When you’re outgrowing an entry-level accounting software like QuickBooks, you begin to see the signs. The days get longer, the software starts processing a bit slower, and you begin to worry if your reports are as accurate as they should be.
If you’ve begun to notice any of these signs, congratulations, it means your business is growing! However, it also signals that your business needs to take its next steps, moving from accounting software to true enterprise resource planning software.
This is a time when inaction and haste are both risky. Move too slow and the migration process becomes more complex and costly. Move too fast with the wrong vendor or partner and you could face implementation failure—a situation in which you never recoup the investment promised.
Following our last blogs on communicating a change and securing buy-in from your executive team and end users, we would today like to turn our attention to the next step in your ERP journey: ROI and vendor analysis.
Getting the return you need: completing a return on investment (ROI) analysis.
One of the most important stages in the ERP decision journey, the ROI calculation process takes place at two stages for many companies. Early on, many companies will use an ROI calculator to decide whether an ERP upgrade makes sense. Later, you will take the information you receive from vendors in a quote to determine which one will provide you with a product that will pay for itself quickly.
Often, you may need to complete a capital expense justification (return on investment or ROI analysis) before committing to an ERP system. An ROI analysis identifies both direct and indirect benefits of an upgrade to give you a metrics-based argument on whether you can afford to make a move, how quickly such a move will pay for itself, and how much the investment will generate over its life.
This identifies the upfront costs pertaining to the investment, compares ongoing costs for your current and replacement product, and highlights the benefits associated with a decision.
Upfront costs: how much will it cost to purchase and implement a product?
One of the hardest parts of an ERP decision is whether or not you can afford to make a move now. However, if your business is growing rapidly, you may notice that even if the cost of your current product is extremely low—if you continue to push accounting software past its sell-by date, you are putting the future of your company at risk.
Calculating upfront costs will provide you information in pitching executives on a product and will allow you to compare vendors. When looking at ERP costs, include the following:
- Computer hardware, operating system, database, networking, and tools including installation, startup and testing
- Application software (ERP) license, installation, tailoring, data conversion/loading
- Procedure development, testing and documentation
- User training
- Vendor and consultation assistance with implementation
A common mistake, however, is the assumption that hardware and licensing costs need to be paid up front. Not anymore. The cloud has lowered the initial costs of an ERP upgrade, greatly reducing the capital expenses that come from a move. Rather, businesses can pay a subscription fee over the life of the product.
Ongoing costs: how do different options stack up?
With an understanding of the implementation costs, now you need to turn your attention to the ongoing costs. A good basis for comparison between potential products, this analysis determines how much it will cost to run an IT department under both, how much each will cost in terms of licensing and maintenance fees, and how much it will cost to expand or extend the system.
Direct benefits of implementing ERP
Often the real selling point of a new ERP system comes from the benefits it provides. An ERP implementation offers direct benefits like cost savings, cost avoidance, revenue and profit. These come from four key areas:
- Having greater visibility to demand and schedules.
- Closer management of materials, equipment and personnel.
- The ability to better manage workflow and production schedules.
- Greater coordination of resources to efficiently deliver the right products in the right quantities at the right time.
For example, better management of inventory reduces cost of goods sold. It also prevents costs associated with last minute changes.
Indirect benefits of implementing ERP
It also offers a variety of indirect benefits. While productivity, integration, and minimal overtime are great in a cost-savings analysis, they also provide peace of mind for employees. An employee who doesn’t need to toil away for hours on a spreadsheet is going to feel more comfortable. Better accuracy is going to help you make more levelheaded decisions, and anytime access could even reduce the number of workers coming in sick this winter. Learn more about some of the peace of mind benefits of ERP here.
Talking to the right people: finding the right vendor for you.
With dozens of ERP options available, it can be overwhelming to sort through the pros and cons of all of them. Additionally, many vendors provide the same core functionality, making it challenging to find the right vendor.
Functionality may seem like the most basic requirement when looking for a solution. However, it can’t be the only requirement. Software needs to be usable, mature, and able to work with other products—all while offering a support network that can help you.
Functionality: does it do what it’s supposed to do?
One of the most important steps is to speak with users and document the must-have features, the ones you will need in the future, and the ones that are merely nice to have. Understanding what your people need is vital to adoption and necessary for documenting needs.
If you’ve already documented your needs, you will save a lot of time during this stage and be able to focus it on the other four categories.
Maturity: how long have they been in the business?
It’s nice to have the “latest and greatest,” but it’s risky to be on the “bleeding edge” of technology. You should look for a system that has been field tested and proven in actual use… in your industry. Finding a vendor who is both a proven commodity in the industry and one who has continually put its efforts into innovation is necessary for getting what you need—now and in the future. Look for a proven vendor who offers big updates consistently, often twice a year.
A vendor who is in it for the long run.
Your ERP provider will be a partner for the long term, not just a supplier of a product. Be as sure as you can be that they will be around for the long haul. Check their financial stability – do they have the resources to support the product in the coming years? Look at their track record for clues about how well they support customers and improve the product over time. A good place to look for this is through the Gartner Magic Quadrant, an analysis of market presence and ability to execute.
A community of partners ready to make the product work for you.
Look for a community consisting of implementation and consulting partners, satisfied users, as well as user groups, discussion threads and conferences. These resources provide considerable added value beyond what you get from the supplier.
Look for a vendor who has a highly-rated partner program, who puts a lot of effort into empowering partners, and find a partner who has the size and scope to help you. Read this blog to learn more.
Honesty and credibility.
If something sounds too good to be true, it just might be. In today’s cloud market, many vendors have repurposed their products to call them “cloud.” Often, however, these fake cloud products end up providing less than they promise, surprising you with less than adequate support, higher implementation costs, insufficient user training or additional costs for necessary software, services or assistance.
Do your due diligence and get to know the difference between true cloud and fake cloud here.
The journey beyond QuickBooks is a long but rewarding one.
When you begin to outgrow QuickBooks, you are facing one of the most exciting challenges that exists. However, knowing when and how to make a move is often a challenge, and as mentioned above, both haste and delay are dangerous. However, with the right information and advice, your move from QuickBooks to ERP could be a smooth transition that benefits your business for years or decades.
NexTec can help you understand your options. For our growing small and mid-size (SMB) clients, we recommend Acumatica, a solution that features flexible deployment, scalable resource-based pricing, and the functionality and usability you need. We invite you to learn more about our work, compare QuickBooks to Acumatica using this helpful tool, and contact us to discuss your needs and learn more about your next steps.