Does Your Small Business Need ERP?
Managing IT is a challenge for small business owners whose primary focus should be building a profitable company. But over time, inefficient operational systems can impede growth, and the possibility of upgrading to an all-in-one software solution must be addressed.
For most businesses, this means considering ERP, which can eliminate the inefficiencies of delayed reporting and duplication of work that results when business functions are tracked using separate systems.
ERP solutions are no longer cost-prohibitive for small businesses, but upgrading is not without its drawbacks that entrepreneurs should carefully consider. If you do choose to transition to ERP, you should choose a solution that will meet your needs for the long term as you continue to grow and expand into new markets.
What Is ERP?
ERP, or enterprise resource planning, is a comprehensive software solution that combines all “back office” business functions. Those typically include human resources, accounting, manufacturing and inventory, which all draw reports and tracking tools from the same set of data. Some distinguish ERP from CRM, or customer resource management, which integrates all front office tasks, like client relations and social media.
ERP saves staff time in data entry and report creation and provides in-depth insight into areas of growth or decline. For product-based businesses, it can be particularly valuable, because it shows all aspects of the product life cycle at a glance, acting as an effective tool for planning and new launch implementation.
The full-service technology solution came of age in the mid-1990s, when it was primarily used by large businesses, typically manufacturers. At that time, ERP was expensive and was run on large mainframe computers. As technology has evolved, so have the options for businesses of all sizes to integrate their operations software, since ERP may be subscription-based and need not be installed on-site.
Options for Small Business: ERP or Standalone Products
It is typical for home-based businesses or one-person operations to start with basic accounting software, like QuickBooks, and other commercial products to meet their operational needs. Using separate programs to handle finance, inventory and IT can work effectively for small enterprises, who have a modest number of transactions. Shipping and manufacturing are manageable by one or a few people, who can easily collaborate to share information.
As growth occurs, however, CEOs may find it harder to remain efficient using distinct reporting systems. According to an Inc. magazine report, expert Robert Israch says the transitional point is $5 million in annual revenue, after which it may be time to consider an upgrade to ERP.
What Kind of ERP?
ERP solutions of the past required a complicated installation and migration from legacy systems into the new program. IT staff, either in-house or contracted for the project, took a great number of hours to get the new ERP up and running. The process was expensive, and the new software often presented a significant learning curve for staff.
Recently, however, more providers have offered subscription-based ERP solutions that bypass the costly and inefficient ERP installation. Systems offer security and accessibility through a cloud-based platform for a monthly fee. Instead of installing ERP on a company’s own hardware, it lives on the provider’s server. The integration of cloud and mobile functions in the past few years has made ERP a real possibility for small businesses who need an infrastructure to support their current and future needs.
Should You Upgrade?
Before deciding to transition to an ERP, or when choosing a service provider, it is important to consider not just whether you’ve hit $5 million in revenue but the trajectory of your growth over the next five to 10 years. ERP should adjust to your evolving needs with little difficulty. Analyze whether the product you choose may be customized and robust enough to support periods of high activity, so your systems won’t fail you when you need them most.