Wondering whether your small business can afford to invest in an ERP solution? Keep these 3 factors in mind.
If your small business has shown the unmistakable signs of outgrowing its basic accounting software, you may be wondering whether your company can afford an ERP solution. Besides the actual cost of obtaining the software, there are implementation costs as well as infrastructure, IT resources, and hardware costs to think about. After all, SMBs need to manage costs carefully to protect their margins and avoid cashflow issues.
Don’t despair. Thanks to modern ERP solutions, small businesses can take advantage of ERP systems, while ensuring that the software can manage and support profitable growth. Here are some factors to keep in mind:
An ERP solution reduces operating costs in the long run
Many small businesses reach a point where Excel documents or their accounting software like QuickBooks just don’t cut it anymore. It may have worked well when the business was small with a lower volume of transactions but as a business grows, transactions increase, and processes get more complex, an ERP system becomes necessary.
In fact, the lack of efficient business processes and connected business systems could actually have negative impact on your bottom line due to inefficiencies which could cause issues like:
Lost orders
Inventory shortages
Poor planning
Missed shipments
By investing in an ERP solution, you are integrating the flow of information between different business departments and processes, as well integrating business transactions in real time. This means more business efficiency, and a reduction in operating costs in the long run, especially since you no longer have multiple, disparate software and systems. It also enhances productivity as all your company’s key data and information is available to all on a single platform.
Cloud ERP solutions have a lower cost of ownership than on-premises systems
Cloud ERP solutions allow small businesses to leverage all the benefits of an ERP system, at a significantly lower cost of ownership than their on-premises counterpart. Let’s break this down.
Traditionally, the cost of owning an ERP solution (which is hosted on on-premises) can be broken down into the following
Implementation, customizations, training
Hardware and infrastructure like servers (on-going)
IT personnel (on-going)
Maintenance costs (on-going)
Upgrades (on-going)
So, in the case of an on-premises ERP solution, you can see that despite the money you pay upfront for the license and implementation, there are still on-going costs to maintain your ERP system. On the other hand, a cloud ERP solution, such as Dynamics 365 Business Central, which is designed for small to mid-sized businesses, is hosted on the cloud, and the licensing works on a subscription basis. In terms of the costs, this means with a cloud ERP:
There is no major upfront cost of purchasing your infrastructure (like servers, networking hardware, operating systems, databases, storage, etc.)
There are no costs for upgrades, which run automatically in the background
IT personnel costs are a fraction of what they would be with an on-premises solution
No more maintenance fees as well, since in the cloud patches and fixes are released on a continuous cycle
Cloud ERP solutions are generally a good business decision for small and mid-sized businesses. And thanks to the numerous benefits that come with the cloud, more and more businesses of all sizes are migrating to cloud ERPs.
Mitigate risks (and costs) by choosing the right implementation plan and ERP partner
Smaller businesses are often wary of ERP implementations, and with good cause. A failed or improper implementation are expensive and can take months to fix. However, a bigger concern is often the fear of going over-budget or over-schedule.
Since smaller businesses typically have limited budgets, compared to larger organizations, they more likely to feel the strain if their ERP implementation has a longer timeline or significantly higher costs than anticipated. One way to mitigate costs and timeline is to consider a lean or fixed-fee implementation. Every business is different, but generally speaking, a smaller business who meets one or more of the following conditions is more likely to benefit from a lean or fixed-fee implementation.
Small businesses relying on Excel sheets to manage their operations
Small business who are selecting their first ERP solution and have between 5 to 20 end-users
Small businesses who need to upgrade from their basic accounting software
For example, Kwixand Solutions offers KwixStart implementations for small businesses wishing to adopt D365 Business Central. These are lean, fixed-fee implementation plans and have packages that include a discovery process, data import, training, and support. They allow smaller businesses to get up and running without losing transaction speed.
Another crucial way to mitigate your ERP risks and keep costs from inflating is to select the right ERP partner. On a high-level, you want to be looking for the following:
Understands your business and specific business challenges and requirements
Is transparent from the get-go and shares your personal and business values
Has ERP specialists who have significant experience with the ERP process in your industry and with companies of your size
The bottom line: This is possibly the most important ERP decision you will make, because at the end of the day, the key to a successful ERP adoption are the people.
In summary: ERP solutions are not a pipe dream for small businesses
Smaller businesses should not assume that ERP software is only attainable for enterprise-level companies or that only those in the manufacturing industry can benefit by them. (Industries that utilize ERP also include distribution, professional or industrial services, construction, healthcare and non-profits, retail, and more.)
Keep in mind that while the costs of implementing an ERP system is obviously higher than maintaining your data in spreadsheets, the benefits make it a necessary tool if you want your business to grow and thrive. The cloud makes ERP solutions more affordable for small businesses and also makes it easier to implement and manage in-house with limited IT resources, compared to on-premises solutions.
Besides streamlining your business processes and reducing costs, an ERP will also benefit your small business in numerous ways, including managing your data more effectively, providing flexibility, and improving decision-making for long-term business planning.
Have questions? Contact us to learn more about the ERP solutions and how they can transform your small business. Our team has successfully led small businesses across various industries through the entire ERP process.