Running small businesses successfully often means being able to adopt new technologies quickly to gain an edge in a fiercely competitive environment. There is a wide variety of ERP software for small businesses on the market that differ in price, functionality, and complexity. Choosing the right ERP software for small businesses is a complex task, but a thorough evaluation and due diligence can accelerate and streamline business processes with eagle-eyed governance.
This checklist we’ve compiled will save you time if you’re looking for new production ERP software or if you’re considering replacing an existing system that doesn’t meet your needs.
1) Is it going to take you to your North Star?
Defining your objective and plan is probably the most important step that will help you in evaluating the right ERP software for small businesses. Many businesses rush to implement tools before thoroughly thinking through their strategy and objective. This is a recipe for disaster as it is not sustainable. It is important to understand where your organisation and business projects need to head. Define your critical success factors and then evaluate in detail what would support or accelerate your business towards those goals.
2) Does it support your growth agenda and digitisation?
Once you have defined your strategy, it is important to analyse if the ERP software has the capabilities to enable growth for your organisation. You must be able to quantify growth both during due diligence and even harness the power of data analytics during operations to ensure that growth in its many forms is happening at all stages of the production cycle. The process of digital transformation is a key enabler in this journey. Evaluating where you stand in your digital transformation journey will give you more clarity on the path ahead.
3) Is it a world-class solution or a small player?
The world of SaaS has taken us all by storm and disrupted the way businesses operate. While there are many great solutions that have come out of newer businesses or startups, it may be wise to consider a lesser-known solution at a later stage of your business. Taking risks early on with a new and lesser recommended ERP software might cause delays and unforeseen obstacles that will slow your business down drastically. While not all ‘bigger world-class’ solutions are 100% reliable, they often tend to hire the best teams to build these solutions for far more reliable and efficient technical infrastructure. They also possess the ability to add resources to your project for faster implementation and support. Moreover, established ERP systems partner with dedicated businesses that have a deep understanding and expertise in the software to help with the strategy and implementation project. Although it doesn’t guarantee a bump-free ride, it is a much safer bet to take when you have a lot to lose.
4) Budget Evaluation
ERP software companies that provide solutions for corporate companies offer hundreds of alternatives for different user needs demanding very high budgets. However, this does not mean that ERP software for small businesses must be completely overlooked. In fact, small businesses serious about scaling must evaluate and budget the implementation of ERP software. Remember with the right guidance, there are great ERPs that cater to every budget size.
So, how is the budget determined?
The rule of thumb is to calculate all costs (both direct and indirect) associated with an ERP software for generally two years of operation. Thus, at the end of two years, you decide whether or not to continue with the same software according to the efficiency you get. If you can’t get efficiency, you can continue with another ERP software.
Another variable that defines the budget is the number of users to request, which can be calculated by taking the number of users in your office or evaluating users per shift. The higher the number of users, the more you pay for licenses and additional system maintenance. Businesses with a large number of users across departments may need more functionality and customization. Thus, the cost naturally increases.
5) Purchase (License)? Is it a subscription?
There are two main pricing options to choose from when deciding on a budget for an ERP software for small businesses:
– buy a license or
– adhere to a monthly (or annual) subscription plan.
Both options have their pros and cons.
For example, in-house software providers often offer licensing. If you choose this option, it should be noted that on-premises vendors usually have a few fees that weren’t talked about initially (installation, software updates, software maintenance, additional infrastructure, customization, support or premium support, etc.).
The subscription model is popular among software-as-a-service (SaaS) solutions, where you only pay if you use the software. In this case, the pricing policy is more transparent (which also means predictable) and also flexible. The disadvantage of this system is that it may cost more in case of very long use (for example, 5 years and above).
6) Is the Platform Cloud-Based? On-Premises Software?
Another decision you have to make in the process of choosing ERP software for small businesses is whether it will be cloud-based or installed on your own company infrastructure.
In recent years, we have witnessed cloud-based SaaS solutions becoming reasonably popular. Because its main advantages are:
You don’t need to install anything (and pay for installation).
You can access your ERP from anywhere, any device.
The software is constantly kept up to date.
No additional infrastructure is required. The software company’s own servers are used.
However, there are some scenarios where on-premises software is still the only option:
If you have professional IT professionals, you may want to have the software and database on your own servers and follow the updates yourself.
You may be working in a place with limited or insufficient internet access.
You may be producing for confidential projects and have confidentiality procedures that you must follow.
7) Functionality Evaluation
If you are a manufacturer, not every ERP software will meet your needs. Not every ERP software that claims to focus on manufacturing may offer functions that are specifically required in manufacturing, such as production planning and scheduling and equipment load schedules.
So that functions that need to be used are not skipped, think about the functions that are of primary importance to you, make a list and start looking for an ERP software that meets these requirements.
You can also ask for some must-have features (like integration with your current accounting software). These will assist you in selection when you have a list of candidates serving the same main function.
8) Pre-Selection Process
When you follow the steps above, you should create a list that meets your basic needs in terms of core functionality, platform, and pricing model. Now this list should be reduced to 2-3 options at most, as this is the most reasonable number in terms of time resources spent on evaluation.
To filter out companies that aren’t worth your time, evaluate their speed and quality of response by asking each software provider questions about functionality or similar. Remember that this ERP company will be your strategic partner for several years. A bad communication habit can affect you negatively in the future.
9) References Evaluation
Vendors will make many claims about the capabilities and ease of use of their systems. If you want to verify these claims, you should request references so you can ask previous customers about their experience.
What functions did they implement and did they achieve the desired results? Did the vendor offer ongoing support and training?
References must be from organizations similar to yours that implement similar functionality. If you’re considering cloud ERP, ask for testimonials that distribute their software in the cloud.
10) Final Selection
Now that you have a final list of 2-3 nominations to be your next ERP system, you should try them first. Unfortunately for companies that offer on-premises software, this isn’t always possible, but most cloud/SaaS solutions can do a free demo.
Try to do a simplified test that covers the manufacturing process that is so important to your business. After trying to fulfil this test with ERP software companies, you can choose ERP software.
11) Customisation
Assuming you choose software that meets all your requirements and meets your budget, you should be prepared that you will need to adapt your business processes to a certain degree.
However, in cases where some important functionality is missing or does not work as you expect and you cannot change your workflow, you can request customization from your vendor. Knowing this ahead of time is crucial to better understanding whether the firm is flexible and the total cost of ownership of the software.
12) Review Your ROI and Payback Period
If you are trying to reach the final conclusion on the benefits of acquiring an ERP system, one of the best ways to do so is to conduct an ROI analysis. Designing an income-expenditure budget for a new ERP system, including costs and return on investment, will help you put your argument in a language your senior managers will understand.
Try to calculate as best you can all the costs and all the benefits of an ERP system. To do this, you can divide total benefits by total costs (ROI = Total Benefits / Total Costs) or you can divide net profit by total costs (ROI Earnings = (Net Profit / Total Costs) x 100). Either way, keep in mind that this number will represent return on investment over a multi-year period.
Another way to look at ROI is to calculate a payback period (how long does it take to recover the cost of the system or Payback = cost / annual return). This is useful if you want to determine when benefits will turn into profits. But, as with the annual return on investment calculation, it cannot show how costs and benefits are distributed over the life of an investment.
Conclusion
Remember when evaluating ERP software for small businesses, it is important to first define a strategy and a growth path before you can evaluate if the ERP software can take you there. Rushing into implementation has proven to be disastrous for many businesses. Where are you in your ERP implementation journey and what are the challenges you face? Get in touch with the Inextricable Group for a free consultation and evaluation for your ERP software needs.