ERP systems vs accounting software, what's the difference? The terms "ERP System" and "Accounting Software" are often used interchangeably, though there are some significant differences between them, and each is best for different use cases.
So in this post, we'll define each of these terms and then break down the key differences that set them apart to help you select the best solution for your company's needs.
An ERP (enterprise resource planning) system is software designed to automate various business processes, and accounting is one of them. However, it also automates other business operations like:
So while ERP solutions include an accounting system, it's only a fraction of what they offer.
For this reason, ERP systems are typically used by enterprise organizations that have advanced automation needs and the resources to support a technical team to maintain the ERP system.
Some of the most common ERP system providers include Netsuite, Microsoft Dynamics 365, and Sage Intacct.
On the other hand, accounting software helps smaller businesses organize and record their financial transactions. Some of the basic features you can expect from small business accounting software include:
It automates some basic accounting tasks, but it typically doesn't support the advanced needs of multi-entity and global corporations. For example, you won't have access to advanced controls or the ability to automate processes like consolidating multiple entities.
QuickBooks, Freshbooks, and Xero are all examples of accounting software solutions.
Below we’ll define some of the more nuanced differences between ERP systems and accounting software to help you select the best solution for your needs.
We've already established that an ERP system automates many business operations beyond accounting (like inventory, planning, supply chain, warehouse management, HR, sales, purchasing, logistics, and more), whereas accounting software focuses mainly on accounting.
However, even if we zero in on an ERP system's core accounting functionalities and compare it directly to accounting software, the ERP system's accounting module is still much more robust than traditional accounting software.
For example, ERP systems can streamline the following processes that accounting software cannot do seamlessly. In some cases, it may be possible with an add-on or workaround, however, the system isn't natively designed to execute these processes:
In addition, ERP systems can provide more advanced controls for auditing, offer near real-time data, and integrate with other tools and custom solutions (if you have the engineering resources to do so).
Most accounting software is purely based on the cloud and can take as little as a few weeks to implement. This of course depends on your current accounting process's complexity.
Additionally, the setup process doesn't require any technical expertise, and most users get the hang of it within days.
ERP systems are much more involved to set up and operate for a few reasons.
First, they offer much more advanced features and customizability which can complicate the user experience and setup process. Most ERP systems require a team of technical experts to set up and customize them to the business's needs.
In addition, ERP systems can be cloud-based, on-premise, or hybrid. If you choose an on-premise or hybrid solution, you'll have to have someone physically on the site to install it.
So depending on the ERP system you select and the complexity of your needs, the setup and onboarding process can take months to complete.
Small business accounting software is super easy to use and requires very little customization once a user is onboarded. Unfortunately, the tradeoff for the user-friendly experience is that it isn't very flexible or scalable.
Most accounting software offers integrations with some third-party apps, though beyond those apps, you can't build any custom integrations. This arrangement is usually sufficient for most small businesses, though it can become a problem if you have more advanced accounting needs.
In addition, if you scale into a multi-entity company, small business accounting software requires users to purchase an individual account for each entity. This is not only costly, but it also means that accountants have to manually consolidate all of the entities at the end of the month.
Manual consolidation is time-consuming as you'll have to export each entity's data into a spreadsheet. Next, you would need to perform intercompany eliminations and then consolidate them.
This manual process also exposes your data to human error, which can lead to data inaccuracies.
In contrast, the best ERP systems are designed specifically for enterprise organizations and therefore make it easier to scale. For example, they typically offer consolidation add-ons to speed up the multi-entity consolidation process and close the month faster.
The only thing worth noting is that because many of these ERP software systems are 20-plus years old, they tend to have clunkier integrations. As a result, it can be a laborious process to customize them to fit your needs.
Finally, larger companies always need to be audit-ready and therefore require advanced compliance and controls so that entries can't be altered after entering the system.
Therefore, most ERP systems have advanced compliance and control options to protect financial data.
However, a large percentage of the customer base for SMB accounting software are not accountants. Therefore, it's quite likely they will accidentally enter data incorrectly.
To make it easier for small business owners and bookkeepers, most accounting software does not offer advanced compliance and controls.
As you can see, ERP solutions are ideal for enterprise companies, and accounting software is perfect for small businesses.
The problem is that mid-market businesses fall somewhere in between those two solutions.
Most of them have outgrown the simplicity of small business accounting software, yet they don't have the technical resources to implement an ERP system (and frankly, they usually only need a fraction of what ERP systems offer).
We felt this pain point and decided to build SoftLedger to solve this problem.
It is designed for multi-entity companies that need a more scalable solution than basic accounting software yet don't have a massive team to implement and manage an ERP solution.
In short, SoftLedger gives you all of the more advanced accounting features and automation that scaling businesses need without the implementation and maintenance headache associated with an ERP system.
Here are a few key differentiators that make SoftLedger an excellent solution for mid-market businesses.
A key pain point with most accounting software is that accountants have to manually consolidate data at month-end. Even if you're using an ERP solution, aspects of the consolidation process often must be manually completed.
So we built SoftLedger to solve this problem.
Unlike other accounting solutions, SoftLedger automatically consolidates all entries the instant they enter the platform. It also automates any additional processes associated with the consolidation process, such as intercompany eliminations and monthly foreign currency revaluation.
To see how SoftLedger automatically updates the entire balance sheet the instant you make an entry, check out this video:
With automatic consolidation and real-time data, you can always provide up-to-date financial information to executives at any given moment to make better investment decisions. It will also save your team countless hours manually consolidating data at the end of the month.
Finally, because your accountants aren't executing these processes by hand, it's less likely that manual errors will arise. So not only can you trust your data more, but you also won't have to worry about data accuracy during audits.
Accounting software only allows users to integrate with a select library of apps that they already integrate with. So if it doesn't offer the app you need, you're out of luck.
While ERP systems allow users to build integrations, it typically requires extensive engineering resources to build them as you'll need to find someone with proprietary programming knowledge of that software's programming language. Even then, it can take weeks or months to build simple integrations.
So we decided to make it super easy to build integrations by building SoftLedger with a REST API, meaning 95% of the platform is programmable via API. This means developers can build integrations in days instead of weeks, which saves you a lot on expensive human resources.
In addition, all of our API documentation is readily available, making it super easy for them.
Most ERP systems require several weeks or months of training and onboarding as they offer an overwhelming number of advanced automation features. While this makes sense for massive enterprise corporations, mid-market businesses typically only need a fraction of these features.
So SoftLedger offers the automation and advanced features that mid-market companies need, though it's also not nearly as complex as traditional ERP systems.
As a result, customers tell us that they can implement SoftLedger in a matter of weeks, and their team members quickly feel comfortable navigating the system.
You can see for yourself how simple the platform is to navigate by checking out this overview video:
Small business accounting software is great for local businesses and ERP systems work for large enterprises with large accounting teams. However, SoftLedger is the "Goldilocks" solution for those who need a simple solution that is still powerful enough to serve multi-entity corporations and automate traditionally complex processes.
It's more modern and flexible than traditional ERP systems and provides everything a mid-market company needs without overcomplicating the user experience.
To see for yourself if it's the best fit for your needs, book a demo today.
erp vs accounting software