A Note from the Managing Partner
Over the years I’ve walked into a lot of companies where the accounting system was doing its job perfectly. Invoices went out, bills got paid, the general ledger balanced, and financial statements came out every month like clockwork. And yet management didn’t trust the numbers.
That sounds like a contradiction until you look at what’s happening around the accounting system. Sales works out of a CRM. Operations has its own system. Project managers keep their own spreadsheets, inventory lives somewhere else, and payroll comes from yet another application. Somewhere in the middle, a person in accounting is downloading data from one system, massaging it in Excel, and keying or uploading it into another. Every one of those systems may be doing exactly what it was bought to do, but the business runs across all of them, and that’s where the financial risk starts.
The Warning Sign Usually Isn’t an Error
When people hear “financial risk,” they think of something going wrong, like a bad invoice, misstated revenue, inventory that won’t reconcile, a project that lost money, or an entry posted to the wrong account. Those risks are real. In my experience, though, the more dangerous problem shows up much earlier, at the point where management can’t answer a fairly simple question without someone going off to assemble the answer. How much did we really make on that project? Where does our inventory actually stand? How much of this contract have we billed, and how much is left? What does cash look like over the next 60 or 90 days? Which customers, products, projects, or locations are driving our profit? If answering any of those means pulling from three systems and two spreadsheets, you already have a financial information problem, even if every number in the pile is technically correct.
How Growth Multiplies the Handoffs
I want to be fair to the way most companies got here. I’ve seen plenty of organizations run successfully for years on a collection of separate systems. The CRM works, the accounting software works, the warehouse system works, and Excel does what it has always done so well, which is fill in every gap between them. The trouble comes with growth, because as the company grows, so do the handoffs between those systems. Someone exports the sales data, someone else updates the project spreadsheet, accounting gets the billing information, operations adjusts inventory, and management receives a report stitched together from pieces of all of it. Each handoff takes time and depends on somebody’s interpretation, and each one is another chance for an error to slip in. Eventually your financial reporting turns into a reconstruction of what happened sometime in the recent past, and the more the business grows, the further back that picture sits.
Information Latency Is a Hidden Cost
One of the biggest changes I’ve seen in ERP over my career is that the conversation has shifted from simply recording transactions to providing information. Years ago, having accurate financial statements at month-end was considered good enough. Today an owner or CFO may need to know what’s happening this morning, simply because businesses move faster than they used to. If a project is losing money, finding out three weeks later won’t recover the margin. If purchasing is working from outdated inventory numbers, discovering that after the order goes out won’t take back the excess stock. If a contract is nearing its billing limit, learning about it at month-end does nothing for the project manager who made decisions two weeks earlier. And a perfectly accurate cash-flow report has limited value if it arrives after the cash decisions have already been made. That’s why I consider information latency one of the most overlooked financial risks in a growing company. The numbers can end up 100% accurate and still arrive too late to be useful.
When Nobody Knows Which Number Is Right
Then there’s the question nobody enjoys asking: which number is right? I’ve sat in plenty of meetings where two people brought different answers to the same question. Neither person was careless; they had each pulled their numbers from different places, at different times, using different assumptions. Sales had one revenue figure, accounting had another, operations had a third, and the project manager’s spreadsheet said something slightly different from all of them. At that point the meeting stops being about the business and turns into an exercise in reconciling numbers. The hour lost to reconciling is a real cost, but the bigger damage happens when management starts to lose confidence in the information itself. Once that sets in, decisions slow down.
Integration Gives You Financial Visibility
This is why I think conversations about integrated ERP lean too heavily on efficiency. Cutting out duplicate entry, automating manual work, and replacing spreadsheets all make people more productive, and those benefits are worth having. The larger benefit, in my view, is financial visibility. When sales, purchasing, inventory, manufacturing, projects, service, billing, and accounting all work in one integrated environment, nobody has to reconstruct a transaction later for the financial reports. It becomes part of the financial picture the moment it happens. A purchase shows up in your commitments. Inventory movement updates availability and cost. Project activity flows into profitability, and billing flows into receivables and your cash expectations. Operations and finance end up looking at the same information at the same time, and that’s what you’re really after.
Where to Start When Evaluating ERP
One mistake I see companies make when evaluating ERP is starting with a list of features. Does it have CRM? Does it handle inventory? Does it do project accounting? Can it build dashboards? Those questions matter, but they’re not where I’d begin. I’d start by asking how information moves through your company today. Where does it originate, and who touches it along the way? Where does it get re-entered, and where does someone have to manipulate it? Which spreadsheets have quietly become essential to running the business? And how long does it take for something that happened in operations to become financial information you can rely on? Those answers will tell you far more about your ERP requirements than any feature checklist.
An Exercise for Owners and CFOs
If you’re an owner, CFO, or executive, here’s an exercise I recommend. Pick three questions that matter to running your business. They might be what your profitability looks like right now, which projects are ahead of or behind budget, and what your cash requirements will be over the next 90 days. Then count how many people, systems, spreadsheets, exports, and manual steps it takes to produce each answer. If that count is higher than you expected, you may have found a risk that hasn’t made it onto your financial statements yet.
Disconnected systems rarely fail all at once. Most of them work reasonably well for a very long time, and the warning sign comes when the business starts growing faster than the processes connecting them. By the time the errors finally show up, the real problem may have been there for years.
Vito
Managing Partner, SOS Consulting Services
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