Making the business case for new accounting software
Changing your accounting software is a big deal. You'll put forward a solid structured business case to detail and justify the resources committed to the project.
You’ll need to get everything from the project costs, risk analysis, benefits, and so on to your senior management team. In essence, you need to give them everything they need to see why it's a good decision and to approve funding. After all, getting their support and buy-in to the project is essential to getting the go-ahead.
This article will take you through each stage of creating a winning business case for accounting software.
6 minutes
Written by Kit Morris
Making the business case for new accounting software
Setting the scene
The business case should clearly depict the current position, including the issues and impacts. Define exactly why this needs to change and improve – including the consequences of not doing so.
When outlining your proposal, ensure that the reason for change sits comfortably with the business strategy. How will changing your business software help to support your business needs and goals? Being as straightforward as possible will help to bolster the case.
You should also provide evidence that you've considered the different options in detail, having reviewed and analysed the possibilities. Within the business case for cloud accounting software, you should highlight the other options you considered and how you came to your conclusions. Consider all the accounting software basics, such as the costs, features, benefits and any risks involved.
Outline the case regarding doing nothing, the minimum option, your favourite accounting software for the business and the other online accounting software options that you've considered.
For more context, read our article: what is accounting software? To help you with your business case, check out our blog: 6 steps to help you choose the right accounting software.
Financial analysis
Several different financial analyses can be undertaken to weigh the costs against the benefits of the accounting software you're considering, such as payback period and discounted cash flow (DCF).
The payback period allows you and your senior decision-makers to see how long it'll take for the accounting system project to pay for itself.
With DCF, you're estimating how attractive the investment opportunity is, of which changing your accounting software is a good example.
This can be done in a few ways. Firstly, you could calculate the net present value (NPV) of the project; this is often used in capital budgeting to understand how profitable the project is likely to be.
A discount rate is used, which is essentially the minimum rate your company expects to 'earn' on a project. Your cost of capital usually determines this, that is, the project's return must be more than the cost of raising finances. It should technically be much higher than this to take account of the uncertainty and risk inherent in any business case.
By calculating the NPV, you can see if the project is cash-positive or negative. If you get a negative NPV, the project should be rejected. You should, however, not rely on the DCF in isolation. A better picture is painted if you also calculate the internal rate of return (IRR), such as a projected 47.3% return. That way, you get a better sense of the project's true worth. The IRR is the discount rate that makes the NPV of your cash flows equal to zero.
Financial modelling
Creating a business case for your accounting software project requires a detailed analysis to determine its viability. The process for financial modelling will involve some level of estimation and assumptions. It is essential to be as precise as you can, where you can.
The role of financial modelling, however, does allow businesses to see where your estimates and assumptions are the most sensitive to change, ensuring the project's viability through further checks.
By carrying out detailed financial modelling, it will highlight the areas where changes cause the most significant movements. You will need to focus more time on these areas of risk to see how they can be mitigated.
Careful budgeting
Within your business case, you should outline the budget for the new accounting software. Will it be paid for out of your current or future budget? It is best to be careful to ensure the funds are available and ring-fenced for the project.
It is also helpful to add in a contingency, should it be required, but ideally, if you've got a good partnership with your chosen accounting software provider, you can work together to bring the project in on time and budget and look to work around any unforeseen circumstances that arise.
In addition to firming up the costs for the project, you’ll also need to reference any commercial arrangements. This could be financing if this isn't coming from internal funding. You don't, therefore, need to outline the decisions you make for going with one supplier over another. And if there are any other additional arrangements, those must also be included in the business case.
One final element to include in your budget is the need for a project manager within your organisation. Depending on the size of the accounting software implementation, you need to ensure value for money to help ensure that the project remains on track. Whilst a good provider will do everything, they can support the whole process; there will be elements that can only be carried out from within your organisation.
Mitigating risks
Risk is part of any project. By highlighting all the key risks, you will build up a solid business case for accounting software by giving them due consideration.
There are many types of risk, from financial to change management. Be sure to explore everything that could impact the project. Are there any specific commercial considerations to be accounted for? What experience have the people who are project managing this internally had? You need to cover all bases.
Change within a business can be difficult for people, so some inherent risks are ‘softer’ in nature. And to some degree, it can be tougher. After all, a software change is there to make the business run better and for people to work more efficiently. But they must be ready and accepting of any changes taking place. Getting those involved early on will go some way to making sure that when the time comes for them to use the software, they will at least feel like they have been very much part of the process.
As mentioned previously, having a project manager in place to ensure they can keep the project moving from an internal perspective is essential. It would be best to show how every effort has been made to provide any financial, commercial or other risks that have been adequately thought through and how they will be mitigated. Being thorough will give the business case the credibility it needs to be approved.
Better business
The whole point of changing your accounting software is to improve your business's management, particularly the financials. To achieve this, you need to ensure the benefits are achievable and will improve the business and working practices.
This is why you need to include a section in your business case with all the outcomes and goals for the project including how they will be achieved. A clear plan that provides detail on what exactly needs to be done, and who by, to gain the benefits.
A critical aspect of this is making sure you have a clear set of criteria with key performance indicators (KPIs), detail these for each of the benefits that the project is to deliver. This will help to strengthen the case and confidence that a 360-degree view of the project is being taken.
Also, consider showing the broader benefits of implementing a new system. Are there any benefits that would be regarded as intangible? It's also worth mentioning these and positioning them to strengthen your organisation.
Many organisations these days often want to integrate into other systems such as project accounting software, expense management software, inventory management software, automated accounts payable software and many others. This capability can allow for greater control over costs and cash flow. It can provide a competitive edge to your business by enabling you to service your clients and customers much more efficiently.
The bottom line is to include all the benefits the new software will bring to the organisation – and how it will lead to better business. Measure and provide actual expected return on investment wherever you can. That's important. But also remember to account for all intangible benefits as they can be far-reaching, too.
The finishing touches
Once you’ve outlined the case for accounting software, you should provide a project plan, at least at the top level. Each project's main phases with the timescale and milestones will link to your financial case and calculations.
One area not to overlook is the executive summary, which will give a short overview of the business case. List the project's main elements, including critical issues of note, core benefits, and costs and timeframe. The key point here is that it’s an overview. You're not just summarising points.
Therefore, provide high-level information that allows your Board or other decision-makers to understand the case to form a decision quickly. The business case provides them with the detail and confidence that the team has done their homework in putting the case together.
When the decision-makers approve the project, they must sign and date the document to ensure this is included.
If you've managed to put your case across firmly and be thorough in your approach, you'll hopefully shorten the time it takes to get projects approved in your organisation.
One takeaway from this whole process is to use the business case to formulate best practices within your organisation. This allows you to build on the work that you've done and create standards within the business for others to adhere to. It brings structure to the whole process so future projects won't get bogged down by unnecessary red tape and bureaucracy.
Instead, it should create a framework to work to and allow those making decisions to do so quickly in the comfort that they can see all aspects of risk, benefit and other fundamentals have been taken care of. It cuts down on the number of questions being asked because the information is provided upfront and in a way that makes it easy for decision-makers to digest and make the call.
The case for Access Financials
The whole point of creating a business case is to help the organisation make quick decisions they will benefit fom. Whether this is internally with the people using accounting software and finding it helps their productivity or externally with clients, customers and stakeholders.
The best accounting software should streamline and automate financial management processes for your business.
