-size-fits-all model does not apply -- software should be purchased based on a company's unique needs analysis. A strong selection committee that comprises employees from different departments, such as payroll, procurement and manufacturing, should also determine an appropriate timeframe for deployment.
Understanding financial software implementation and integration
After a decision has been reached and it's time to buy, a solid negotiation strategy is key. Vendor relationships, maintenance contracts and the timing of the purchase are all factors organizations can leverage to save money.
Since financial applications need to be integrated with almost all of a company's systems, it's important that the implementation team include members from various business functions. Other implementation best practices include focusing on the business goals of the software and striving for a hub-based implementation rather than a point-to-point plan. Enlisting the aid of consultants and arranging trainings for end users are also helpful strategies, especially in a rapid implementation scenario.
Prominent financial application vendors: SAP and Oracle
Not surprisingly, SAP and Oracle are both heavy hitters in the financial management software space.
SAP Financials aims to automate functions; streamline billing, invoicing and purchasing; and provide efficient accounting tools. SAP Workflow automates mundane repetitive financial processes, allowing accountants to focus on more complex tasks, the vendor claims. Financial reporting is another core pillar of the software, and expert advice on how to achieve faster financial reporting can help companies get the most out of their SAP package.
The release of Hyperion 220.127.116.11 enacted major changes to Oracle's financial management software. The addition of configurable dimensions means that data can more seamlessly flow to and from other applications, such as Oracle Essbase and Oracle Hyperion Planning, according to one reviewer. The user interface has also been enhanced, and it is now possible to simultaneously open multiple applications in Workspace, among other new and improved features.
Forthcoming trends: Going mobile and moving to the cloud
Most areas of IT are feeling the impact of mobile devices and the cloud, and financial management software is no exception. Due to anxiety over security breaches and service outages, some executives are hesitant to move sensitive financial information away from on-premises solutions. Others are taking the leap.
With the rise of tablets and smartphones, the prospect of mobile financial applications is tempting -- accessing data anytime, anywhere has the potential to increase employee productivity and overall business performance. Experts agree that executives should carefully weigh the benefits and risks of using mobile financial applications before making a decision, and should remember that security risks can be mitigated by retaining firm control over mobile device and application management.
Lower maintenance fees, quicker and more efficient upgrades, and shorter implementation times are attractive perks of using a SaaS financial management system. Experts say these SaaS applications have recently become more credible, and as a result companies are starting to make the transition from on-premises to cloud-based financial applications. At the cusp of the migration are small businesses. In general, CFOs of larger companies are taking a more cautious approach, with some experimenting with hybrid solutions and others holding off entirely.