ERP systems have come to be indispensable staples of digital ecosystems, but mostly for large enterprises.
In recent years, however, small and mid-size companies have started showing interest in ERP adoption and are expected to strongly contribute to the ERP software market CAGR in the years to come.
Use this guide to the ERP selection criteria and must-have features to find the right one for your SMB.
Why SMBs Use ERP Software
Small-medium businesses have the same goals and incentives for choosing an ERP implementation as their larger counterparts – i.e. big enterprises. So what are drives businesses to do better? The challenge and success with:
- Improving profitability
- Managing growth
- Keeping up with the increased competition
- Meeting customer needs and service expectations
Yet small and large ERP adopters are usually in very different positions. For one thing, SMBs can’t afford to spend as much money and time on ERP implementation as their larger counterparts. Apart from this, SMBs tend to need a smaller and more specific ERP feature set and usually lack own IT resources for ERP software development.
4 ERP Selection Criteria For SMBs
For SMBs to choose their ERPs wisely, here are relevant ERP selection criteria with the necessary functionality for small businesses across industries.
The first important consideration for SMB owners is how industry-specific the ERP’s functionality should be.
There are generic ERPs that come equipped with basic features for streamlining workflows and, after some implementation efforts, will fit well with companies across industries.
Unfortunately, non-proprietary platforms, are not customization-friendly, and as vendors rarely provide sufficient out-of-the-box resources, the only way to introduce needed modifications is hand-coding.
However, as a result, generic ERPs are ideal for SMBs with mature software ecosystems that the platform will tie together.
More expensive industry-specific ERP editions are designed around the requirements and operational processes of domains and niches.
With more targeted, fit-for-purpose functionality, such platforms don’t require much initial customization and can be upgraded with ready-made modules as the business grows.
On the flip side, industry-specific ERPs are advanced solutions and require some expertise to handle them properly.
ERP software comes in three major deployment models:
- Hybrid (which is the combination of the two previous models)
On-premises implementation requires a large upfront investment which is not ideal for SMBs.
Cloud is hands down the most optimal ERP option for small and mid-size businesses.
Cloud-based platforms will come at a reasonable monthly fee. What is more, the vendor will take the pains to maintain and upgrade the software and ensure its security.
Finally, cloud-based ERPs can be scaled and customized on-demand, which makes them very growth-friendly.
If you are worried about the cybersecurity risks of cloud environments, you can opt for a custom hybrid deployment and host some critical processes and data in-house.
For cloud ERP versions, which we have already established as the best option for SMBs, vendors usually charge a regular subscription fee.
Most cloud ERP vendors have straightforward subscription plans. For example Odoo with their very granular per user and per adopted module fees, the latter ranging from six to forty-eight euro per month.
Unconventional pricing model
But some providers may introduce unconventional models. For example, Acumatica charges for resources used in addition to the monthly license fee of approximately $1,000.
In view of this model, smaller businesses should seek out platforms with highly elastic pricing to pay only for what they use and prevent budget overruns.
However, the true cost of ERP implementation includes many other items:
- Data migration
- Project governance
As a result, adherence to the initial ERP budget becomes a challenge for many companies, and in 2021, 33% of ERP adopters experienced implementation cost overruns, according to Statista.
Therefore, unless you have several multi-skilled IT specialists in-house, look for an ERP with maximum vendor support coverage and a marketplace of ready-made modules and integration connectors, as they will cost less than custom modifications.
Ease of use
When it comes to the positive change expected from ERP implementation, a platform’s usability is as important as its functionality.
There is no point in splashing out on advanced features if your employees spend months trying to figure them out.
In the meantime, quickly getting the hang of a basic but intuitive tool, even a non-expert team has higher chances to deliver positive changes.
SMBs should prioritize ERP user-friendliness above an advanced feature set. It’s unwise to base your choice solely on carefully crafted product demos, so make sure to search for real user feedback.
Ideally, if the vendor you are considering provides a free trial, take the platform for a test drive and let your employees evaluate its usability themselves.
5 ERP Must-Haves For SMBs
With the key selection criteria laid out, let’s move on to the five features SMBs should look for in an ERP.
With profitability improvement as the most common ERP adoption incentive, SMBs need modules for keeping expenses and profits under control.
If you are aiming for more holistic financial management, seek out ERP systems with a full-fledged general ledger module.
Since general ledgers are the backbone of any business’s double-entry accounting system, a dedicated tool will encompass AP and AR features and integrate with other business processes to automatically summarize the company’s various financial transactions in a centralized database.
Another ERP feature coming in handy for most SMBs is the procurement module. Such modules can automatically create checklists of what needs to be bought and send out requests for quotes to approved vendors. They can also handle and analyze received quotes, and, once the vendor is selected, help prepare the purchase order.
SMBs also tend to show interest in ERP’s basic workforce management features.
Workforce modules (not to be confused with human resources tools that are not as popular with SMBs) help companies monitor attendance, track employees’ working hours, schedule shifts, and orchestrate the working process in many other ways.
Relying on these modules, businesses can also ensure continuous workforce availability and accurately measure employee productivity. Some vendors also equip their workforce management solutions with a payroll feature to calculate payroll checks with individual deductions and automatically distribute them to employees.
Reporting and data analysis
To help employees make good use of the operational data accumulated in the ERP, SMBs should choose a platform equipped with strong reporting capabilities.
Having business data easily converted into graphs, charts, and dashboards of all kinds will empower stakeholders and rank-and-file staff to make fact-based decisions and proactively recognize bottlenecks.
Analytics is a more advanced ERP feature and therefore optional, but if you can afford it, the solution will prove its worth manifold. Such tools can process disparate data sets and deliver valuable insight into growth, improvement, and cost reduction opportunities.
Finally, SMBs should give preference to ERP platforms that are mobile-friendly or have fully functional mobile apps. Having 24/7 access to their operational data hub, your employees will be able to view and log in relevant data in real-time, make decisions on the go, and do their job from anywhere.
In some industries, like manufacturing or supply chain, mobile ERP apps can make a difference in managing remote workflows and improving end-product quality.
To Sum Up
For small and mid-size businesses, the adoption of enterprise resource planning systems is a major investment and a dramatic change, so owners need to be particularly discerning when choosing their future ERP software.
The best approach for SMBs would be to seek out a moderately-priced cloud ERP platform with basic but sufficient functionality that fits current needs, and then upgrade it as the business grows and expands.