Small business accounting systems are used by tens of thousands of firms and serve these firms quite effectively. However, this doesn’t necessarily mean the small business accounting system you are currently using is going to serve your needs as you grow or as you compete in new or changing markets. Rather than being forced to replace your current small business accounting system precipitously because it just doesn’t meet your requirements any more, adopt a proactive approach by searching for opportunities to upgrade to an ERP system that will allow you to compete more effectively, understand and serve the needs of your customers, manage your business more efficiently and understand what drives your business to excellence.
Signs That You Need to Evaluate Your Small Business Accounting System
The decision to replace your current small business accounting system isn’t a black or white question. It’s based more on an accumulation of issues that at some point tip the balance.
- Are your business processes becoming increasingly more complex, possibly beyond the capabilities of your small business accounting system?
- Is your current small accounting software system constraining your ability to grow in terms of transaction volume and/or system users?
- Is your current small business accounting system able to quickly evolve to meet the demands of a rapidly changing business environment?
- Do you require Industry specific functionality that is not fully supported by your current system?
- Do your customers require product and/or service functions that are not available through your current system?
- Do you have to utilize manual procedures because your current system does not support integrated software solutions?
- Does your current reporting system not provide the information necessary to make sound business decisions?
- Do you wish to do business utilizing eCommerce portals that seamlessly connect to your ERP system?
The underlying issue in all of these instances is a lack of support for the way you need to run your business. Your current small business accounting system may do an adequate job today, but it may not be able to do so as your move forward and that’s why you need to evaluate your alternatives. You may have an acceptable small business accounting system, but you need to improve your business management capabilities and that objective can only be achieved if you move to a more functionally rich ERP system.
Understand Your Key Business Drivers
What do you need to do very well to achieve greater business success? That’s the first (and key) question you need to ask regardless of whether you are evaluating your current small business accounting system or possibly upgrading to a more powerful ERP software system.
Forget about your small business accounting system for a moment. Forget about where you are today. Concentrate instead on where you need to be tomorrow. Create a vivid picture of your organization as it might look 3 years from now. What do you need to be doing in the future? That’s the key question you need to ask of yourself and each person in your organization. If you base your ERP software selection project on what you are doing today rather than what you should be doing tomorrow, then you are just going to duplicate today’s bad habits and of course that accomplishes nothing.
While there are many questions you should ask of yourselves as you look to your future, start with the key elements that drive your business success.
Customer Relationship Management (CRM) requirements:
- Describe the specific information and business processes you need your ERP and CRM systems to share, thus increasing business process efficiency and effectiveness.
- Define your customer service objectives that will help you retain the key customer groups that will allow you to create a solid and sustainable revenue base.
- Describe your key sales and marketing activities that will attract and hold a prospect’s attention and help you turn them into paying customers and thus fuel your revenue growth.
- Define the information you need to more effectively understand your customers’ buying habits.
- Identify the key operational issues that will drive your business in the future. Describe specifically what you need to do well from an operational perspective.
- Describe your inventory control and replenishment processes.
- Describe your production planning and execution processes and therefore the functionality you need to excel.
- Describe your job costing and billing requirements.
- Describe the business information you need to monitor and control key business processes and make sound business decisions.
Small business accounting systems do a fairly good job helping you carry out basic accounting and business activities, but in many instances ERP systems will be required to support the more advanced planning and control activities you will need in the future.
The questions listed above are but a representative sample of the questions you need to ask of yourself as you define your business management requirements. As indicated above the key to this analysis is defining exactly what you need to do very well in order to generate revenue, control the delivery of your products and services and manage your business efficiently and effectively.
If you are a distributor, the focus of your evaluation should be inventory control as well as the order-to-ship process. If you compete in the financial services industry, you will need to concentrate on the services you would provide as a key competitor in that industry. In the end you need to define what will drive your success and the degree to which your business management system can assist you achieve these goals.
Educate Yourself Regarding ERP Software Selection
Many ERP software selection projects fail to achieve their objectives and in many cases fail completely simply because the buyer (that’s you) doesn’t understand how to organize and manage what could become a very complex project. If you don’t understand how to select ERP software, how can you possibly bring this project to a successful conclusion?
Many software selection project leaders may assume that the product reseller will provide the required ERP software selection knowledge and they would be right to some extent, but with one critical proviso. You cannot turn over the responsibility for this project to a reseller. The buyer (again that’s you) must accept full responsibility for the outcome of the project and therefore must acquire the detailed knowledge necessary to make the correct decisions at the correct time. If you do not understand how to select ERP software, the purchase decision may be fatally flawed.
Find a True Business Partner
As suggested above users must accept full responsibility for the final purchase decision, but the reseller can and should provide critically required ERP software selection knowledge. The reseller does understand the capabilities of their product in more depth than the user. The reseller has installed many systems and should understand the intricacies of the software selection and implementation process. Most importantly the reseller should understand how their ERP system can most effectively serve firms competing in specific industries.
Finding an ERP system that provides the rich functionality and business decision making information you need to compete more effectively is certainly important, but your most pressing requirement is finding a reseller partner who can help you achieve success. Unfortunately far too many resellers are more interested in “selling” you their product and that’s where the opportunity for failure becomes far too real.
Understanding how to select an ERP system is your first priority, but at the same time you need to find a reseller who is more interested in guiding you through this process rather than selling you their product. Yes, this does require that the reseller invest more time in your education, but your objective and their objective should be the same and that objective should be your long-term financial success. If a potential reseller partner is more interested in short-term monetary income, then you need to find another partner.
Create a Vision of Where You Would Like to Be
The process of selecting ERP software must start with a detailed analysis of the business itself. In some respects it’s a bit like taking the business apart and putting it back together so that it operates more efficiently and effectively. Forget about what you are doing today. Forget about your current small business accounting system and its strengths or weaknesses. If you feel that a more powerful ERP system will better serve the needs of your firm, follow that path. Discover what you could do with an ERP system. Compare that product against your current small business accounting system and determine if the financial gains justify the investment you will be making.
Start this project by creating a detailed description of where you would like to be in the future. Then base your requirements on that vision. That’s sounds simple enough, but in many cases users may not know what they should be doing simply because they don’t know what’s possible in terms of functionality and information system alternatives. Certainly you could conduct internet searches to identify articles that relate to industry best practices. You could also identify ERP products that appear to provide support for your industry. Both search alternatives should be utilized so that you can begin to understand what you could be doing that you are not doing today.
In most instances your best source of information will be product resellers. In this case though, you are not evaluating their products in great detail. That will come later. Instead you are searching for information that will help you understand what you could be doing in terms of functionality and reporting systems. Let the reseller know that you want to learn, not purchase. If the reseller’s primary objective is helping their clients achieve success through their products, then you may have found that elusive knowledgeable business partner.
If as an example you are a distributor or financial services firm, you should be looking at products that serve those industries. You should also ask the reseller to help you understand how these products best serve your industry. In the end you should have created a detailed list of features, functions and reports that could help you achieve success.
Keep in mind one very important point. The fact that a product offers industry specific functionality does not necessarily mean you should include that functionality in your new ERP system. Adopting new functionality simply because it’s available isn’t the answer. Use your early research to understand what’s possible, but then select only that functionality that makes sense for your unique business.
Practice Customer Excellence
If your firm is going to be successful, customers must make a conscious decision to purchase your products and services now and more importantly repeatedly in the future. One-time customers usually cost more to cultivate than the gross margin your will generate as a result of that single sales transaction. True profitability cannot be achieved unless a customer decides to purchase multiple times. That’s where the sales and marketing costs are minimal and therefore the profitability is high.
Rather than just thinking in terms of functionality that will help people do their jobs more efficiently or effectively, spend an equal amount of time determining what you can do to maximize customer service. What do your customers require of you? How can your ERP system help you help your customers? How can your CRM system help you understand your customers’ buying habits? Ultimately the answers to these questions will become the key elements that will contribute to excellence.
Monitor and Control Key Business Processes
While completing internal business activities or tasks is important, you are not going to be able to maximize your profitability unless these business activities are completed efficiently. Operational control is therefore your key to success and you cannot achieve this unless
- you understand what really drives your business,
- you define values that represent your key business processes,
- you monitor those values, and
- you constantly improve those business processes.
Rather than using row and column reports to monitor your business activities, investigate whether Key Performance Indicators (KPIs) may assist you to identify those business processes that require your attention, particularly if the trend in monthly KPIs is showing a reduction in productivity.
If as an example you believe that maximizing inventory turns is a key operational issue for your distribution company, you could create row and column reports that track inventory turns each month, but spotting issues that require your attention may be time consuming. Instead, if you were to create graphs (possibly in Excel or other reporting tools) that track inventory turns over the past twelve months, you would be able to identify negative trends far easier. If a particular graph indicated no issues, then you could quickly go on to the next graph.
In the end the key to the utilization of KPIs is the identification of the key issues that need to be tracked and the presentation of those KPIs so that people can determine quickly where they need to invest their time.
Evaluate Deployment Options
To some extent our future is the Internet. It’s not necessarily going to happen today, but it will happen. The question you need to ask and answer is whether it makes sense for you to move to an on-line business management model. We haven’t yet reached the point where on-line ERP is the only choice, but you and the reseller who is going to become your business partner should evaluate this option, particularly since you are going to implement a new ERP software system.
Small business accounting systems adequately serve the needs of many firms, but they may not serve your specific needs as you grow. Rather than waiting for your current system to fail on multiple counts, adopt a proactive approach and look for opportunities available only through a more powerful and flexible ERP system that can help you understand your customers’ buying habits in more depth, increase customer service, complete business tasks more effectively and efficiently and monitor and control key business drivers.
Forget about where you are today. Concentrate instead on where you need to be in the future. Understand how you should organize and control the software selection process. Find a product reseller whose primary objective helping you understand what’s possible in terms of business management functionality and how you can utilize their product to your best advantage. Finally develop a reporting system that helps you monitor and control key business processes.
ERP systems have the potential to help you compete more effectively and run your business more efficiently, but these advantages can be achieved only if you understand the process and are willing to do the work.