How do you know when it’s time to move to an ERP? Three questions to ask.
We are often asked, “How do I know when it is time to adopt a more robust ERP solution, like Oracle NetSuite or Sage Intacct?” While there are no hard and fast rules for making this decision, there are at least three areas that can be considered: business processes, complexity of accounting needs, and company structure.
Timing is important. It’s possible to extend the shelf life of systems like QuickBooks by augmenting the system with additional functionality. (We’ve talked to companies who say that Airbase allowed them to delay an ERP implementation for another year or two.) However, keep in mind that although you want to maximize the life of your current accounting system, you still need to factor in the eventual complexity of implementing an ERP. That process is often easier in the earlier stages. The more complex your legacy processes are, the more difficult it will be to migrate them over to an ERP. As Winston Dimaano, Corporate Controller at Harness, noted in a recent 20-minute tales from the front lines of finance talk, "As you wait, it gets harder and harder to make that cut."
But how can you actually know when the time is right? Below you’ll find three important questions to address as you make the decision.
Question 1: Are your business processes holding you back?
For many companies, financial operations reach a sudden tipping point at which their systems and processes no longer serve them, not so much in terms of capacity — most accounting software programs can process an unlimited number of transactions — but in terms of the value that they add. Cumbersome manual processes and a lack of visibility inhibit a company’s ability to expand, and many young companies find that they reach this critical point just when they need their systems to support them most.
It’s therefore helpful to anticipate how your processes will change as you scale as a company. Compare your current system to the system you should have as you grow, to surface any pitfalls in your current technology.
Involve all stakeholders, particularly your FP&A team, when assessing your needs, as well as department heads who rely on reporting to meet their targets. Can your current accounting system support the datasets they need for successful analysis? The ability to access crucial metrics, such as sales margins, marketing campaign costs, and inventory status, is essential to support both ongoing and strategic planning needs. With an enterprise-level ERP, you can instantly view financial data across departments. For example, as your sales team expands, you might want to capture POs, receipts, and bills for that department. With an end-to-end solution, such as NetSuite, you can tie those elements to leads, companies, opportunities, and even support tickets.
Question 2: Are your accounting needs becoming more complex?
As a certified NetSuite ERP consultant, and Professional Services and Support Manager at Airbase, Erlyn Ordonez has helped many companies make the transition to an ERP. She notes that a main motivation for most companies is that they are looking for a solution that will be scalable to support growth. “As a company grows, they acquire different processes and larger teams, so they require a way for all different sources of information to be captured in a single platform,” she explains. “You can’t expect the accounting team to grow at the same pace as the company, so you want to make sure the team is efficient.”
When a finance team finds it increasingly difficult to create the kind of reports that leaders in the company need, it might also be time to upgrade to an ERP. With a system such as NetSuite, reports can be created across multiple dimensions. Most enterprise-level ERPs can also handle more complex accounting functions that become more necessary with growth. For example, smaller businesses may not need elements such as an amortization feature built into the system. If you only have a few large transactions each year, it’s easy enough to make amortization adjustments on a case-by-case basis by recording them via a spreadsheet, calculating adjustments, then completing the journal entries each month. The amortization features in enterprise-level ERPs free up this time, and ensure greater accuracy.
That leads to a key sign you might be ready to move to an ERP: Your monthly closes are getting longer and longer.
Relying on too many manual processes, and too many unrelated systems, makes a monthly close complex and time consuming. Having all relevant information, from inventory numbers to sales stats, for a complete picture of non-payroll spend available in real time, shortens the monthly close significantly. It may even be possible to move to a rolling close.
This simplicity carries over to another vital finance function: auditing. As Winston Dimaano noted, “If you have investors that require audits, then you want to make sure that you have those capabilities and controls in place in order to get through the audit.” The breadth of information available in an ERP, combined with accounting automation, eases the pain of the audit process, and places auditors in a more collaborative, advisory role.
Question 3: Will your company structure change?
Accounting systems, such as QuickBooks, have a lot to offer small businesses, but typically can only handle one entity per account. A corporate structure with multiple subsidiaries requires a more robust ERP solution. ERPs like NetSuite use automation around creating intercompany transactions, so you can create reports both on the entity level, and on a consolidated level.
Other business changes that could indicate it’s time for an ERP include plans to do business in other countries, or problems managing complex inventory needs. Without this functionality available through an ERP, finance teams could find themselves buried in manual processes in order to bring all sources of information together.
Companies preparing for an IPO should put an ERP migration at the top of their priority list. “If you have a strong sense of the momentum as you build towards an IPO, or you have a strong positive growth forecast, and there is some visibility to becoming a pre-IPO company, you want to get onto a more mature ERP as soon as possible,” said Winston.
Make the most of the decision.
The implementation process (migrating from one GL to another) is a good opportunity to evaluate your Chart of Accounts and your business processes, and how to improve them.
Use the opportunity to include an overall audit of your tech stack. For example, if you currently use multiple systems to manage AP, now might be the time to change the AP status quo by implementing a comprehensive spend management system instead. Not only will you enjoy the benefits of consolidating all expenses on one platform, your ERP migration will be much simpler.
Your next steps.
If you do decide it’s time to commit to an ERP system, you’ll need to formulate a clear plan for the migration. After all, your GL is the backbone of your company. Advance planning now will pay off in the long run. We’ve assembled some helpful resources to guide you through the process and invite you to take advantage of them. For both NetSuite and Sage Intacct, you’ll find a Migration Guide and an interactive Project Plan so that you can create your own timeline from the steps that we’ve detailed.
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