The question, “When to say goodbye to QuickBooks?” is one we deal with on a regular basis. QuickBooks by Intuit is a very powerful tool for early stage companies. In our practice we see it used more than 90% of the time with others like Xero, FreshBooks and Intacct rounding out the remainder. While each has its own unique set of capabilities, for our purposes we’ll address the most common use case, which is those who have embraced the entrepreneurial spirit with the extremely cost effective Intuit QuickBooks Online (QBO) offering. While QuickBooks Online and Desktop do differ in some regards vastly, I believe the same overarching conclusions can be drawn.
For many it is a no brainer, you start a company with a checking account, then when the cash transactions hit a critical mass a subscription to Quickbooks Online is the next move. A diligent accountant will backfill transactions from the bank, perform the first reconciliations and implement some basic accounting principals, such as accrual accounting. This describes the first twelve months in most cases and probably through the first round of seed financing.
The next twelve months are when things get interesting. The company and the product are maturing which invariably adds complexity to daily operations. Headcount goes from five to twenty+ with some contractors in the mix. You’ll have all the nuances of an Enterprise but for now on a smaller scale. These consist of: Expense Reports, Company Credit Cards, Project Spend and Tracking, Fixed Asset Tracking, Prepaid Subscription Tracking, Payroll Management, Tax Nexus Reporting, Purchase Requisitioning, Income Tax Compliance, Budget v Actual Reporting, Accruals, Debt Covenants and both Internal and External Reporting Packages to prepare. For now you are probably still using a single full stack accountant, however their task list and daily grind has gone from fun and easy to laborious and demanding. QuickBooks and your accountant are making it happen with the help of Microsoft Excel; many of the companies’ needs are being met outside of the accounting system. You can add Expensify and Bill.com to help ease some of the workload, both of which are excellent products that can be kept indefinitely regardless of the accounting system or ERP in use.
It is important to note, that this is an inflection point at which the company data begins to sprawl from a central single repository into many. Most will chose to brute force their way through the next 12 months and probably the first VC led round of investment. Pain will be experienced, but it will be shouldered by one or MAYBE two accounting persons.
So now, you are in year two or three, with VCs on the Board of Directors, you have material revenue and an Audit requirement. You are also planning to hire sales people internationally, which in some cases requires a field office be established. Setting up subsidiaries overseas will mean additional general ledgers, inter-company agreements, additional bank accounts, additional payroll companies, inter-company transactions and a consolidation using multiple exchange rates. You may opt to use Adaptive Insights, which is very good at consolidation and managing Cumulative Translation Adjustments, but you will still have multiple repositories of data. You can also use Excel to consolidate, and plan to spend considerable time in the Consolidation Book file defending your Average, Current, and Historical exchange rates to and auditor.
Additionally, you have now achieved revenue and renewals/upsells/cross sells. Monitoring you Annual/Average Contract Value (ACV), Total Contract Value (TCV), Annually Recurring Revenue (ARR) and Customer Acquisition Cost (CAC) are the indices that you’ll want to monitor closely (SaaS, PaaS). What’s more, an efficient Sales Organization must be rewarded for their achievements in near real time by way of a commission calculation on either bookings, billings or receivables. You’ll also be closely adhering to GAAP guidance such as “ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606).”
Things have rapidly gone from from slow and easy to complex and overwhelming. It is for that reason that we encourage clients to consider making the change to a scalable ERP, such as NetSuite, earlier on in the life cycle of the business. Waiting until you can’t live without an ERP means you’ve probably waited too long. The potential pitfalls of which are a complex and expensive implementation; buying the ‘kitchen sink’ version of NetSuite as opposed to a smaller ‘footprint’ version; and the possibility of never being able to effectively go live on the ERP due to complexity or warring interests.
When considering the cost to go live sooner versus later, you should also consider the cost and pain of waiting too long. Often companies will add more G&A personnel to fly the disparate systems in an effort to delay the inevitable ERP purchase. However, it is important to consider that NetSuite can be purchased, implemented and maintained at an annual cost of around 25%-35% that of an employees salary. It is also worth noting that a small ‘footprint’ installation of NetSuite can be implemented in weeks, whereas a complex one later in the life cycle of the company will run at least three months.
At CFO TOOLS, we provide ‘Simple Start’ implementations free of charge in conjunction with the purchase of licenses that always go-live in a matter of days/weeks. Before you know it you can be running on a stable ERP that is mimicking all that you used to do on QuickBooks, however now you are on a system that you can grow into as the complexities arise.
In conclusion, it behoves companies to weigh options early and if it makes sense, make the switch earlier to gain efficiencies and adapt to the new system before things get hectic.
Feel free to reach out via email if you have any questions or comments eric@cfotools.net.