Your small business is growing nicely.
To support your growth, you’re considering simply upgrading the accounting system with which you’re managing your business, e.g., QuickBooks, Xero, or Sage 50cloud.
You’ve heard, of course, of the business benefits of Enterprise Resource Planning (ERP) systems. You understand that ERP systems deliver a lot of powerful functionality — which you would love — but they seem a bit pricey and involve a months-long implementation process.
So you’re leaning toward keeping things “simple” by minimizing your implementation time, reducing the need to train your team, and paying less upfront.
Before you take that step, consider for a moment a critical insight about growth: The tools and thinking that got your business from point A to point C won’t necessarily get you from point C to point M.
To learn more about the fundamentals of an ERP system, click on “What is an ERP? Your Most Common Questions are Answered Here”
Think of driving a horse-and-buggy. Adding horses will incrementally improve your speed, but the horse-and-buggy system has inherent limitations to how fast and how far it can take you. To make a significant change in your velocity and destination, you have to forget about horses and start thinking about a motorized vehicle. In our analogy, an ERP system is a motorized vehicle, whereas your accounting system is an adding-on of horses.
Remember, as your business grows and adds processes, materials, locations, and people, the volume and complexity of the data your business generates will escalate. Add-ons to your existing accounting software, like extra horses to your buggy, will only take you so far.
In fact, your business may already be exhibiting signs that your accounting system is not well-equipped to support your growth. Here are only a few.
How do you go about choosing an ERP system?
Learn more at “What ERP Assessment Approach Should Your Food and Beverage Business Use?”
You need to make some decisions, but you can’t analyze operational data in a timely way because not all of it is in your accounting system. It may lie in numerous spreadsheets or other software distributed in different silos of your business. These data sources don’t communicate with each other.
In fact, when you finally get the reports you need, they don’t provide a real-time snapshot of your operations. Instead, they reflect the status of your business as of the last accounting cut-off. As a result, you’ll be basing your decisions on a historical record, not a current one. Given the pace of change in your industry, will this type of decision-making support your competitive advantage?
Accurate forecasts of cash flow and accounts receivable and payable are essential to your planning and decision-making. If you’re managing business units in different territories and they’re using different currencies, you’ll find that this type of planning and forecasting is beyond the capabilities of most accounting software.
As you grow, you may be hiring people to simply input data — often the same data more than once. These multiple entries multiply the chances of clerical error and data contamination. Meanwhile, your additional hires are not adding value to your bottom line.
When you take sluggish reporting, limited data analysis, and erroneous data entry into account; — to name only a few issues — you can see how your accounting software is actually shackling your growth.
Contrary to your accounting system, the right ERP system’s support will support your growth.
An ERP is an all-in-one software solution that brings together all the data from the various functions of your business — from accounting, production, and provisioning, to sales, human resources, and many others — and centralizes the data.
This centralization gives you, and any authorized person, full visibility into all of the business processes and information systems of your company so you can manage them in real time. Thus, every authorized person in your business has exactly the same real-time view about the status of the business.
This enhanced visibility enables your business to benefit in many different ways. Here are just a few advantages.
Imagine that a major grocery chain is considering placing an order for your food product X. With full visibility into your inventory, sales, and production, you know in real time what components you have on hand, what your customers have already committed to, and what is in production. (Accounting systems, typically, do not offer this full visibility.)
Empowered by the right ERP system, you can forecast what materials and staff will be required to respond to such an order. (Generally, accounting systems do not offer this forecasting capacity, or if they do, it functions in a strictly limited way.) As a result, you can make a much better informed, less risky decision when faced with such an order.
What’s more, if you do accept the order, the production planning module of your ERP enables you to minimize the extra costs that come from inadequate forecasting, e.g., rush deliveries of materials, overtime labour costs, or idling workers.
Inventory control can be a nightmare for a growing business. You may have products in your warehouses, plants, physical stores, or e-commerce sites. With your ERP system in place, you can track all of it in real time. What’s more, every authorized person on your team, from your warehouse staff to salespeople on the road, will have access to the same inventory information in real time.
As a result, your ERP inventory management system enables you to:
Furthermore, your ERP’s inventory management module allows you to trace the history of any SKU in your organization. Let’s say you’re in the food and beverage sector. Should you need to provide audit support to comply with the highest quality standards of your industry, ERP functionality allows you to manage traceability issues, batches and recalls with a few mouse clicks.
Learn more about the “5 Ways ERP Inventory Management Levels Up Your Business.”
Due to the way the data is structured in an ERP system, you’re able to drill down into the numbers to see the component figures. Let’s say you want to analyze the gross margins of your daily production runs. You can do so by monitoring variances and then drilling down into each of these numbers. Through this insight into what is hurting profitability, you can proactively rectify emerging issues.
Today’s modern cloud-based ERP systems offer modular systems that enable your business to start benefiting from an ERP early in your growth. For example, your business could start with only a few modules of functionality in place, such as accounting and inventory management. Later, as revenues grow, you can add other modules that expand your capabilities.
Furthermore, cloud-based ERP systems open a door to affordable entry into ERP usage. As a result, the basic cost of using ERP software is not much higher than accounting software.
The key difference is that the ROI on the ERP system will be much greater than with the accounting software. The ERP enables you to optimize your business processes now, and rapidly transform your small business into a more productive and agile organization that:
Can your accounting system say as much?