At what point will I need an ERP?

There are no set parameters which define the timing for investment in ERP solutions, every business will have different processes and requirements. Some of the most common drivers include: the need to streamline the accounting systems to protect the assets of the business, to allow room for growth and the need to address the risks associated with cybercrime.

Streamline systems and apps

In many businesses, the monthly financials are produced three to ten days after the month.  If for example the business is using other apps/software for sales or stock, the business will have month end processes including the need to import transactions and balances from external system, and also month end stock valuations. Financial reports are then produced, giving the management team visibility on revenue, margin and profitability. The problem arises when these systems and apps produce anomalies, and these anomalies can take significant time and effort to resolve.  Operating a business with this timeline of financial performance works for some, however, when there is a lag in month end processes it can substantially limit proactiveness of the management team. When running a fast growth business, the management team need to be much more proactive, and this is where an ERP can play its part. An ERP can produce real-time management information on a granular level as it controls all operational and financial processes in the business, with all operational and financial, reports being available from one set of data on a single platform. Having this information readily available allows for the management team to proactively make decisions throughout the month to improve financial performance, rather than wait until it is too late.

Protect the assets of the business

In addition to the above, the fragmentation of systems means that the business does not have a single reliable audit trail for stock, or potentially other assets of the business (depending upon the trade).  If stock balances are inaccurate, a standalone financial system will be no help in understanding the issue and missing balances may lead to uncertainty over what stock is owned and what is not.  If that is the case, can we really say that the financial systems are protecting the assets of the business?

Room for growth

The natural avenue many fast-growing businesses take to achieve their growth strategy is by expanding through acquisition, usually resulting in the formation of a group of companies. With this comes additional complexities around the accounting environment, and without the use of an ERP, each company’s accounting system will operate in isolation. At month end, the reporting element of the finance team might be burdened with considerable extra effort as the team will have to prepare consolidated accounts by pulling financial data from multiple sources. Not only is this clunky and prone to error, but it results in the leadership team only receiving a snapshot of group performance once a month.  ERP can solve these issues as it has one platform that facilitates simple consolidation. This not only makes the reporting element of the business more efficient and accurate, but it gives management visibility on performance throughout the month, rather than only once at month end.

If growth is organic rather than by acquisition, ERP can also be the solution.  Whether it be due to the volume of transactions, the need for sales reporting, or integrated timesheet & billing, etc, the company may need to take the next stage in the growth journey and move on from an SME type accounting system to something more robust and appropriate for mid-market businesses.

Address cybercrime risk

Cybercrime is increasingly a high-risk area for business as the implications of a cyber-attack can be devastating leaving the business crippled for weeks resulting in both huge financial loss and reputational damage. When using multiple systems as part of the back-end business operation, it is difficult to implement a strong IT control environment to mitigate cybercrime as each system will have different functionalities and access controls leading to inconsistent security procedures and difficulties with implementing solutions across different systems. As an ERP controls the whole back-end environment from the financials through operations and HR, there is an opportunity to create a control environment which is consistent across all key areas of the business, warding off any potential cyber-attacks. Having a monitored and centralised security environment within an ERP can thereby substantially reduce the risk to a business.  

Other drivers include

• To better serve customers (through one high quality integrated platform).
• To better track data across systems.
• To make employee jobs easier.
• To improve automation and workflows.
• To reduce working capital.
• To standardise global business operations.

In conclusion

Simple cloud accounting environments can be made powerful when the right apps are integrated with an accounting platform, and implemented correctly, however, there comes a point where the simple platform becomes untenable due to some of the issues this article explores. For businesses that have growth as a key part of their strategy, the implementation of an ERP should be front and centre with the benefits being visibility and quality of management information, more efficient finance teams, protection of the assets of the business, and enhanced cyber security.

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