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Expert Advice for Medium and Midsize Businesses

  • September 13, 2016

What is ERP, and How Do I Know When I Need It?

Rudy Lukez
Director, ERP Product Marketing, Oracle

What is ERP?

I’ve been working in this field for 25 years, and this is still one of the most common questions I get—especially from small and midsize businesses.

I could give you the Wikipedia definition, but it uses too much business jargon that confuses, rather than explains, this important business tool.

Very simply, ERP does what is says on the tin: “enterprise resource planning.” It’s software that helps you plan and manage resources for your business—whether those resources are financial (invoices and billing), physical (procuring office furniture) or project-related (managing time and hours for project personnel and then billing those services to your clients).

ERP can also do a lot of other things, especially when connected to enterprise performance management (EPM) and other business software—including customer relationship management (CRM), human capital management (HCM) and supply chain management (SCM). ERP helps manage key financial activities such as payables, receivables and expenses. It’s also used to reconcile your chart of accounts with your bank statements. Rather than maintain a culture of standalone databases and an endless inventory of disconnected spreadsheets, ERP software brings order to the chaos so that all users—from the CFO to the accounts payable clerk—are creating, storing, and using the same data source. 

5 Signs You Need ERP Software

Odds are you didn’t start your business using ERP. The vast majority of start-ups use out-of-the-box accounting software to manage their finances—the kind you buy at Staples or download off the vendor’s web site—or, even more troublesome, perhaps they utilize desktop spreadsheets. Both appeal to start-ups because they’re cheap to buy and easy to set up. You install the software on your laptop and you’re good to go. Sometimes you can even sign up through the cloud, which is even more convenient; you can log into your accounting software from any computer or mobile device.

But those accounting software packages are intended for small business—and they only work for companies that stay small.

That’s not you, is it? You have plans to grow, expand, start doing business in new locations, new cities, maybe even new countries. To do any of this, you need a modern ERP.

Consider these five signs that you’ve outgrown your small business accounting software or spreadsheets, and you’re ready for the next step to ERP in the cloud:

  1. Reporting is getting tougher. Rule number one of the growing business: companies need investment. Banks and venture capitalists want to see solid financial reports that they can scrutinize for accuracy. When reports are pulled from multiple data sources and bank statements, are cumbersome to generate, or managed with spreadsheets and exported files, it’s time to move up to ERP.
  2. So much data, too many "answers." Because of the limited functionality of small business accounting software, SMBs are often drowning in spreadsheets. They use spreadsheets to track projects, purchases, billable hours, travel expenses, and any other number of transactions. This makes having a single source of truth nearly impossible and often results in conflicting answers to critical business questions. How long would it take you to pull up a report on how much your consultants spent on travel last year, and then figure out what percentage of that money is billable to your clients? For this, and a thousand other examples, you need systems built on a single data model that underlies all your financial transactions.
  3. You’re too big for your britches. International expansion and growth through acquisition—especially outside your core markets—are next to impossible with small business accounting software. It adds excessive costs to business-building activities and restricts your growth opportunities.
  4. The rule book is getting bigger. Financial and regulatory compliance requirements are increasing—and if you have plans to expand into another country, you’ll have a whole new set of rules to follow. You’ll need a system that not only has multi-language and multi-currency capabilities, but is continuously updated with the latest compliance rules on a regular basis.
  5. “So you want to go public…”  Getting ready for an IPO complicates financial reporting dramatically. A small business accounting package won’t support the complicated financial data collection and controls that are required by law.

An Unprecedented Shift in ERP Delivery Models

With all these benefits, why aren’t more small and midsize businesses using ERP software?

It used to be that ERP was available only to large enterprises, because the cost of rolling out an ERP on premises required extensive hardware purchases, IT staffing, and payments to consulting firms to implement the software. On-premises ERP systems hungrily consumed limited capital in large quantities. Projects important for growth, research and development, and innovation were put at risk, making SMBs vulnerable to competitive pressures and threats. No wonder so many of them have stuck with spreadsheets for so long.

Today, with the cloud, all that has changed for the better.

The cloud delivers ERP capabilities over the internet, with no hardware required. The software is updated by the vendor a few times a year—with minimal IT resources needed on your part. Best of all, the subscription model lets you pay as you go, making it affordable to everyone.

With ERP in the cloud, there is almost no definition of “too small.” I’ve seen ERP cloud solutions at companies with as few as 8 employees. Small and midsize companies not only get to leverage an ERP system for their operations, they get the added benefit of using the same industrial-strength software as their larger competitors. No matter how big you grow, your ERP software will grow with you, so there is also no definition of “too big.”

Embracing ERP: The Suite Always Wins Over Point Solutions

So what should you look for in an ERP solution, aside from a cloud delivery model?

An important characteristic of modern ERP is a unified solution for finance—the applications “suite.” Compared to companies that offer point solutions (e.g. core financials but not planning) or limited collections of business software (e.g. project management but not procurement), a suite encompasses all core business activities. More importantly, every application in the suite pulls its data from the same database, ensuring that the numbers always paint an accurate picture. Just as not all rectangles are squares, not all cloud solutions can be called ERP. To be a cloud ERP solution, it is vital to include applications that work together broadly across the business spectrum. 

Cloud ERP for Business Transformation

For most small and midsize companies, deploying ERP software is a transformational event that carries their operations forward, providing a platform for better business decisions and insight across all enterprise data. ERP connects and defines a plethora of business processes, and provides confidence and integrity across all financial data for audits and statutory reporting.

Finally, ERP in the cloud levels the playing field between the small and midsize players, and their big, enterprise competitors. The only losers are those who don’t show up on the pitch to play.

If you'd like to start researching ERP, a good place to start is with the handbook, "Your Complete Guide to Modern ERP."

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