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Not only are there several general categories of benefits to include when determining the ROIs, but it is also important to identify the benefit's reoccurring frequency and the number of people that are affected by it. In other words, a benefit of $1,000 would not be as significant if it occurs for 1 person 1 time a year, as it would be if it affected 20 people 4 times a year. In the first situation, the company benefit would be $1000 per year and in the second situation it would be $80,000 per year. It is important to understand the new accounting software because it may include functionality you were not expecting which would enable you to include additional benefits for your ROI calculations. Below are some ideas to help you determine your ROI for the new accounting software.
Cloud accounting software delivers the best in class return on investment (ROI) by often paying for itself in less than six months thanks to its ability to automate key processes, drive revenue and dramatically reduce IT costs.
Profit Increase
Profit benefits could include reducing billable expense leakage and inventory spoilage, accelerating collections, taking advantage of purchasing discounts, and improving the purchasing requisition processing to reduced prices. There may be other relevant benefits for your particular situation.
Cost Reduction
Determine the time saved (then convert to dollar amounts) when processing daily accounting transactions, closing the books at month-end and fiscal-end periods, approving purchase requisitions, approving vendor and employee payments, printing 1099 forms, employees entering their travel expenses. There may be other relevant benefits for your particular situation.
Benefits will be gained when non-accounting applications (when appropriate) integrate with your accounting software because you will increase data accuracy and reduce double entry. For example, integrating your CRM (SalesForce) with your accounting software will provide fewer mistakes in both software, less time wasted between the sales team and the finance team obtaining accurate information and producing reports, and you will be able to provide timely and accurate information about the orders to customers.
Other benefits to consider are the ability to use the existing personnel as the company grows without the need to hire new employees or being able to reassign current personnel to other company tasks. It is also important to consider the training costs for new hires or job cross training.
Reporting Visibility
Determine the reporting and data analysis provided by the new accounting software and the time it will save by not producing the reports within Excel. For example, it takes 1 finance person 2 days a week to create the financial and management report with graphics within Excel. That person costs the company $35 per hour and is spending 16 hours a week or 832 hours per year developing the reports. If, when needed, the financial and management reports could be created one time within the new accounting software and processed by the personnel who needed the information, the company could deploy $29,120 per year of the employee's time to other tasks for the company. Verify whether or not, the accounting software user will be able to create his or her own reports without the need of a programmer.
Ask yourself the dollar amount that would be saved if employees of the company, board of directors, or your auditors could log into the new accounting software and access their assigned financial reports and graphs without needing to contact the financial or IT departments. Determine the benefits to company personnel if they could have mobile accessibility to view their financial data and dashboards. There may be other relevant benefits for your particular situation.
Relationship Building
Relationship building will include your vendors, customers, and employees. Inquire into improving the ordering, shipping, and return processing with your vendors and customers. Improving the customer experience with your company encourages them to be a returning customer, which means more revenues. Improving your relationship with your vendors lets you keep working with the desirable vendors and being included on discounts and special offers provided by them. Determine areas where employees can improve their efficiencies by entering their own travel expenses, viewing their department's financials and dashboards, and obtaining on-line help for the new accounting software. Also determine the benefits regarding the sales employees' need to obtain the customer's financial data, and the purchasing employees' need to obtain the vendor's financial data. There may be other relevant benefits for your particular situation.
ROI Formulas
Your company can choose which formula will best represent the way you want to present your ROIs. You may decide to use more than one of the formulas to provide a deeper understanding of the benefits.
Costs vs Benefits:
This formula provides a comparison between the dollar amount for the TCO and the amount calculated for the benefits.
Benefits divided by Costs:
This formula will provide the ratio between the benefits and the cost of the new accounting software.
Benefits less Costs:
This formula provides a dollar amount to be gained or lost by purchasing the new accounting software.