ERP Is Critical for Early-Stage Growth
Choosing the right ERP system for your startup
Q: You help startups prepare their financial processes for growth. What do you typically see when you start working with a new company?
A: They’re very sophisticated with their lines of business, but they haven’t always thought through their financial processes. They tend to lack forward financial vision, they’re unprepared for the reporting requirements that come with outside investment, and their financials often aren’t user-friendly. They frequently have financials that give them a quarter-end statement, balance sheet and cash flow.
This section of the report is sponsored by Navigator Business Solutions and originally appeared in Middle Market Executive’s Fall 2022 issue. Read the full story in the archive.
But they can’t get any useful information from it. So we guide them toward a cloud ERP (enterprise resource planning) system that helps with growth and puts in place solid financial reporting, processes and analytics.
Q: What about QuickBooks? Why go straight to ERP?
A: We sometimes take startups to QuickBooks first, but at a certain point they need something bigger. These are a few criteria we always use to assess if they are ready for an ERP solution: IPO or outside investment plans, transaction volume, multiple locations or subsidiaries, and multicurrency.
If a company is going to raise capital on the public markets, having an ERP in place is essential; it gives the internal controls and the visibility and reporting soundness much better than QuickBooks. ERP also brings investors an extra level of confidence, and they can standardize financials around a common ERP platform. ERP handles higher transaction volumes, too, and gives segmentation of duties as a company scales.
Q: Why is ERP needed for multiple locations?
A: QuickBooks isn’t very good for businesses with multiple locations, such as a manufacturing site away from a main office. You need the scalability and integration of ERP for that. ERP also is essential when a startup buys another company or opens a subsidiary, because you’ve usually got consolidated financial statements to prepare every month from having more than one entity.
It gets more complex if multiple currencies are involved. When doing a consolidation in two or more currencies, Excel will only take you so far. QuickBooks doesn’t do that at all, and it handles multicurrency situations poorly. So suddenly, you’re talking about ERP.
Q: Which ERP systems are right for startups in your experience?
A: Select one of the big four players because they are tried and tested, and choose a small business solution such as SAP Business ByDesign that gives an upgrade path to the larger systems.
Equally important is picking the right implementation partner. You want someone who takes the time to understand your business, because they are going to give suggestions on configuration and help with adjustments and solving any problems as the business grows.
Gavin Maitland is CEO, Fleming CFO
Ralph Hess is Executive Vice President, Marketing and Sales, Navigator Business Solutions
