By Kevin Shuler
Small business owners face continuous challenges as they try to scale their business with underperforming systems. To fill the gaps, most companies use spreadsheets. But, these create problems of their own.
A better solution is to expand your systems with an ERP designed for a small, growing business. This guide will give you all the information you need to know about ERPs and how to choose the best one for your business.
What Is an ERP?
Enterprise resource planning (ERP) is a system that helps you manage all your organization’s resources. The first systems date back to the 1970s. Those systems helped maintain product inventory and schedule production.
Modern ERP handle an ever-growing list of tasks:
- Financial management: Analyzes transactions, assets, and liabilities.
- HR management: Keeps track and manages your employees’ career progression, payroll, vacations, and promotions.
- Customer Relations Management (CRM): Contains all the information about your clients and prospects.
- Marketing automation: Creates, adjusts, and operates your click-funnels.
- Procurement management: Manages vendor contracts, purchase orders generation and approval, payment transactions in one place.
- Supply Chain Management: Provides visibility of materials stocks, finished goods movements, pending requests, orders history, etc.
ERPs are impressive. But to most small business owners, they seem more suited for fortune 500 companies than a 15-person-strong small business.
Don’t jump to conclusions too fast.
There’s a whole market of ERP for small businesses. These (surprisingly affordable) systems allow you to select the modules you need.
Does Your Small Business Need an ERP?
Whether or not you need to make the switch to an ERP for your small, growing business depends on your current needs. Here’s a list of potential problems small businesses face. If you’re at the point where your organization faces these issues, you should consider switching to an ERP.
Inaccessible Critical Data
Do you regularly struggle to find reports? Perhaps you want to check the agreement details with a vendor, but you have no time to read the contract. Or, you want to see the cost dynamics of per unit KPI, but your analyst is busy with a different task.
An ERP makes it easier to gain access to the data you need when you need it.
Negative Cash Flow
Have you ever run out of spare cash to run payroll despite tracking orders and expenses? That might happen because you did not consider the post-payment conditions with one of your clients. As a result, you’re forced to get a rushed loan for payroll.
With an ERP, you can track cash flow easier. That’ll save you money and stress from getting high-interest business loans on short notice.
Difficulty Generating Business Documents
Does It take more than three clicks to generate an invoice, see last month’s sales report, or estimate the payroll-driven taxes for the next year? Many small businesses struggle with scaling manual processes like procurement as their business grows. Automation can ease these growing pains.
Poor reporting and manual tasks can be reduced with a strong ERP system that automates many of the processes needed to run a business.
Overly Dependent on Individuals
What if your sales analyst quits tomorrow? Do you know how your reporting system works? Will you be able to train a new employee on it? If that’s a triple, “No”, then you’re over-dependent on individuals.
You need systems and processes in place to ensure your business continues to succeed under any circumstance. An ERP gives your business that foundation, helping it weather unpredictable events easier.
When working on a sales forecast, do you estimate or guesstimate? Do you have a system in place to analyze the previous period’s sales and apply some external trends?
Sound data leads to sound decisions. With an ERP in place, you’ll have a clear look at where your business stands and which path you should take in highly-competitive, functuating markets.
What Are the Benefits of ERP for Small Business?
A Small business ERP System will change your team’s attitude to data and routine operations. Manual data-related activities will not go away. But, they’ll take significantly less time and yield better results.
Top-Level Benefits of ERP for Small Business:
- Efficiency: ERPs provide full control over operations. Learn the status of any project or transaction at any given point, see how resources are being used, and make better decisions that will increase profits.
- Responsiveness: ERPs provide a convenient way to work with customer requests, showing you the customer history and their possible pain-points.
- Analytics and reporting: Get more accurate data in easily readable formats. Both high-level management and detailed operational reports are a couple of clicks away.
- Quality control: All QA functions in one system, making it easy to manage quality at the production line and leave feedback that’s easily received by the customer service team.
- Order management: You’ll never forget to pay on time, generate necessary documents or place the recurring order for office stationery. ERPs automate many of these processes.
- Sales management: Give your sales team history of transactions, name of the pet, and the wedding anniversary date for every client and prospect you have. All they need to do is to pitch for another sale.
The benefits list of ERP for small business does not end here. As soon as you start using the software, you’ll see more advantages related to your industry.
But, significant benefits usually come at a significant cost. Read on to learn the approaches developers use to make small business ERP affordable.
Cost-Efficient ERP System for Small Businesses
If you want to deploy an ERP system for your small business, but you’re worried about the cost, don’t be. There are many affordable options available for your growing business. Here’s a few.
Open-Source ERP for Small Business
This type of ERP has the smallest cost and the most extensive list of integration possibilities. Take a look at the list of benefits:
- Freedom to make any adjustments. Don’t depend on the vendor to push updates or security patches. And never wait for the vendor’s support team to help you with any possible crashes.
- No license fee or installation fee. Save resources by setting up and trying out a new ERP for free.
- Open-source ERP communities. There are groups of developers who often share advice and tips to help get your ERP up and running.
- Endless customization. Increase process efficiency as you customize your ERP to your business needs.
This is a regular ERP system with limited functionality, either to basic tools or by the number of transactions. And usage is either free of charge or for a fraction of the regular cost.
A trial approach lets you test the system before you buy it. Testing is essential to the ERP implementation process. It allows you to see if your organization accepts the system. Basically, you’ll learn the pros and cons of the system before you commit.
This is simply the full version of the ERP for a cost. But there are ways to minimize that cost:
- Take only what you need: Most of the small business ERP vendors sell systems by modules. For example, you may pay for HRM and Finance management at the start and implement CRM the following year.
- SaaS or cloud-based version: No hardware maintenance or license purchase fees. Instead, it’s a monthly or annual fee (like most SaaS).
How to Choose an ERP Software for Your Small Business
Keep in mind that there’s no one-size-fits-all version of any ERP. Each one will have pros and cons. And you’ll need to evaluate them thoroughly before choosing one for your growing business. Here’s what you should look at before saying, “YES!” to your new ERP.
When assessing the cost of ERP software for small business, always consider the total cost of ownership:
- One-time payments like license purchase or fees for a vendor’s support team at your venue.
- Integration costs, especially with legacy systems adjustment (if you’re thinking of point-to-point integration(. The more advanced integration approach is through an enterprise service bus (ESB) which is a one-time investment.
- Hardware maintenance if you go with the on-premise system.
- Monthly service costs to maintain the system.
- Cost of possible modification and future integrations.
Don’t let the selling points of vendors mislead you. Always use the list of cost implications mentioned above to check for hidden costs. This will make sure you’re getting the most value out of your ERP investment.
Implementing the ERP system from day one of your organization is a rare case. Most probably, by the time you get to ERP implementation, you’ll already have some legacy systems in place or at least data sets.
It’s essential that you examine the possible integration issues before you start the implementation project. Otherwise, you may end up with the cost exceeding the budget and project delays.
It’s better to have as many ERP modules from a single vendor as possible. The more vendors you buy from, the more headache you’ll get when trying to integrate them.
Keep in mind, your demands for additional functions and modules will grow with the growth of your business. So, try to predict these demands and assess whether or not your vendor can deliver what you need within a year or two.
You need to keep a healthy balance between these two states:
- An off-the-shelf solution (when you take what’s available and adjust your business processes to the system architecture and flows).
- Full customization, when the system looks and works exactly how you need it to, but it takes some time to develop.
Most small businesses enjoy the benefits of custom ERP software. With the proper team in place, the deployment can happen quickly. And since the system will be tailored to your organization, you’ll rapidly reclaim any lost time or profits from switching over to an ERP for your small business.
It’s essential that your new small business ERP performs the expected tasks. It is equally important that your staff finds it easy to use. Otherwise, all the benefits of data usage and productivity may be offset with the frustration of your team.
Make sure whatever ERP platform you choose for your business is one that is easily accessible. Otherwise, your team will struggle to adapt. Always trade up. Not across or down.
When’s the Best Time to Switch to an ERP?
If you’re struggling to scale your systems to your growing business, then now’s the time to start thinking about adopting an ERP. As a small business grows, the complexities of running that business grow too. The longer you wait, the more difficult it will be to run your business.
About the Author
Kevin Shuler is the CEO of Quandary Consulting Group, a team of tech consultants that specialize in business process management. They use integrations and automations to help businesses scale as they grow, giving them more time to focus on what matters most.