The difference between an ERP and accounting software is that accounting software is designed to run the basic functions of a small business and calculate its taxes, while an ERP is used to manage your finances and operations.
An ERP usually replaces the need for accounting software and is designed for higher-volume businesses. So naturally many people think of ERP as just a more powerful version of their accounting software. But it is much more than that. An ERP is designed as a business platform to run your whole company.
This fundamental distinction in purpose is reflected in five practical differences between the two types of software.
- Data. Accounting software is designed to manage, categorise and report on a list of financial transactions. It also stores a very limited amount of information about customers, suppliers, and inventory items. A small business will usually use other applications to manage these areas. ERPs can contain detailed records about financial transactions, inventory items, and people and companies (employees, suppliers and customers). This means a business can manage multiple areas of a business with an ERP rather than multiple applications or spreadsheets.
- Capability. ERPs typically include multiple modules that cover other areas of a business besides accounting. These modules can manage inventory, customers, partners and suppliers, human resources, and more. Accounting software is designed to track your tax compliance process. An ERP is designed to track all your key business processes, from finance to managing inventory, shipping and delivery, or employee capacity and HR.
- Reporting. Accounting software is designed to create reports that show the tax position of a business and its financial health. These are the two primary concerns for small businesses. An ERP can report on many more departments because it contains records for inventory, customers, suppliers, partners and employees as well as financial transactions. The high degree of detail in the records gives the ERP the ability to show deeper insights into the levers that drive the business. These reports can be displayed as interactive dashboards, and can be delivered to all employees, not just the finance and leadership teams.
- Scale. ERPs are built to run high-volume businesses. They can process and manage a higher number of financial transactions, inventory items, employees and customers. Accounting software can struggle to load reports that include high numbers of transactions or products. They also have hard limits set by the software vendor that constrain the number of employees on payroll or the number of tracked items in inventory.
- Cost. Accounting software is sold as a single licence per business and costs anywhere from US$150 to US$700 a year. An ERP is priced according to the number of users and modules and other factors. It typically starts at US$5,000 a year for small businesses, while mid-size businesses will pay US$30,000 a year and more. Large enterprises can pay more than US$1 million a year.
These five areas are explored in greater detail below.
The difference in data between ERP and accounting software
ERPs and accounting software store the same types of records; financial transactions, people and companies (customers, suppliers and employees), and items (raw materials, parts and components, and items for sale).
However, an ERP can store more data and better quality data than accounting software can.
A small business typically needs less data to operate. It may do several hundred transactions a month, have 20 employees on the payroll and stock 50 items in its inventory for sale.
ERPs, which power national and global businesses, can require a lot more data to operate. An ERP can store millions of data records – it is built to hold a high quantity of data. More importantly, an ERP can also store a lot of detail on each record – it is built to hold a high quality of data.
This is best demonstrated by how the two applications manage inventory data. Accounting software usually includes a lightweight inventory management function with a dozen fields per item record to track quantity, average cost and stock at hand. By comparison, an ERP can have an advanced inventory management module that tracks stock across multiple warehouses. An ERP can display over 180 fields on the item record that track details about manufacturing, shipping, components and kit assembly, sales details and revenue recognition.