Think of any global brand and they are almost certainly running their operations on an ERP system or integrated business platform. Small brands with aspirations to grow into mid-size organizations know that if they are serious about scale, they will eventually need a business software platform powerful enough to run its operations. It is the only way to minimize complexity and drive efficiency when you have many employees, products or locations.
If an ERP system is a precondition to scalable growth, then the most important question is when a small business should make the jump from accounting software. There are several factors that indicate the time is right to start your evaluation process.
What are the triggers a small business should look for?
No one wants to spend money on new systems unless they have to. This means putting up with “good enough” so you can get on with running the business. However, there comes a point where your business will perform better and generate more profit by running on a more powerful platform.
There are some clear triggers for reviewing the benefits of upgrading from small business accounting software to a single, integrated business platform.
One of the most important indications that a small-to medium enterprise (SME) has outgrown its small business accounting software is the need to operate more than one trading entity. Fast-growing businesses frequently set up multiple entities to service different geographic regions or business lines, such as shop fronts or different divisions of a company. These growing multi-entity businesses frequently run into issues when using basic accounting software because it’s designed for a (single entity) small business.
Multi-entity businesses using basic accounting software can opt to integrate third-party applications for consolidation. However, this just adds another step in an already convoluted process and is no more than a short-term solution. Growing businesses demand real-time data based on accurate and timely reporting. Subsequently, multi-entity businesses that continue to rely on accounting software will find themselves trapped in a complex web of applications and workarounds that yield unreliable numbers slowly.
Moreover, consolidating financial statements from multiple entities makes reporting slow and labor intensive. For example, with basic accounting software, the finance person or accountant must export each entity’s general ledger individually because the data is stored separately. It then takes more time to locate missing information and then manually enter spreadsheet calculations into the accounting system. Next, they must create a master company ledger by importing all the general ledgers and crunching the numbers for P&L and other reports. These processes are cumbersome, time-consuming and delays decision making.
For multinational businesses, there are more challenges including differing accounting standards and tax regulations, various exchange rates to convert into the base currency for reporting, and revenue timing and expense schedules that need to be aligned for corporate reporting.
In contrast, an ERP system with multi-book accounting functionality, allows finance teams to create multiple sets of books with different rules to account for different financial, taxation and managerial requirements. Currency conversions can be automated for reporting in each subsidiary, country, or region during the close process. What’s more, this happens in real time, so the general ledger can be viewed across multiple currencies instantly, resulting in easier and more precise reporting, easing the strain on finance teams and ensuring business leaders have the numbers required to make key decisions.
As a business grows, so does the amount of data that it generates. What a company does with that data is critical to future success. With actionable analysis, leaders can gain meaningful operational and financial insights into business performance across multiple departments and teams, and be confident that decisions are backed by accurate and timely information.
Basic accounting software data winds up spread across departments, subsidiaries and regions in disparate applications and spreadsheets. Therefore, detailed reporting requires consolidating spreadsheets and/or viewing data across multiple platforms. This leaves businesses running blind for significant periods of each month.
Comprehensive ERP software creates a central hub for data across a business, including finance, manufacturing, operations, sales, and marketing. Pre-built dashboards and key performance indicators (KPIs) provide real-time business overview, as well as the ability to drill down into reports, offering full visibility. Without these business intelligence (BI) tools, it’s near impossible to gain holistic insights for company-wide analysis. Scenario planning, forecasting, and improving business processes becomes guesswork. By switching to an ERP system, it’s easier to spot inefficiencies and improve decision-making with up-to-date information, leading to a more productive and ultimately more successful operation.
Increasingly, businesses sell through several locations or channels (in store, online, wholesale, retail, etc.). However, basic accounting software doesn’t recognize multiple inventory locations. So if a business holds stock (or plans to) in more than one location, it will only see a total stock figure, making it impossible to get a real-time view of inventory across all locations and sales channels. This means businesses must keep more stock on hand to avoid stockouts. For example, if you have a high volume of sales through automated online channels, then customers may be able to order products that have already sold out. On the other hand, the business may discover stocks that then need to be sold at clearance.
The alternative is to add new tools or applications, but these are unlikely to integrate seamlessly across the business and will simply add to an ever-growing patchwork of systems that ultimately stifle growth. Moreover, without a single, real-time view of inventory items, fulfilling orders quickly and accurately becomes harder as the company grows.
With an ERP system that includes robust inventory management functionality, businesses can view inventory across multiple locations, regions, and countries. They can determine reorder points and manage safety stock and cycle counts across multiple locations. Without this, accurate planning and forecasting becomes increasingly hard, and can lead to poor customer satisfaction during busy periods (like the holiday season) if demand exceeds what’s predicted.
ERP systems can help businesses reduce inventory costs while providing a better and more transparent customer experience. Furthermore, it supports businesses pursuing an omnichannel strategy, by ensuring they can organize and oversee data from every channel.
Successful businesses are built on having the right products available at the right time and the right location. Growing businesses that lack full visibility into their supply chains are at risk of running out of products unexpectedly, causing financial and reputational damage. To overcome this challenge, some choose to integrate new systems or simply rely on spreadsheets to keep track, but these solutions are prone to error and rarely offer a holistic, real-time view. Furthermore, modern supply chains are often global and complex, with international regulatory requirements or government tariffs that must be accounted for. If this isn’t automated, it means more manual processes, and less visibility into operations, all of which can lead to dissatisfied customers.
This problem is magnified if a business outsources orders to a third-party logistics (3PL) partner. A 3PL partner can be assigned to fulfill all, or some of the orders, ensuring the business meets customer expectations and maximizes sales. To achieve this, businesses need to have visibility into items, inventory, orders, vendors and customers and the ability to connect them all together to create a unified view. This is impossible with an accounting software, as it’s unable to act as the central hub for all the required data.
With an ERP system, a business will have the capability to understand each link in the supply chain, and by maintaining constant visibility, it can establish better backup plans, develop stronger lines of communication and quickly adapt to new challenges or changing market conditions.
A business may suffer from some or all of the problems above, but that doesn’t mean that it is time to talk to ERP vendors. Timing, or perhaps maturity, is another critical factor.
A successful business is a very busy place. Constantly short-staffed, where big sales wins are followed by anxiety over delivery. The challenge for management is to focus on improving the way the company operates.
If the management team is discussing the following topics, then it’s a good sign that the business is mature enough to benefit from an ERP system.
Accurate resource allocation. A growing business will need to update how it sells and delivers as it adds more staff, more locations and more products and services. If management is focused on ensuring on-time delivery and high customer satisfaction, then coordinating resources becomes critically important.
Improving processes. Rock-solid processes, constantly tested and perfected, are the secret to quality control and rapid delivery. Is management looking for opportunities to improve processes and increase the speed of operations? The management team will need to step back from the daily hustle and look for ways to improve operational performance. Replacing a patchwork of systems with an ERP system with a robust set of features can eliminate a lot of unnecessary processes and improve delivery.
Opportunities for investment. A strategic review of the business may turn up areas that require investment. This could be equipment, leased premises, or even an acquisition. The management team needs to review the options and decide their appetite for growth. Any investment is likely to increase the volume of orders and therefore production.
Moving to a business platform that is ready to scale makes a lot of sense before taking this step. It also positions the company to make further investments.
Scenario planning. A single database brings a lot of efficiency to operations — from sales to delivery to accounting. It also creates a powerful platform to compare and evaluate various parts of a business such as geography, product category or sales channel. An ERP platform can provide a set of benchmarks to measure against future improvement and ROI on investments.
What do I need to know about my business to pick an ERP system?
Here are some tips on how to gather and prioritize ERP requirements to help you make a better choice and dramatically reduce the chances of a failed project.
How do I choose an ERP platform?
What are some basic steps that will increase the likelihood of ERP success?
It pays to put in a lot of effort when selecting an ERP platform. It will be the nervous system of your entire business. It will most likely require retraining a large number of staff and will remain in place for a decade or more.
It is essential that senior staff are committed to the project. They can help employees across all areas of the business maintain motivation to change the way they work. Moving through the selection process with patience, an open mind and a thorough implementation checklist will also increase the chance of success.