We have all heard about Enterprise Resource Planning (ERP) software. ERP is excellent business process management software which allows a company to leverage a system of multiple integrated applications in order to manage the business while automating several back-office functions associated with technology, services, and personnel management.
The information available via an ERP system provides greater visibility for many key performance indicators (KPIs) required to meet corporate objectives. We can use ERP software applications to manage product planning, orders, purchase parts, interact with suppliers, maintain and keep track of inventories, provide excellent customer service, and track orders.
When we hear the term “ERP software,” production, inventory, order management, and quality often come to mind. However, ERP systems are equally valuable in financial management. With bank reconciliation, tax management, capital management, account receivables, and purchase management, etc., an ERP system goes to great lengths in order to support a company’s management of its bottom line.
An ERP financial management module is a software program that collects financial data and produces reports, like ledgers, trail balance data, income statement, overall balance sheets, and quarterly financials.
ERP is a Comprehensive Solution
Apart from the standard general ledger, accounts receivable and accounts payable functionality, modern ERP systems include robust financial report writers that we like. Most importantly, we can integrate the financial management module of ERP software with other applications, such as inventory management, purchasing, warehouse management, order processing, CRM, manufacturing and planning, business intelligence, and e-commerce. This is great as it eliminates the need for duplicate data entry in more than one software package and streamlines the company’s financial management and accounting operations.
ERP Benefits for Financial Management
After working with several clients on ERP implementations, we have noted the following important benefits that companies derive from using financial management in an ERP suite.
Better Asset Management
ERP software provides companies with the ability to get insights and better visibility when it comes to asset management. Companies own various types of assets, such as machinery, buildings, electronic equipment, and office furnishings, among others.
When a company is considering purchase quantity, value, and other relevant information, customized asset tracking and reporting are valuable. With ERP software, organizations can obtain better asset accountability and lower risk of loss as they now have more efficient and timely inventorying methods, which help eliminate hidden costs as well as inefficiencies. We think better visibility and greater control over assets, like machinery, helps companies avoid wasting funds on unnecessary capital expenditures for resources that they already own and can be easily reallocated.
ERP software offers ways for firms to:
- Access comprehensive reporting related to asset valuation and asset location
- Easily manage and track company various assets, including depreciating and non-depreciating assets (such as land)
- Better monitoring of assets to minimize the risk of theft
And that is not all by tracking business assets that have reached their utility limit and tracking the location of high inventory with low usage provides organizations with immediate cost savings.
ERP software delivers a powerful and efficient financial reporting solution that help organizations make better and smarter decisions.ERP financial reporting solutions streamline every step of a company’s financial reporting process and offer meaningful, comprehensive, timely and highly customizable management and financial reports, transforming data and analysis into answers, actionable insights and business success.
ERP systems provide instant visibility into data, like accounting, financial reporting, budgeting, sales, billing, and order management—all of which could be used by top management in order to make better decisions.
Although standalone accounting and financial management packages provide basic financial reports, such as income statements, cash flow statement and balance sheets, ERP software offers many more varied kinds of reports that provide more visibility into financial data. Some examples of these reports are cashflow projections based on order statuses and inventory management as well as accounts receivable aging combined with customer order pipeline. ERP software gives you an idea of where you stand with easy-to-understand and easy-to-analyze dashboards, as well as Key Performance Indicator (KPI), reports.
With these amazing capabilities, finance managers no longer have to make best guesses about their business, putting the company ahead of its competition.
It is worth mentioning that variance management is an important facet of financial management. ERP software can also assist a company’s accounting department by helping set standards. Companies can more easily review and adjust expenses for any project to meet expectations by taking the cost of production and any related manufacturing expenses and providing a clear baseline.
Standard costing covers the cost of direct labor, direct materials, and manufacturing overheads.
Keep in mind that if a variance between the actual cost and the standard arises, businesses can use different tools for analyzing that variance and understanding how the actual cost differs from the standard cost. If the standard cost is lower than the actual cost, the variance is unfavorable, meaning that the profit would be lower than planned.
With an ERP solution, companies have the ability to timely identify and address any cost variances compared to the allotted budget. The business can swiftly assess exactly why the cost variance is arising and remediate it quickly before it starts to cut into profits. In contrast, if the costs are lower than expected, then companies can set new standards, and favorable conditions can be easily preserved.
ERP solutions offer the ability to review various costs over a certain period of time or according to a particular classification. This also allows companies to reference multiple cost balances and create cost tables to help review and analyze cost allocations and make more-informed business decisions.
A majority of good business leaders know and understand that budgeting is an important part of the business. A company’s financial information and sales figures are within its ERP system. Companies can use this information to derive both projected revenue and expenses with ease. Of course, prior financial data is within the system as well, so the finance department has all the information at its disposal to begin the budgeting process.
ERP software can show a business how it’s doing in terms of spending. For instance, modules of these software packages are able to assess advertising and marketing campaigns. They can also analyze business processes as well as supply chain utilization. Keep in mind that in the end, a well-designed financial management module can make all the difference between financial waste and corporate struggle, and a leaner, more efficient and effective business model that leaves the organization with more revenue and cash to reinvest.
Financial and tax compliance is a must-have for all businesses and an essential element in most ERP systems. It is worth mentioning that failing to comply with relevant requirements can have catastrophic effects on the business. It is not a great feeling to have the IRS looking over your shoulder, threatening the existence of the business. Although nobody wants to fudge the numbers or cut corners when it comes to finances, at times, companies do not have access to all the information they need.
This is where ERP software comes in to save the day. An ERP solution ensures that companies have tracking capabilities with audit trails, so they never land in a bad situation. You can rely on the numbers and have full confidence that the IRS will not find any discrepancies.
Financial compliance requires businesses to correctly abide by all the rules and regulations established by regulatory organizations, and an ERP solution helps companies achieve that.
Automation helps immensely with productivity. An automated and robust system with consolidated data will get cash in the door much faster in order to support the expenses that companies need to pay. A good ERP system will allow a company to automate both cash payments and receipts through the use of electronic withdrawal and automatic deposits.
Also, by having ERP software and accounting linked, it is easier and quicker to automate workflows that cross the 2 systems. By using ERP for accounting and financial needs, companies can completely automate accounting and financial tasks. For example, a business can streamline accounts payable and accounts receivable management and cash management. Automation can also let businesses track their financial transactions more quickly.
Most companies need to have an external audit on a frequent basis. Financial management packages in ERP software can help the business better prepare for the audit. The solution can also provide for things, such as e-discovery. When there’s a legal question or an outside investigation into businesses finances, an ERP software system can make it simpler for businesses to be transparent, resolving the issues that come up.
Employing workbooks and spreadsheets rather than ERP for financial management could harm a company in the long run. Small coding mistakes and database mistakes are likely to escalate.ERP systems allow greater and instant visibility into data for budgeting, accounting, and financial reporting, which management can use to make better decisions. ERP functions simplify life for finance personnel, helping them stay on top and improve the return on daily work processes