Identifying 6 Hidden Legacy Finance System Risks

1. Total cost of ownership is misaligned with business scale

Organisations often aren’t aware that their legacy system’s operating costs no longer align with their business objectives. As an organisation grows, and its legacy system cannot flex and scale with it, customer support and upgrade contracts become misaligned.

Add to this the excessive and complex vendor maintenance, system support, security, upgrade, and third-party hosting contracts, and organisations may eventually pay for a system that hinders, rather than encourages growth.

If finance leaders aren’t aware of another option — for example, modern financial management subscription models — then the business may grow, continuing to use the outdated finance system that no longer supports operational objectives.

2. Technical debt delays modernisation

Legacy finance software creates technical debt for its users, primarily because, as legacy system providers switch off upgrades, the system becomes fragile and prone to breakages. Finance teams find more manual workarounds, embed these into daily tasks, and system migration becomes daunting.

Each time finance completes a process using a manual workaround, technical debt increases because the inefficiencies of the legacy system are embedded further into BAU. Although agile leadership psychology suggests that leaders can keep on top of technical debt through constant firefighting, this isn’t possible long-term. [1]

Consequently, technical debt becomes unmanageable as upgrades and support for the legacy finance system are switched off, and the debt is impossible to repay.

3. Demotivation leads to uninspiring financial data

According to The Association of International Accountants, 94% of surveyed young professional accountants feel undervalued and stressed at work in some way, with many citing task repetition as a major motivation blocker. [3]

Not only does this paint the backdrop of an emerging talent group that feels overqualified for their roles, but it also highlights the dangers of relying on outdated financial management systems.

Without modern automation to eliminate the monotony of daily business-as-usual (BAU) tasks, organisations may find it difficult to retain new talent, particularly as younger professionals want to use cutting-edge technology, such as robotics processing automation (RPA) and artificial intelligence (AI), in finance.

Without the empowerment of a cloud-based platform, finance teams will become demotivated, inhibiting creativity and limiting their ability to drill down and find meaningful data that improves decision-making.

4. Siloed knowledge jeopardises team efficiency

Knowledge loss is another hidden risk of using legacy finance software because, too often, the risk only becomes apparent after it’s too late.

For example, a finance team member may create a complex and workable spreadsheet for manual financial reconciliation. But if that member of staff leaves the business, the formulas in the sheet break, and no one can fix it, then it’s likely that the financial information is inaccessible.

Similarly, if a team member who knows extensive manual workarounds or legacy system shortcuts leaves the company, the information is lost. In this way, the knowledge becomes siloed, and remaining team members must find other workarounds to complete financial reporting or other essential financial processes.

5. Outdated cybersecurity increases exposure risk

Legacy systems are often seen as safer because they are installed on-premise, in a server room within an organisation’s office space. However, this myth actually increases an organisation’s risk of cyberbreaches.

Because cyber threats get stronger over time, and outdated technology is harder to monitor, patch, and defend, legacy finance systems can gradually and quietly fall behind modern security standards. [3] Subsequently, organisations are more exposed to security threats without obvious warning signs.

6. Reduced decision-making confidence and agility

For all organisations, but particularly medium-sized businesses, accessing a single source of truth is essential to agile growth. Unfortunately, legacy systems often lack seamless integrations and automated data consolidation, restricting real-time insights.

This, in turn, erodes confidence in senior management because leaders use unconsolidated data to inform decisions, instead of leveraging real-time insights from cohesive business systems. Legacy finance software that fails to connect to a customer relationship management or inventory management tool, for example, again forces finance functions to create manual workarounds to access customer or inventory data, data that may include inaccuracies and influence decision-making.

How can finance transformation mitigate these risks?

Legacy system reliance is a common and embedded occurrence in many businesses, and migrating away from these familiar processes may seem daunting. However, leveraging modern cloud-based accounting technology is key to transforming finance from an administrative to a value-adding department.

Finance leaders who empower their teams with integrated, automated, and cloud-first finance systems can see firsthand how modern technology increases productivity and engagement, staff well-being, and value-adding analysis.

Software features that mitigate hidden legacy finance risks:

• A single monthly SaaS contract that includes customer support, software upgrades, data security, and maintenance
• Automated workflows that promote robust processes, financial oversight, and modern ways of working
• An intuitive, user-friendly interface that empowers users to drill down into data in multiple dimensions to understand business performance
• A provider that offers thorough software training and expert customer support to enable user confidence and complete system adoption
• In-built standards that comply with industry regulations, such as ISO 27001, ISAE 3000, ISAE 3402, and Cyber-Essentials certifications for proper data management and security
• Self-serve access to real-time data insights into the general ledger and balance sheet for better cash flow management

Book your free demo to learn more about how migrating to a modern cloud finance system, like Xledger, can help streamline financial processes and reduce risk.