How ERP Prepares SMBs for Long-Term Growth
An enterprise resource planning (ERP) system is important for gathering key data from around the company. Large companies cannot run without a good ERP system. Small and midsize businesses (SMBs) might be able to get by with simple accounting packages and dozens of spreadsheets—obviously not as efficient as an ERP system and prone to errors.
Some SMBs might try to make the same systems continue to work as they grow just to avoid the pain of change. The bigger the SMB grows, the more difficult it is to maintain the slapdash system that worked when the business was smaller. Without a good ERP system in which to store data and provide a resource for monitoring operations, SMBs will only grow so far before disasters strike.
More than Numbers
Most SMBs have to encounter a lot of pain before they decide to buy a new business application.Buying large business software takes time away from people’s real jobs. It’s a political minefield, too. Comparing different applications during the evaluation is mind numbing and usually confusing. Best to keep going with what the company already has until the operational confusion becomes unbearable, right?
Definitely not. By installing an ERP system to replace small business accounting packages, the SMB avoids problems and paves the pathway for growth. The big-picture problem with relying on small business accounting packages and distributed spreadsheets for financial management is that the SMB is missing out on opportunities to increase productivity. A single ERP system reduces complexity and provides a single data store that holds all key financial data.
Senior management needs summarized views of such data to guide the company. Growing the business efficiently is possible only with good reporting. This reporting comes from many places, but the core is the financial ERP database.
Using an ERP system for simple transactional accounting and period reports is the bare minimum use case. The data inside an ERP system is too important to be locked away. Using this data to manage operations is critical to growth.
SMB management gets used to seeing reporting based on periods only. That’s how the accounting systems typically report summary information. Good period summaries are critical to getting the big picture of where the company is and where it’s going in the immediate future. It usually satisfies reporting requirements for taxes and regulations adequately, as well.
Between the ends of periods, the accounting system is useful for seeing details. Items such as open invoices and accounts payable are easily accessible. Such details make day-to-day operations work, but they don’t help paint the big picture.
An ERP system puts the ongoing summary information at executives’ fingertips. Dashboards and high-level metrics are refreshed daily, so executives have current status whenever they want it. Rather than guessing at the status of the business or waiting for the end of the month, key decision-making information is supplied as needed. This near-instant access requires a single ERP system; otherwise, constantly getting the information from distributed spreadsheets destroys productivity and morale.
More Locations, Products, People
When the business grows, there will be more operational processes and more people involved in them. Gathering data becomes more cumbersome and time consuming. Fairly quickly, SMBs find that they are spending unsustainable hours producing financial reports—hours that take away from making real money for the company.
Certainly, short-term workarounds are useful, but long-term problems await. Installing an ERP system is the most efficient way to increase the amount of data processed without creating even more work.
Accounting systems are great at keeping track of money coming in and going out but not much more than that. Where these systems stop are typically where people start to use spreadsheets to compensate for financial management and operational business processes.
Many of the spreadsheets require data from other databases, including the production management system. Combining financial data with customer and product data provides much more depth and context, and that’s important in ongoing financial reporting. Without it, the numbers alone require much more interpretation.
The true cost for business operations is difficult enough to ascertain when all the data is present. Having key bits of information scattered among applications means that the databases need to be joined to produce meaningful reporting. A single ERP database can do that; scattered spreadsheets cannot.
Despite the problems in implementing an ERP system, the result is fewer problems and a stable platform to grow from. Finance and accounting people can be redeployed to be more helpful, interacting with other departments in the company. People in other departments receive fewer calls requesting information; they can do their real jobs.
The IT department will have fewer hassles, as well. The single database for an ERP system will be much easier to operate, communicate and maintain than the many distributed spreadsheets on top of the overstretched accounting system.
Seems like a big win for everyone.
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