The Theory of Constraints is a business management philosophy that proposes the idea that any manageable system can be limited in achieving more of its goals by a very small number of constraints. By moving beyond the constraints, a business sets itself up for success. Project-driven firms can improve profitability by moving beyond the constraints of their basic accounting system.
One of the constraints of a basic accounting system shows up when a small project-based firm applies to a bank for credit. Generally, banks will need to see GAAP-compliant reports in order to evaluate the firm’s fiscal health. The constraint is that most basic systems, like QuickBooks, are not GAAP compliant and cannot meet that demand.
Another glitch arises when the firm expands to other locations. With a basic system, each location might need to be treated separately and have its own accounting system. The problem here is that when the corporate office wants a view of how they are doing as a whole, it will be labor and time intensive to consolidate reports and verify data. The expenditure of time and resources will be cutting into profitability and potential growth.
Signs You're Outgrowing QuickBooks
If yours is a project-driven business, there will come a time when you realize you’ve outgrown QuickBooks. Here are some signs to look for:
1. Functionality challenges
As your business grows, you’ll find that QuickBooks is just not up to the challenge of tracking and consolidating data in multi-entity companies. Complex revenue-recognition contracts become a challenge, especially for firms that must be GAAP compliant. And QuickBooks files are limited in size. The Enterprise Solutions system has a limit of 1.5 GB. Once you’ve reached your limit, you’ll have to decide whether to upgrade again or delete some of your data. There is a considerable slowing of performance as the file fills up. QuickBooks also limits your users to 30.
2. Data Limitations
QuickBooks is efficient at elementary slicing and dicing of data along common business accounting methods. But if you’d like more sophisticated analysis and reporting, you’ll want to go beyond manipulating your data on separate spreadsheets. A more robust accounting platform will be able to automate data analysis and reporting functions to give you deeper insights.
QuickBooks is not capable of complex real-time project accounting for professional services or consulting firms. And if you have a large number of users working simultaneously, there is a danger of user error and corrupted data.
3. Compliance and quality
As we mentioned above, QuickBooks is not GAAP compliant. When companies employ GAAP, it makes their financial reports consistent and comparable. This helps key stakeholders (investors, creditors, etc.) make informed financial, credit, and investment decisions.
How project-driven firms can improve profitability
The decision to switch accounting systems is not an easy one to make. But growing firms will appreciate that now is a good time to consider making the move. The fact is that there’s never been a better time for project-driven firms to update their systems due to the advantages of Cloud ERP. Companies of all sizes leverage the cloud to affordably expand capabilities, increase automation, create greater efficiency and mobility, and prepare for ever-changing business conditions.
If you’re ready to explore the advantages of moving to cloud-based business applications, may we suggest