12 May

Accounting Systems vs Operations Management Systems

Specialty contractors are, by definition, small to medium size businesses.  99% of these businesses employ fewer than 100 employees and 97% employer fewer than 50.  The average number of employees is 7.5 for those under 100 employees and 6.2 for those under 50 employees.  Also, most contractors perform a mix of service and project (e.g., installation, construction) work.   Utilizing business systems enables contractors to focus on what is mission-critical -- their trade and their customers -- rather than on administrative matters, so such systems are very valuable.  Small to medium size businesses, however, need their business management solutions to be simple, flexible and affordable.   

The Accounting System

I would guess that more than 97% of specialty contractors in the US currently use an accounting system, rather than relying on “paperwork” only.  These systems are typically locally installed software, although some are now moving to cloud-based accounting software services to reduce cost, improve flexibility and reduce the risk of outages or data loss.   People use these systems because they eliminate lots of paperwork (imagine scribes, hunched over ledgers, updating every transaction by hand) and reduce a lot of the pain of “putting everything together” at tax time.

Anecdotally, it seems that perhaps 50-75% of the specialty contractors with 100 or fewer employees use Quickbooks, because it is relatively easy to use, and adequately meets the needs of the vast majority of small companies.  Moreover, it is both flexible and affordable.  Simple accounting systems are used primarily for creating invoices for customers, recording invoices from suppliers, recording receipts and payments and maintaining a general ledger (“GL”), as well as ledgers for accounts payable (“AP”) and accounts receivable (“AR”).  Generally, they are used for maintaining only summary information about things like payroll, inventory, fixed assets, detailed labor and materials costs or project profitability, because the work to get detailed information into the system is not worth the effort.

In a field-based organization, it’s very hard to get accurate, detailed, timely data into an accounting system.  Thus, accounting systems do not really help you actually monitor and manage your business because they are not “integrated with your field workflow.” The information they capture is neither detailed nor timely enough to credibly inform either day-to-day or long-term decision-making.  To accomplish these objectives, a mobile operations management system is required.

The Operations Management System

An operations management system is a management system that is used to exchange business critical data in real time and inform day-to-day decision-making.  Its functionality should cover all aspects of your business’s operations, from the time a customer call comes in (and, perhaps, even your sourcing of customers) to the time your customer is invoiced.   It empowers you to manage your business in a way never before possible.  It supports business management in the following ways:

1.    It facilitates real time command-and-control and two-way information flow between managers, field employees and administrative support staff
2.    It captures, organizes, stores and disseminates data accurately and efficiently
3.    It provides actionable business intelligence to facilitate real-time decision-making (e.g., correcting problems as they arise, before they get out of control)
4.    It provides business analytics to improve planning decisions (e.g., bidding jobs, evaluating employees)

Functionalities should match business needs.  Below is a sample of business requirements for contracting companies focused on service work and project work.

 

Service Work

Project Work

CSR Interface & Call Tracking

 

Estimating & Historical Cost Analysis

 

Project Structuring & Management

Scheduling, Messaging & Dispatch

Project & Task Templates (“Flat Rate”)

 

Customer Service History

 

Task Templates & Normalizing Variables

 

Detailed Task Status Information

Equipment Maintenance Log

 

Multi-Media Notes

Timekeeping

Job Cost Collection

Materials & Tools Tracking

Inventory Management

Purchasing

Invoicing

Mobile Invoicing / Order Approvals

 

Business Intelligence & Analytics

Change Order Management & Approvals

 

Customizable Wage & Billing Rules

 

Separate Systems or a Single System?

When selecting an operations management system, several key decisions are required.  First, do you want a system that has the core accounting functions of AR, AP and GL included?  The advantage of having them included is that you have seamless integration.  The disadvantage is that you must convert all of your historic data to a new “accounting system,” which can be time-consuming, and that you are now wedded to this accounting system as long as you use the operations management system.  

Typically, contractors will elect to use their operations management system to run their business and inform their accounting system.  Detailed information required by an accounting system might be limited to customer invoice amounts (receivables) and vendor invoice amounts (payables), while only summary data is required in other areas, such as inventory, payroll, job costs, etc..  The more limited the scope of detailed information you require for your accounting system, the more likely you will seek an operations management system that allows you to continue using your existing accounting system.

Summary

Accounting systems and operations management systems compliment each other.  In some ways, an operations management system can be seen as an extension of an accounting system, but it is much more than that.  It also enables you to manage your operations in real time.  Companies need to use both to be as successful as possible.  Both track information more efficiently than using paper only.  Accounting systems focus on gathering sufficient information to foster compliance (with the reuqirement to file an annual tax return), operations management systems focus on gathering and disseminating detailed and timely information to foster efficiency.  

Greater efficiency means greater profitability, which makes you a stronger competitor, which helps you win more business.  More business means more revenue.  So, operations management software can help you generate more revenue dollars and make each dollar of revenue more profitable.

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