The range of software solutions on offer for finance departments is very complex. ERP systems, traditional financial accounting software, and professional solutions for consolidation, planning, reporting, and analysis are all offered under the umbrella term of Financial Performance Management.
But what is the crucial difference between ERP systems, financial accounting software, and FPM solutions? Find out in this blog post what systems are available and what the aims are behind their functions. We investigate what software solutions modern enterprises should use to gain a holistic view of their financial data and to control their financial performance management process in a targeted manner.
What is an ERP system?
ERP (or Enterprise Resource Planning) refers to the many software applications and solutions that are used to record and control all corporate processes and resources. In other words, ERP is resource planning software that can be used to deploy all of the available resources within an enterprise as efficiently as possible. In turn, it should facilitate sustainable business growth.
An ERP system records and links all corporate processes and therefore affects many areas, such as:
- Purchasing and procurement
- Merchandise and materials management
- Accounting, finance, and controlling
- Personnel and human resources
- Project management
- Customer Relationship Management
- Marketing and sales
Aims of ERP systems
The aim behind an ERP solution is to bring together all areas in a single, comprehensive system. Ideally, a company’s industry-specific processes will also be considered. If used correctly, an ERP system can give management a complete insight into important aspects at the enterprise. The process involves monitoring both department-specific information and data from across the enterprise. ERP systems make communication and collaboration between departments easier and allow tasks to be taken care of efficiently and smoothly.
A practical example makes it easier to understand the benefit of this type of software: For instance, an ERP system allows a car manufacturer to track materials from the procurement phase, through to production and the finished product that is already bought and paid for. The aim is to show how the resources available to the individual departments can be used in the most efficient manner possible and which approaches work best in the supply chain.
What does financial accounting mean?
Within enterprises, financial accounting is part of the company’s accounting system. Financial accounting records all corporate processes as financial data, thereby bringing transparency to expenses and income.
Creditor and debtor accounting as forms of financial accounting
Generally speaking, and especially at bigger enterprises, financial accounting is divided into creditor and debtor accounting.
- Creditor accounting:
- This includes the payment obligations and thus incoming invoices.
- Debtor accounting:
- This refers to outstanding balances, i.e. the receivables and outgoing invoices.
Financial accounting and its roles
Primarily, the role of financial accounting is to depict a company’s overall result. In other words, it shows the basic financial situation and any changes to it. It’s not just the management that needs to know how much of a profit or loss was generated. Other major stakeholders also include investors and creditors. A transparent profit and loss statement and balance sheet are intended to generate trust and show how vital the company is.
What can financial accounting software do?
Financial accounting software is tailored to these needs: It is used exclusively by finance departments and is essentially focused on the enterprise’s financial functions and transactions. It handles:
- The process of creating a general ledger
The focus is on postings from all financial streams. The end result of financial accounting comes in the annual financial statements. This means that at the end of a defined financial period, the accounts are closed: Both a balance sheet and a profit and loss statement are generated.
The most common financial accounting software is capable of providing you with a snapshot of all financial transactions within the company. The aim is to accurately depict the company’s economic and commercial situation. Solutions for accounting, finance, and controlling are often included as a module in complex ERP systems, such as SAP.
Why an ERP system or financial accounting software is not sufficient for holistic corporate management
What are the crucial differences between a traditional ERP system with a financial accounting module and an all-in-one Financial Performance Management solution?
Difference 1 between ERP and FPM: The aim
ERP systems and FPM solutions are two entirely different things: While ERP systems address and reflect operational processes from all areas of an enterprise, an FPM solution allows management processes to be controlled better.
Many enterprises use ERP systems to gain full control over resources, processes, and projects. These include:
- Calculation of costs
- Mapping and organization of contracts and orders
- Controlling inventory status
- Planning projects
- Creating quotations
- Controlling equipment and plant status
- Analyzing performance and productivity
- Handling payroll and HR planning
Many companies initially begin with the implementation of a financial accounting or ERP system to handle their daily transactions. In finance departments, Excel spreadsheets are often created and used to implement financial processes such as budgeting, forecasts, and financial reports. But if the company grows and expands, Excel and similar solutions quickly reach their limits and holistic financial software is needed.
FPM solutions are about managing the enterprise’s overall strategic direction. They pull together all of the important financial data – from source systems such as ERP and financial accounting – and provide a basis for taking decisions related to the future development of the business.
Difference 2 between ERP and FPM: functionality
The different aims also mean that the functionality is different:
For ERP vendors, the focus is less on consolidation, planning, reporting, and analysis, and more on traditional ERP issues such as merchandise management and financial accounting. While it’s true that numerous functions such as budgeting and forecasting, complex financial consolidation, analysis, and reporting functions are included in ERP systems, in practice they are far too complex - making them inefficient for users. FI data are not sufficiently integrated and provide only limited insights. Generally speaking, planning with financial data is possible in ERP systems. But the focus is more on operational planning, which is not sufficient for sustainable corporate management.
When financial accounting solutions are used either on a stand-alone basis or as modules in ERP systems, the focus is on the creation of a profit and loss statement and balance sheet.
A distinguishing feature of FPM solutions, when compared to ERP and financial accounting options, is the integrated financial planning capability, straightforward consolidation, and reliable reporting: This allows actual and planning data to be visualized and analyzed in a transparent manner. These data form the basis for valid business decisions within the enterprise. It provides groups with a straightforward and efficient way to generate consolidated financial statements. In this process, financial data are usually integrated and consolidated from several different ERP and/or financial accounting source systems. The result is a single-point-of-truth, a reliable basis of data for the finance department.
Difference 3 between ERP and FPM: complexity
ERP systems are often very complex to implement and use. They usually take much longer to be introduced and integrated with corresponding third-party systems within the IT infrastructure. Staff training requirements add to the burden. A distinctive feature of major ERP vendors such as SAP is the wide range of functions that they offer. The systems can be tailored to meet the individual requirements. But this customizing of ERP systems requires a significant level of staff effort and time and also makes maintenance more difficult.
The following are some of the disadvantages of ERP, particularly in relation to consolidation, planning, reporting, and analysis:
- Overly high level of staff effort and time required for introduction
- Overly high costs for license, support, maintenance, and upgrades
- Overly high difficulty when customizing the system
- Overly high training requirements for users
- Heavy dependence on one vendor or the own IT department for modifications and maintenance
Opportunities from a tool for holistic financial management
FPM software solutions that are tailored to finance departments’ needs and which combine consolidation, planning, reporting, and analysis in a single solution offer crucial advantages – irrespective of their industry and size.
Who is the tool suitable for?
Financial Performance Management, or FPM for short, is attractive for any enterprise that would like a transparent, all-in-one solution for the preparation of consolidated financial statements, financial planning, reporting, and analysis - thereby facilitating a future-oriented and holistic approach to corporate management. In other words, any company can benefit – regardless of size or industry.
What can professional finance software do?
The aim of the software solutions is to support management processes within the enterprise, i.e. planning, consolidation, analysis, and reporting of financial data. The CFO and his or her finance team can use this data to monitor, analyze, and manage their enterprise’s performance, particularly when it comes to the assessment and allocation of resources. It serves as a tool for management to optimize the existing performance and to get the best out of investments that have been made. Goals can be set and plans can be developed and implemented. By continuously reviewing the results, necessary changes can be made.
An FPM solution offers you:
- A holistic view of your financial data
- Flexible implementation of comparisons of planning/actual figures
- Transparent preparation of consolidated financial statements
- Simple and rapid preparation of your financial reporting
- More time for important analysis of your data
These allow you to derive the correct measures and strategies from the data and to take your enterprise safely into the future.
What are the advantages of an FPM solution?
The particular advantage of standardized financial software is that it is an off-the-shelf solution, i.e. there are no long project runtimes that cause high or hidden costs. This provides a major benefit to companies and professionals, without risks, creating a real win-win situation for users. Project success is thus guaranteed.
Finance teams can immediately turn to the productive tasks in their day-to-day business. Our software is not only quickly implemented, but thanks to the intuitive user interface, it is also easy to use even without advanced IT skills. In other words, it’s a pure self-service solution, meaning that time-consuming rounds of processes via IT departments are a thing of the past.
These solutions offer a range of function extensions and special tools for company-specific requirements. For example, LucaNet’s FPM solution offers the following options as part of its wide portfolio:
- Tool for Accounting for Leases for enterprises subject to IFRS 16 requirements
- SmartNotes for disclosure management and ESEF reporting
- Numerous standard apps and individual apps, e.g. for business valuation, cost center allocation, BI and dashboarding, etc.
When using holistic, standardized software, the data connection process also works in a standardized, automated way - at the touch of a button. To enable this, LucaNet provides numerous interfaces to all common ERP and financial accounting systems, such as SAP, DATEV, Dynamics 365 Business Central, Sage, and many more. This means it works with all common source systems and seamlessly integrates with the system landscapes that already exist.
ERP, financial accounting, or FPM – What’s best for you?
Systems for ERP, financial accounting, and FPM should not be viewed as being completely separate from one another. Rather, in many cases they complement each other well. What tool you wish to rely on and exactly what combination will bring greater efficiency will depend on your specific requirements. If only the areas of consolidation, planning, reporting, and analysis are considered, it becomes clear that ERP systems are overly complex and focused too much on operational matters. Financial accounting software solutions, by contrast, offer only rudimentary and inflexible reporting options and consolidation functionality.
Do you need software that brings together
- consolidation, planning, reporting, and analysis in a single solution?
- maximum data transparency?
- maximum security for your financial processes?
- comprehensive overview of your internal and external accounting systems?
- automation of your work to the greatest extent?
Then the answer is undoubtedly: You need professional software for Financial Performance Management. By using it, you will not only have a standardized database, you’ll achieve maximum data quality thanks to automatic data validation. You will also be able to prepare individual and consolidated financial statements quickly and error-free - and generate standard, management, and ad-hoc reports, as well as KPIs - at the touch of a button. And you’ll be able to implement your integrated profit, budget, balance sheet and liquidity planning, scenario planning, and forecasting quickly and easily.
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