What Is ERP Software And Do I Need It?
Lions and tigers and ERPs — oh my!
The world of enterprise resource planning (or ERP) can be confusing and daunting. It may be difficult to know exactly what ERPs are and if your business needs them. But never fear! This complete guide to ERP software is your map through Oz. In this post, we’ll cover exactly what ERP software is, how ERPs benefit businesses, and how to know if you need an ERP system or not.
Read on to learn everything you need to know about ERPs.
Table of Contents
- What Is ERP Software?
- Features Of ERP Software
- Business Benefits Of ERP Software
- What Types Of Businesses Use ERP?
- 10 Signs You’re Ready For ERP Software
- How Much Does ERP Software Cost?
- Choosing An ERP System
- Frequently Asked Questions
- Final Thoughts
What Is ERP Software?
ERP stands for enterprise resource planning. ERP software solutions help large business and corporations integrate and manage multiple areas of their business. Most often ERP software includes tools for accounting, HR (human resources), CRM (customer relationship management), sales, purchasing, inventory, project management, manufacturing and supply chain, and sometimes marketing.
A Brief History Of ERP
What do power tools, coffee makers, and ERPs have in common? The history of ERP is a lot more interesting than you might expect. Back in the 1960s, the appliance company Black+Decker was the first company to implement an MPR — or materials resource planning — system. This computer-based software allowed the company to better manage its manufacturing, purchasing, and delivery.
As computer technology advanced, this first MPR gave way to better iterations which gave way to thinking, how could these programs be improved even further? Developers decided to integrate the manufacturing capabilities of MRPs with accounting, HR, and other key enterprise features, creating ERPs as we know them today.
Types Of ERP Software
ERP software that is downloaded onto your computer and hosted on that computer's servers (sometimes called "on-premise"). Ideal for businesses with in-house IT in need of strong security.
ERP software that is hosted on the cloud and can be accessed from nearly any computer with an internet connection. Ideal for businesses in need of mobility.
A combination of cloud-based and locally-installed software. Ideal for businesses wanting an on-premise software with some cloud capabilities.
Locally-installed ERP software that is downloaded onto your computer and has a source code that can be edited and enhanced. Ideal for businesses with developer experience in need of strong, personalized customizations.
There are several types of ERP software: locally-installed, cloud-based, hybrid, or open source.
Each type has benefits and drawbacks. Locally-installed software is ideal for businesses that want an on-premise ERP solution and strong security. Cloud-based software is ideal for businesses that want mobility, the ability to access software in multiple locations, and someone else to worry about the hosting and security. Hybrid software gives businesses the best of both worlds, and open-source software is ideal for businesses that want developer access and a high degree of customization. Read our post on cloud-based vs. locally-installed software to learn more.
In addition to how the ERP software is downloaded, ERP software can also vary by the demographic for which it’s designed. Generalist ERP software is designed for enterprises in general, while Vertical ERP software is designed for specific industries and business types.
Believe it or not, there is also ERP software for small businesses. Seems contradictory to the definition of enterprise resource planning, right? But recently, some software companies are taking the idea of an integrated ERP system and applying it to small businesses. This way small business owners can have all of the finances, accounting, HR, and other business processes in the same location, but with pared-down features and pricing to fit the needs and budget of small businesses.
How ERP Software Works
ERP software can be locally-installed or cloud-based, but both versions offer the same core benefit: integration. ERP software allows enterprises to integrate each aspect of their business into a single software.
Instead of having a separate accounting suite, a separate HR and payroll software, and separate inventory and project management software, enterprise resource planning allows businesses to manage all of the key functionalities within a single program. This way, each aspect of your business is completely integrated and each department communicates together making your business processes more efficient.
When purchasing ERP software, many companies allow business owners to choose which features modules they want. This way, you’re only paying for the features you need, but you still have the option to add on additional modules as your business grows.
Features Of ERP Software
Enterprise resource planning software is designed to combine multiple areas of business into a single software solution. While the exact features can vary from software to software, the majority of ERP systems cover the following features:
- Accounting: ERP software has highly developed accounting and financial capabilities. A good ERP includes expense tracking, accounts payable, bank reconciliation, fixed asset management, and a chart of accounts. The financial aspect of ERPs usually includes budgeting as well and helps enterprises stay on top of financial compliance.
- CRM: ERP software allows you to manage and record customer data. The customer relationship management of a good ERP is very extensive and makes it easy to analyze and view customer history and spending trends. Often the CRM capabilities are integrated directly with marketing features.
- Sales: As a complete financial solution, it’s no surprise that ERPs include sales. This means invoicing, estimates, project management, billing for projects and their accumulated time, and the ability to accept payments (usually in multiple currencies). A good ERP also includes approval workflows so you can maintain the proper chain of command in your enterprise.
- Inventory: A good ERP makes it easy to track and organize your business’s inventory. Often inventory features include tracking item details, COGs, inventory balances, inventory location, item serialization, and more. The best part about ERP is that the inventory module can talk directly with your supply chain management, manufacturing, sales, and purchase modules, making for a more seamless business workflow.
- HR: Human resources is a non-negotiable of a good ERP system. Not only do ERPs help you record employee information, track benefits administration, and manage HR documentation, but the software also helps ensure that your business meets compliance regulations. Good ERPs also provide important insight into your employees’ work productivity, hours, and attendance.
- Payroll: In part with being a one-stop-shop for enterprise businesses, ERPs include payroll. You should be able to manage pay rates, reimbursements, and more.
- Manufacturing: ERPs evolved from old school manufacturing systems called MRPs, so it’s no surprise that this feature is still important today. Manufacturing features include order fulfillment, productions planning, project management, and job costing so you can meet and exceed your customers’ needs.
- Supply Chain: The supply chain management included in ERP systems helps businesses streamline and automate their business processes.
- Reporting: ERPs include detailed, customizable reporting so you can get powerful insight into your business. ERPs also offer key business analytics and often have multiple dashboards and KPIs to quickly view your finances and manage financial and business goals.
- Marketing: Sometimes, ERP software will include marketing. While this isn’t a core staple of all ERPs, it’s a perk that the best of the best offer to their users.
- International Support: Another advantage of ERPs is that most offer a plethora of international capabilities like multi-currency support, international invoicing, and — most importantly — global compliance.
- Security: Good ERP software also provides strong security. If you opt for a locally-installed software, the security falls more on your shoulders, but all systems — on-premise or cloud — should include approval workflows, detailed user permissions, and a complete audit trail.
Business Benefits Of ERP Software
Now that you know what ERP software is, how does ERP software benefit your business? Enterprise resource planning has many business advantages. Here are some of the most prominent benefits of ERP software.
ERPs give you a centralized location for managing all aspects of your business, so you don’t have to waste time going back and forth between different programs or spreadsheets. ERP software also includes numerous automations to help streamline your business processes and increase your business’s efficiency.
Instead of jumping back and forth between multiple business programs, ERPs grant better communication between software modules by keeping everything in one place. This also helps improve communication between your business’s departments and team members, keeping everyone on the same page.
As a business owner, you may have already realized how quickly you can outgrow software. Happily, that isn’t the case with ERPs. ERPs are scalable and grow alongside you as your business grows. Need more complex accounting? More reporting? More users? International business compliance? ERP software will have you covered no matter where your business takes you.
Key Business Insights
ERPs offer more advanced reporting, KPIs, and business analytics so you can clearly see where your business is at present and so you can forecast how to improve your business and its cash flow in the future.
While some ERP systems have a hefty price tag, you may actually save money with an ERP. If you have dozens of different software programs, the cost of a single ERP system might save you some money and time. And since time is money… well you know where this is going.
While there are some international accounting programs for small businesses, if you want to grow in global business and remain compliant, ERPs are a good way to go. ERP systems offer ample international features and help you stay on top of taxes and regulations.
In addition to global compliance, ERPs also help your business remain financially compliant.
Since ERPs are designed for large corporations, you’ll find added security like advanced user permissions, approval workflow, departmental permissions, and complete audit logs.
These are some of the many benefits of ERP solutions.
What Types Of Businesses Use ERP?
ERPs are generally used by enterprise businesses and corporations that need a way to connect multiple areas of their business with a single software. However, some small and medium-sized business also use ERP systems for added functionality and easy access to all areas of their business.
ERPs are often used by businesses whose accounting needs have outgrown traditional accounting software like QuickBooks, or who are tired of trying to juggle dozens of software programs. So instead of having QuickBooks for accounting, Gusto for payroll and HR, Salesforce for CRM, and dozens of spreadsheets for manufacturing and inventory, businesses can instead opt for an all-in-one ERP solution. Many global businesses also use ERPs as most programs offer strong financial and global compliance.
According to a graph from Finances Online, here are the most common reasons businesses use ERP systems.
If you share any of these needs, you might be one of the businesses that can benefit from an ERP system. Read our next section to see if a business management solution is right for you.
10 Signs You’re Ready For ERP Software
So the real question is, how do you know if you need an ERP system? When should you upgrade from accounting software to full ERP software?
Great question. Here are 10 indicators that your business may be ready for enterprise resource planning.
1. Your Accounting System Is Too Complex
If your accounting is becoming increasingly time-consuming, complex, and complicated, it may be time to upgrade to a full ERP. Same goes for other areas of your financial management, like payroll. If you need complex pay periods and rates, it’s time to start looking at more comprehensive software.
2. You’re Drowning In Spreadsheets
Come on, we all know you don’t actually love Excel. If you’re creating dozens and dozens of custom reports and Excel templates because you don’t have the report customizations you need, its time to upgrade. ERPs offer highly customizable reports and invaluable business insight.
3. You Can’t Find Business Data Easily
You can’t pilot a ship blind. If you can’t easily access data about your business financials, you can’t run a successful business. When data is in multiple software programs and multiple Excel sheets and you still don’t have the information you need, enterprise resource planning can come to the rescue.
4. Your Software Programs Don’t Communicate
Does this sound familiar? You use QuickBooks Desktop for accounting, PayPal for invoice payments, Stripe for in-person payments, Expensify for reimbursable expenses, TSheets for time tracking, you get the picture. While one of the perks of cloud accounting is integrations, not all integrations play nicely together. For example, QuickBooks Desktop doesn’t integrate with PayPal at all, leaving you running back and forth between programs.
Not only can dozens of integrations eat up your time and money, you won’t have a scalable solution if you’re planning on growing and expanding your business.
5. You’re Spending Too Much Money On Multiple Software Programs
There’s an app for that! Sounds dandy when you need a quick solution, but using a dozen different apps just to run your business may be costing you unnecessary money and time.
6. You Want To Expand To International Business
There are some great international accounting programs for small businesses, however, ERPs will give you the most developed international business features and compliance. If you are planning on growing and expanding your large business into the international scene, a well-developed global solution may be more than worth the cost.
7. You Can’t Keep Up With Compliance
Not only do businesses have to worry about global compliance, but they also have to worry about financial compliance. If you’re overwhelmed by compliance regulations, tracking product traceability and quality control, and keeping up with the ever-changing compliance rules in your business’s industry, it’s time to bring in the big guns. ERPs specialize in monitoring changes in your business’s industry and give you the tools so you don’t have to worry about compliance anymore.
8. You’re Ready For An IPO
Considering an initial public offering (or IPO)? If you are planning on opening up shares of your business to the public for the first time, traditional accounting software won’t cut it. An ERP can give you the tools you need to navigate your IPO successfully.
9. You Want a Software That Grows With You
When you plant a small seed, you can’t leave it in a 5-inch pot — you have to move the plant to a larger pot and give it room to grow. The same goes for your business. If you are planning on growing your business, you want a software program that will grow with you.
ERPs grow alongside your business and give you the features you need to run every area of your enterprise. Small business ERPs make enterprise resource planning an affordable and realistic option for small business owners with a growth mindset.
10. You’re Spending Too Much Time On Business Processes
We all know time is money, but time is also sanity. If you’re going crazy spending endless hours trying to juggle every area of your business — accounting, creating reports, inventory management, manufacturing, supply chain, you name it — it might be time for an ERP. Even if you can handle these areas of your business, do you really want to? Wouldn’t you rather be focusing on other areas of growing and running a successful company?
If your current business processes are eating up your time, an integrated enterprise resource planning solution could save you time and free you up to focus on the business you love.
How Much Does ERP Software Cost?
So how much is ERP software going to cost you? Well, it really depends.
The price of enterprise resource planning software varies depending on the number of users, features, and add-ons you need. Customer support, implementation, training, and maintenance can all affect the price as well.
Oftentimes, ERP solutions are custom-designed to fit your business and its needs. This means that many ERP companies aren’t forthright with their pricing. Since pricing can vary so significantly from business to business, you will often have to contact a company directly for a quote.
To give you an idea of how much the price can vary, enterprise software like Microsoft Dynamics 365 starts at $210/month, whereas software like NetSuite can range anywhere from $10,000 – $1,000,000/year. The surefire way to get a clear idea of how much ERP software is going to cost is to talk to prospective ERP providers directly.
Choosing An ERP System
Now that you know you need an ERP system, how do you choose which ERP software is right for you?
With so many ERP systems to choose from, the process can seem quite overwhelming. We’ve broken the process into six simple steps so you know exactly where to start.
Step 1: Set A Budget
First things first, take a careful look at your financials to see what you can afford. Prices for ERPs can range anywhere from a couple hundred to a couple thousand dollars a month so it’s crucial to know how much you can afford to spend.
The jump in price from small business accounting software to a full-on ERP can be quite shocking, so be sure to keep in mind that you’re paying for a software that helps with all areas of your business, not just accounting. Tally up how much you pay for your current accounting software and all of its integrations. Then consider how much higher you’d be willing to go in order to get the features you need to be successful. This ballpark number will be a good starting point to determine which ERP systems are in your price range.
Step 2: Choose The Right Type Of ERP Software
In addition to setting a budget, the type of ERP system you need will determine which programs you should look at. As we mentioned earlier, ERPs can be locally-installed, cloud-based, a hybrid of both, or open source. Here’s a comparison of the pros and cons of on-premise vs. cloud software. Take a look to see which seems best suited to your business.
|Cloud-Based Software||Locally-Installed Software|
Access for multiple users in different locations
Easy to use
More complex & feature-rich
Requires internet access
Doesn't require internet access
SaaS subscription-based model
One-time payment or 1-year license model
Built-in security and automatic backups
Potentially more secure
Step 3: Analyze Your Needs & Wants
Next, think about what your business needs from an enterprise resource planning system. Is ease of use important? Is item serialization a must? Are there certain reports you must have? Does it need to include marketing?
Think carefully about your current business processes and analyze what is and isn’t working. Then set out to find an ERP that keeps the good and solves the bad.
Step 4: Do Your Research
Now that you have a good idea of your business’s needs and wants, it’s time to start shopping!
There are tons of ERP solutions out there. They can range from small business to two-tier corporation ERPs and from general ERP to industry-specific. Before you get overwhelmed, take a deep breath, grab a fresh cup of coffee, and accept that the search for the right ERP is going to be a long process.
When you choose an ERP, you choose software that is going to grow with your company over years and years. You’re never truly “stuck” with a software program, but after the cost, the implementation, and the price of training, it’s not easy to switch ERPs. But don’t worry, this just means you have to do your research so you pick a good ERP software from the beginning.
Learn as much as you can about each software. Check the pricing, features, customer support, and what other users have to say about the program.
To help you get started, here’s a list of some of the most popular ERP solutions.
- Microsoft Dynamics
- Great Plains
Step 5: Schedule A Demo
After you’ve done your research and found a few potential ERP candidates, schedule a demo with the company’s support team. This will allow you the chance to see the software in action. Ask yourself:
- Do I like how the software looks?
- Is it organized in a way that makes sense (or could make sense) to me?
- Would my employees and department heads be able to learn the software?
- Does it have the features I need and want?
Use the demo as a chance to judge the company’s customer support. Are the representatives knowledgeable, helpful, approachable, and nice? I can guarantee that you will be working with that customer support team closely, especially when first setting up the software, so you want to make sure the company offers strong customer service and plenty of support resources.
Step 6: Ask About Implementation
Don’t forget to ask about implementation. Make sure you know what the implementation process is, how long it will take, and if it costs extra. Also ask if there is training available for you and your employees to learn the software.
After following these steps, doing your research, and testing out the software either yourself or through a demo, you should have a good idea of whether or not that ERP will work for you. Trust your gut. Don’t be afraid to take your time and ask tons of questions. This will help you feel confident in your decision and ensure that you’re picking a good ERP for your enterprise.
Frequently Asked Questions
Still have questions about enterprise resource planning? Here are some of the most common questions about ERPs.
What does ERP stand for?
Enterprise resource planning.
What types of software does enterprise resource planning integrate?
Enterprise resource planning integrates financial and accounting, HR, CRM, sales, purchasing, manufacturing, inventory, and supply chain into a single software platform.
What is a two-tier ERP?
A two-tier ERP is a type of ERP used by corporations. With two-tier ERPs, you’re basically running two ERPs simultaneously — one at the corporate level and one at the subsidiary level.
What’s the difference between ERP and CRM software?
CRM software, or customer relationship management software, allows you to record and manage information about your business’s customers. ERP software includes CRM but also adds accounting, HR, manufacturing, and other key components to running your business.
What’s the difference between ERP and EPM?
ERP, or enterprise resource planning software, is designed to help you run your business by allowing you to manage and streamline business processes like accounting, HR, manufacturing, etc. EPM, or enterprise performance management, is designed to help you manage your business and plan for the future. EPM software helps enterprises analyze their business, create goals, and achieve those goals by using features like budgeting, forecasting, reporting, modeling, and performance analytics.
What’s the difference between ERP and SAP software?
SAP is ERP software. More accurately, SAP is a German company. The acronym stands for System Analysis and Program Development. SAP was one of the first companies on the ERP scene back in the 1970s. It offers dozens of products in addition to its traditional SAP ERP software.
Should my business use ERP software?
If your business is growing and could benefit from an automated integrated software that combines multiple areas and departments of your business, it may be time for an ERP system. Return to the sections above to learn the 10 signs you’re ready for ERP software.
When should I upgrade my accounting software to a full ERP system?
You should consider upgrading to a full ERP system when your accounting software no longer has the depth or complexity you need to run your business. A good indicator of this is the number of integrations you are having to use to run your business. Some integrations are great, but dozens of integrations start making your processes look like a boat with a dozen corked holes. At this point, it’s time to get a new boat or start sinking.
Is there ERP software for small businesses?
Yes! Although it seems counterintuitive, there are enterprise resource planning programs for businesses that aren’t enterprises. Small business ERPs are scaled-down, more affordable versions of ERP systems. The most common include SAP Business One, Microsoft Dynamics 365, and Acumatica Small Business Edition.
What are the best ERP solutions?
The most popular, tried and true ERP solutions include NetSuite, Oracle, Microsoft Dynamics, SAP, Intaact, Great Plains, Sage, Timberline, Acumatica, and QuickBooks Enterprise.
ERP systems can help your enterprise business manage its accounting, reporting, HR and payroll, inventory, sales, purchasing, manufacturing, and supply chain all in one location.
For growing businesses, the benefits of ERP software are countless. ERPs grow with your business, increase efficiency, enhance communication, and more. And, they don’t have to break the wallet in the process. Now that you have a strong understanding of what ERPs are, their features, their benefits, and the signs you need an ERP, is it time to take the plunge and switch to enterprise resource planning?