5 Signs It's Time for an ERP System

Even with an accounting system available, you probably found your decision-makers were still dumping accounting data into spreadsheets when they wanted to analyze business performance.

You may be wondering whether you should consider implementing an ERP system. What is ERP, exactly? How do you know when it’s time to start shopping? And which ERP software would be the best fit for your needs?

A simple, clear ERP definition

First things first: ERP stands for Enterprise Resource Planning. To put it simply, ERP is software that enables you to run your financials, project accounting, customer relationships, reporting, inventory, often payroll and business intelligence on one platform.

You won’t find an accounting application that can do everything ERP does. ERP is built to cater to the needs of a business that’s too large to live on a few hard drives or in a series of spreadsheets. Companies that are growing rapidly and plan to keep it that way inevitably turn to ERP.

Now, shouldn’t you keep your company on a basic accounting platform for as long as possible to save money? This may seem like a wise approach in theory. No CFO wants to buy more software than they need.

But that's not the way it works out in reality. If your software is less sophisticated than your business, it can actually hold you back from taking advantage of the opportunities that can help you grow. It can make you blind to the biggest weaknesses in your company, leaving you powerless to fix them before your competitors exploit them.

Aim to keep your business software a couple steps ahead of your business. Implementing an ERP system is a great way to do that.

5 signs you should implement an ERP system

You don’t need to implement ERP software on the day you launch your business. But you don’t want to wait too long, either. Here are five signs that it’s time to consider an enterprise resource planning system:

1. You can no longer assess your inventory by glancing around a storeroom for two minutes

Inventory is one of those business areas that can quickly get out of hand. When you lose track of what you have, you’re likely to buy too much and end up throwing out waste. You’ll also be prone to stockouts and the customer complaints that inevitably follow.

ERP software lets you track your entire inventory from a single screen. You can typically drill down to see the individual materials or products you have in stock. With better inventory control, you’ll be able to make more strategic purchases that help you optimize your bottom line.

2. The thought of a financial audit gives you headaches

One advantage to being a very small business is that when it’s time for an audit, you can simply pull a few file folders to provide the paper trail you need. But as your business grows, it gets more difficult to track down the information auditors are demanding.

An ERP system will provide audit trails that help you prove the soundness of your financial transactions. This isn’t to say you’ll start looking forward to audits, but at least you’ll be able to gather the relevant documentation in minutes—not days.

3. It’s getting harder to treat your top customers like top customers

Every customer is important to your business. But some contribute much more than others to your bottom line. Another downside to growing is that it gets harder and harder to treat your best customers well.

Customer relationship management (CRM) software enables you to form a 360-degree view of each customer. With CRM, you can store complete information on each customer in one place and let all your customer-facing staff access it with a few clicks. This way, your entire team will be able to give each of your customers the attention they deserve every time they call. A good ERP system will provide CRM capabilities as part of the platform.

4. You can’t identify your most profitable projects

When you’re first starting out in a project-based business, you’re happy just to have clients – and you’ll do whatever it takes to satisfy them. But once you’ve reached a certain revenue threshold, you start taking a closer look at which are your most profitable engagements and thinking of ways to land more of these types of clients.

ERP software helps by giving you the project accounting features you need to get a bottom line for each project—not just for your overall business.

5. Your executives and investors are asking questions you can’t answer

Here’s yet another area where business growth actually makes life more difficult: reporting. In a small company, one or two executives are often close enough to all areas of the business to make sure things are headed in the right direction. But as you add headcount, expand your product line, begin working with new vendors and perhaps even open new locations, it gets harder and harder to assess the overall health of your business.

A good ERP system will come with built-in business intelligence capabilities that can give you snapshots of your business’ vital signs any time you log in. From there, you can customize your reports and drill down to see the root of any issue before it develops into a full-blown problem.

There are probably other signs that your business is ready to move to ERP, but these will get you started. If you’re concerned that your spreadsheets and basic accounting software may be holding you back, start shopping for an ERP system today.