ERP vs. Accounting Software Explained: What Are the Differences?

When a company begins to grow, it comes time to upgrade from traditional accounting software to ERP (Enterprise Resource Planning) software. The two tools are similar since both platforms perform financial management and accounting processes. However, the key differences between ERP and accounting software involve their scope and scale. And understanding their differences can help you make the best decision for your firm.

In this article, we learn ERP vs. accounting software, how they differ, and when it's right to use each of them.

01 | What is EPR and How Does it Work?

ERP or enterprise resource planning system is a type of software one of the most significant characteristics of it, is the ability to put different business functions into a single platform.  This may include financial management and human resources all the way through supply chain operations to customer relationships.

In this case, companies be able to see an integrated picture of their operations, hence better insights into decision-making and improved efficiency.

ERP systems are implemented in large organizations with complex operations. Developed to handle every area of business, they are designed to offer associated tools and modules that best fit various departments in an organization. 

For example, an ERP system incorporates the entire activities regarding inventory tracking in real-time, payroll management, and processing customer orders all in one platform.

This centralization of data helps businesses reduce errors, streamline processes, and improve overall productivity.

02 | What Is Accounting Software?

Accounting software is a financial tool developed to maintain financial transactions and serve accounting and tax needs. In comparison to EPR software which covers a broad range of business processes, accounting software is concerned mainly with financial management.

This software can be used by small or medium-sized businesses, including CPA and accounting firms, to automate the financial work in the area of financial management, namely, bookkeeping, invoicing, payroll, and tax preparation.

One of the most important benefits of accounting software is that it is easy to use. It is user-friendly and business firms can implement and use it without any hard training. The main function of accounting software is to provide tools that are needed for accurately processing the financial information of a firm and preparing finance reports regarding tax rules.

03 | What is the Difference Between ERP and Accounting Software?

While both ERP and accounting software are financial tools, they have entirely different purposes and fit different types of businesses. Key differences include:

Functionality

• ERP systems cover a broad range of business processes, including finance, production, inventory management, sales, marketing, human resources, and more. They integrate all data and processes into a single system, allowing companies to manage every aspect of their operations through one platform.
• Bookkeeping solutions, especially software for accounting firms, focus only on management in finance and accounting. It provides functions in general accounting, such as general ledger management and records of income, items of expense, financial reporting, tax calculation, and others. This is designed in a way that assures accuracy and efficiency within any financial operations and record-keeping.

Approach

• ERP systems are designed for the management of the entire organization, hence they are more broader and complex in comparison to specialized solutions. The best use of them would be in medium-to-large companies where coordination is required between different departments or functions.
• As the accounting software is geared toward accounting firms or departments, its major focus is on the management of financial processes but not other business aspects. It is used mainly by small-sized to medium-sized businesses that do not require all the functions of enterprise resource planning.

Integration

• ERP systems offer a high level of integration between various modules (finance, production, logistics, etc.), ensuring data and process consistency throughout the organization.
• The accounting software may in many cases integrate with some other systems, such as CRM or inventory management, but its level of integration and capabilities are quite limited compared to ERP, and accounting is where the emphasis is put. 

Scalability and Flexibility

• ERP systems can be customized to fit the specific needs of a business by offering various modules and settings that can be scaled as the company grows.
• Accounting software has less flexibility and scalability than ERP because it is meant to be customized to attend to some tasks in accounting and may not serve the more complex processes. 

Cost

• The implementation and maintenance of an ERP system are costly, especially for small companies. These entail system licensing costs, system configuration costs, employee training, and technical support.
• The accounting software is much less expensive, much easier to install, and to use, therefore making it more accessible to small and medium enterprises.

04 | Benefits of ERP Solutions

ERP software offers numerous benefits to businesses in search of an all-in-one solution for operational management. Some of the major benefits include:

• Data Centralization: ERP system is centralizing data from different departments in one place. With ERPs, accessing information for analysis by any business has become much easier. This kind of centralization minimizes data duplication and errors, increases the accuracy of the data, and allows proper decision-making.
• Process Automation: ERP automates most of the business processes, such as order processing, inventory management system, and payroll. All of this automation reduces the need for manual intervention, thus saving time and reducing the possible chances of error.
• Scalability: ERP systems are designed in a way to grow with your business. In the expansion of the company, new modules and features can be added to an ERP system to accommodate newer business needs. This makes an ERP system a long-term solution for growing businesses.
• Improved Collaboration: As it brings together several business functions into a single platform, the ERP would further enhance communication and collaboration among the three main departments. It can facilitate enhanced operational output and an increasingly integrated business strategy.‍
• Regulatory Compliance: Most ERP systems have regulatory compliance features that help a business remain within the law and industry regulations. This might take the form of financial reporting, tools for tax management, and data security features that ensure your business is legally sound.

05 | Accounting Software Advantages

Even though ERP systems may be broad in terms of features, accounting software provides loads of advantages for business activities with peculiar needs in financial management.

• Ease of Use: Accounting software is user-friendly, easy to implement, and use within any business. The simplicity of the accounting software eases the management of the finances of organizations without requiring too much training or technical expertise.
• Cost-Effective: Most accounting software is more pocket-friendly in terms of price as compared to an ERP system. It provides all the basic tools for money management, excluding extra features not needed by small businesses.
• Quick Implementation: Accountant software can be implemented in no time, thus enabling businesses to get down to using it for the management of their finances. Such quick implementation is ideal in a business where a solution is needed ASAP.
• Focus on compliance: It is a critical characteristic that accounting software is specifically designed to assist businesses in complying with financial regulations. The features of it are tax preparation, payroll management, and financial reporting that ensure the compliance of your business with the legal requirements.
• Customization: Although accounting software can have fewer features than an ERP system, many offer a level of customization to suit the particular needs of your business. This may be reflected in customizing specific accounts, producing custom reports, and integrating with other software tools.

06 | How to Choose Between ERP and Accounting Software

Business needs, budget, and future growth plans are big factors when one is faced with the decision of whether an ERP or accounting software is more suitable for the business. Here are some questions to ask when making your decision:

What are your business needs?

First, decide whether your business needs a completely integrated system to run all operations or just financials. In case your company contains several departments working collaboratively with each other, an ERP system might be the better choice. If your focus is mainly on accounting, then accounting software could suffice.

What is your budget? 

ERP systems are way more expensive than accounting software in terms of their implementation and support fees. If you have a tight budget, then accounting software would be more cost-effective.

How complex are your operations? 

The level of complexity of the business processes can also determine which solution to use. In the case of simple financial management, accounting software is excellent. If one has complex and integrated processes, then ERP is a better choice.

What Is Your Growth Plan?

Consider the future growth potential for your business. ERP systems are designed to be able to scale and grow with your business; accounting software may or may not have the ability to add features and functionality as your company grows.

Do You Want Customization? 

Most ERP systems allow, in general, more customization to fine-tune the software towards the running of your business. In most cases, accounting software can be very efficient, but may not be so flexible.

07 | Conclusion

ERP and accounting software bring success when implemented in aptly fitting companies. An ERP system is an all-in-one solution and is more suitable for large organizations with complicated interdepartmental operations. Accounting software provides finely focused tools to help in accomplishing accounting-type tasks and is best suited for small businesses or firms that deal only with accounting.

Knowledge of the difference between these types of software can help you decide what best suits your business aims and budget. Whether ERP or an accounting system, the right solution helps streamline your operations and accelerate your company's growth. The key lies in carefully reviewing your business needs and choosing software that best fits those needs.