Sunday, March 04, 2012

Capacity Focus, 36: Open source accounting and Enterprise Resource Planning (ERP) as potential jump starters for better financial, cost and resource management in small businesses

The motivation for this post is a live case of having to deal with a small business looking at accounting system, inventory management and point of sale technology. The balance of cost, fiddly-ness of accessible software, and general difficulty to get and keep something workable, reliable and affordable going is just plain daunting.
[Before going further, let me give my basic perspective on proprietary vs open source software: it is no secret that this blog is no friend of the various digital empires, with their lock-in of proprietary systems, software and often prohibitively costly user licence agreements -- and yes, you do not actually buy the software, just the licence to use it. (Let's give an instance: I can say that I use the Libre Office fork of Open Office as my principal office suite, and find it more than good enough. I can see no good reason why a partnership of universities, governments, aid agencies and the open source software movement cannot create a critical mass to find a different way, based on open source core technologies and value-added plug-in modules and support services. Digital Productivity, not just digital literacy and consumption of systems from the digital empires.]
Back on the story. 

It seems that a more or less standard small business kit is Quick Books accounting, plus Retail Edge for Point of Sale and inventory management. Just for software, that is US$ 200 -300, plus $450, for a one station, one cash register load-out. Add in another US$ 1,000 - 1,500 for a typical POS setup with a hand held scanner. 

Count on general fiddly-ness, so you will need training and tech support on top. 

So, rule of thumb: go with the flow -- work with what is dominant, as there will likely be support from someone who has met and solved the problem. And grit your teeth and pay.

We have not gone to e Commerce integration, etc etc yet. Not to mention the needs of a manufacturing enterprise.

By contrast, an electronic cash register is US$ 100 - 200 at first tier.

No wonder we see a lot of small businesses with electronic cash registers, but with the back-office systems back in the dead tree age, though maybe an accounting package may be in use. Not least, that helps come tax time, and helps with accounts receivable -- esp. credit sales -- management.

Bottomline: this is a barrier to putting in an integrated accounting and enterprise resource management system. Which hampers effective management, and of course also locks out many eCommerce opportunities.

Could there be a better way?

I think so:

1 --> First, a fact: open source (and related) software is viable. Linux and Apache server software run much of the Internet. Open Office is solid. So is Java. Firefox, Opera, Chrome etc are strong browsers. Android is a serious contender for smart phones and Tablet PCs. And so forth. So, we can put suspicions of "amateur night" software to one side.

2 --> The first tier for business is obviously  GnuCash, a basic double entry small-business accounting package that comes with Linux Distros as a part of the free for download package deal, right next to Open Office. It has been ported over to windows (and the Mac OS X) for years. Key features:
  • Double-Entry Accounting
  • Stock/Bond/Mutual Fund Accounts
  • Small-Business Accounting
  • Multiple currencies
  • Payroll (using accounts receivable and payable)
  • Budgeting
  • Reports, Graphs
  • Financial Calculations
  • "Customer and Vendor tracking, Jobs, Invoicing and Bill Payment, and Tax and Billing Terms"
  • QIF/OFX/HBCI Import [i.e. can take in Quicken Files], Transaction Matching
  • Scheduled Transactions
  • Use of Open Financial Exchange [OFX] supports a format that "many banks and financial services are starting to use" 
  • XML information formatting
  • From 2.4, capacity to store financial information in a SQL database "using SQLite3, MySQL or PostgreSQL"
3 --> GnuCash has a built in training manual, and can be seen as educationally oriented, because of how it works as in effect a cluster of structured spreadsheets. So, students can be led to understand the way accounting systems work. (The commercial packages typically make it hard to see the innards of what is going on.) As the GnuCash site observes:
along [with] the application Manual, new users can take full advantage of the Tutorial and Concepts guide. This document gives background information on accounting principles and how they are reflected in GnuCash with many practical examples described step by step. [Cf book on GnuCash here. Also, cf. Bean Counter's basics course here. A GnuCash based introduction to accounting and book-keeping for small businesses is very viable.]
4 --> The challenges are fairly obvious: e.g. it is not yet integrated with a Point Of Sale and inventory management system. However, the use of XML and SQL databases point in that direction.

5 --> Those look like some useful target points for academic and/or aid agency research and development. A collaboration between Computing and Business Schools, with an injection from philanthropic or aid agency funding, could change this.

6 --> With that in place, we could have a viable package deal to enable small businesses. It would be especially useful if say through an XML interface, we could integrate GnuCash with an open source enterprise resource planning [ERP] system.

7 --> Indeed, that looks like a viable way to do an eCommerce bridge.

8 --> The mention of ERP points to the next level. ERP systems, as the just linked summarises:
Enterprise resource planning (ERP) systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application. Their purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.[1]

ERP systems can run on a variety of computer hardware and network configurations, typically employing a database as a repository for information.[2]
9 --> Such systems are commercially available, and are of course quite expensive. But, there are open source systems. Three interesting possibilities are: Apache Foundation's OFBiz, ADEmpiere, and Open ERP. There are others, but these are a good first look cluster.

10 --> All of these have integrated inventory management, accounting and point of sale systems, and much else. 

11 --> Given the weight of the Apache Foundation, it is useful to clip their list of features:

  • advanced e-commerce
  • catalog management
  • promotion & pricing management
  • order management (sales & purchase)
  • customer management (part of general party management)
  • warehouse management
  • fulfillment (auto stock moves, batched pick, pack & ship)
  • accounting (invoice, payment & billing accounts, fixed assets)
  • manufacturing management
  • general work effort management (events, tasks, projects, requests, etc)
  • content management (for product content, web sites, general content, blogging, forums, etc)
  • a maturing Point Of Sales (POS) module using a rich client interface
  • and much more all in an open source package!

12 --> OFBiz is also deliberately made as a modular system, designed to integrate with other modules; indeed it is offered to developers as a way to do tailor-made systems without having to start from scratch. That suggests, why not incorporate a gateway from GnuCash, leading to a migration path as a business grows?

So, it looks like there are now some pretty viable open source options, and there is promise of development. END