Cloud software powers 90% of the world's businesses, and yet, executives still purchase financial systems based on a simple list of features, not the underlying data strategy.
When evaluating the costs of enterprise resource planning (ERP), the most significant expense is not the cost of the first year of licensing, but the hidden technical debt created by customized data mapping and malfunctioning middleware (integration).
This SaaS ERP software guide will outline the core technical features of an ERP system, the real-world use cases for operational use, and the deployment realities that distinguish scalable companies from expensive siloed data and will enable you to identify and develop your pricing models.
SaaS ERP Software Guide: Moving to the Cloud
For a traditional ERP implementation, the process requires physical hardware (internal servers), a large initial capital expenditure, and an internal IT team who is dedicated to maintaining this configuration. A cloud-based ERP system is completely different.
The cloud-based software is hosted and operated by the vendor in a subscription model. The vendor is responsible for automatic upgrades, security patch updates, and load balancing.
While the initial cost is typically lower than a traditional ERP implementation, many executive teams do not realize that the true total cost of ownership over the next five years is substantially more than the first year.
The license fee is only a small percentage of the total cost of ownership for an ERP. In fact, the software will ultimately cost three to five times more than the license fee during the first year due to the high costs associated with implementation, custom code, external connections, and ongoing support.
Total Cost of Ownership
When evaluating a cloud-based software application, the buyer should consider the entire cost spectrum. The cost of a standard per-user license will typically be between £55 and £200 per month for a full-access user.
Additionally, many vendors offer limited-access or read-only licenses that are typically 30% to 60% less than a full-access license. Companies can reduce their warehouse staff or sales reps' costs by providing tiered access only to those who require it to record time and to view basic inventory stats, so there is a savings for the company.
However, the majority of the cost for implementing any system is the actual deployment. Mid-sized companies traditionally see their implementation costs start at around $80,000 and range to $250,000 or more.
The total contract value (TCV) for a large enterprise can easily exceed $500,000 in the first year and continue to scale to upwards of $1.5 million with the inclusion of custom integrations and the migration of data from legacy systems.
Software Connection Issues
One of the biggest barriers to a successful cloud deployment is the lack of API maturity. Many older systems are based upon legacy integration methods, such as SOAP, which will often need excessive engineering hours to connect these applications to new platforms.
Today, most modern application development utilizes REST APIs using the OAuth 2.0 standard of authentication and authorization. Because of this open architecture, it allows for easy integration with external applications, such as Salesforce, Shopify, and Stripe.
To lessen this burden, teams are increasingly seeking to establish unified API solutions. With the ability of unified APIs to normalize data models across multiple platforms, we are seeing companies reduce their integration timelines from four months to four weeks.
Key Features to Look For in a SaaS ERP Software Guide
When evaluating a particular system, it is imperative to go beyond merely examining accounting capabilities. The value in the ability for a cloud-based solution is derived from how it is architected, as that is where the system is able to provide substantial process automation for complex, vertical industry processes.
Almost every cloud-based solution has some form of generic financial and inventory functionality. However, the true value of a cloud solution is determined by how substantially it provides answers to specific operational challenges.
Automated Revenue Recognition
For companies who provide services or software, revenue may not be able to be recognized immediately after the signing of the service contract. ASC 606 and similar accounting standards require a company to recognize revenue when the product or service is delivered.
Therefore, your company will need to maintain an accounting record of how much revenue it has generated each month based upon the actual number of units sold or services provided to customers during that month.
To effectively manage subscription billing, your organization would benefit from using a subscription management platform such as Oracle NetSuite or Sage Intacct to automate the processes involved in creating an accounting record of subscription revenue.
With a subscription management system in place, the subscription revenue will be automatically divided and recorded into the correct future accounting periods without the need for manual entry via a spreadsheet.
Managing Different Accounting Rules (GAAP) with Parallel Ledgers
Accounting regulations are different in every country. Therefore, a company operating within both Germany and the USA must follow both US GAAP as well as Germany's own GAAP simultaneously for financial reporting purposes.
Enterprise systems solve this issue with parallel ledgers. Global enterprise systems, including SAP S/4HANA Cloud and Oracle Fusion Cloud ERP, allow a company to record a single transaction once. Then, the software will automatically apply the various GAAP rules to it across multiple official ledgers concurrently.
Real-Time Visibility into Manufacturing Operations
For manufacturing companies, the only way to effectively integrate the financial side of a business with the factory is to make sure that manufacturing managers have real-time data on the costs of raw materials, labor, and machine downtime.
The faster the data flows into the accounting system, the quicker it can be used to analyze and correct production delays, as well as expensive stockouts of inventory.
Many manufacturing software packages, like Epicor Kinetic and SYSPRO, are specifically designed for heavy industry and have extensive shop-floor control modules that automatically update financial information each time a finished product leaves the assembly line.
Business Scenarios and Real-World Examples
A platform or accounting system that is well suited for a global distributor may be an administrative nightmare for a startup technology company due to the excessive administrative burden that it would require.
Therefore, as any good SaaS ERP software guide will suggest, the only way to ensure that you get the most out of your system is to match your specific operational needs with the available software solutions.
The Growth-Stage Technology Company
Imagine a software business with 150 employees, which has an annual revenue of $20 million and relies on an annual recurring income basis for revenue generation. In managing recurring billing models, they have surpassed the capability of basic accounting programs and manual spreadsheet applications.
The company's biggest pain point is managing recurring billing models. A system needs to be in place that will integrate into their CRM and help them to turn completed sales into billing schedules quickly and accurately.
For this company, service-focused platforms such as Certinia or Workday ERP will allow them to coordinate the project accounting of their business directly with their sales pipeline.
The Mid-Market Manufacturer
A manufacturing business employing 500 people and utilizing three separate facilities operates on a legacy system developed in 2005. They do not have visibility into stock levels in real-time and are unable to predict shortages of materials effectively.
The manufacturer's primary requirement is for a modern, API-first cloud platform. The systems provided by Infor CloudSuite or Acumatica Cloud ERP will give them access to the precise supply chain tracking they require to decrease the carrying costs of inventory and increase their rate of on-time delivery.
The Global Consolidator
An international distribution company, employing 1,200 people, operates through eight different subsidiary companies. Each subsidiary company is utilizing a different accounting application, and as a result, the corporate finance team spends several weeks manually consolidating spreadsheets in various currencies.
The corporate finance team needs a single enterprise platform that can provide multi-currency support as well as parallel ledgers. If the company converts to a single unified database, they will be able to automate their global reporting processes and subsequently shorten their monthly financial close cycle from weeks to days.
Implementation Timelines and Setup Steps
The vendors generally guarantee smooth, quick rollouts of their solutions. In reality, however, migrating the financial core of a business will be highly disruptive and requires a great deal of project management.
The average time required to fully deploy a new system for small businesses is between 45 and 60 days. For larger mid-sized companies with many locations, the average time required for deployment is between 6 months and 12 months.
The average time required for deployment of a new system for large international corporations is typically between 12 months and 36 months. If you try to push this faster than the expected timeline, chances are that you will create broken data links and failed audits.
The Most Dangerous Phase of Data Migration
The most dangerous part of any system deployment is when you are migrating your historical data from your old system to the new system. Many times this phase happens during weeks four or five of your project.
The format of the old data and the format of the new data do not match. One example of this is that many times about 20% of the SKUs (stock keeping units) for the historical product data you have do not pass the format check for the new system.
Your team must build time into the schedule to clean up the data that they are planning to migrate into the new cloud-based environment. If the team migrates bad data to a new cloud environment, it will ruin the entire investment made in that cloud environment.
The Cost of Delayed User Training
The value of your new system is negatively impacted more quickly by poor user adoption than by any software bugs. Many times you will find that modern systems are much more complicated to use than the consumer applications that most employees are used to using, and therefore employees may reject using a new system due to its user interface.
If the warehouse staff does not properly input the inventory into the warehouse, the financial data created will be useless. Leadership should build into the implementation plan at least two to three weeks of mandatory user training prior to launching the new system to ensure that employees actually use the new tools that they are provided.
Risk Management and Global Security Rules in Cloud Computing
When storing sensitive financial information in the cloud, companies are seeking absolute assurance of secure storage from their enterprise software vendor. This assurance is provided by demonstrating that a vendor's cloud server architecture is capable of protecting clients from today's complex and ever-evolving data security threats.
Enterprise software vendors must provide buyers with specific, independent, and regularly updated audit reports proving compliance with governmental and industry security regulations before signing a contract. This ensures that their company data is protected in accordance with legal requirements.
SOC 2 Security Criteria
The minimum compliance reporting requirement for SaaS products that operate within the United States is a SOC 2 Type II report. A SOC 2 Type II report is an independent, external audit that demonstrates that a vendor's security controls have been in place and are being actively maintained for a specific period of time.
Buyers of SaaS products should specifically identify and verify that there are independent and regularly updated audits of the vendor's identity and access management (IAM) controls. This includes CC6.1 for secure authentication, CC6.2 for safe user provisioning, and defined controls for limiting access by role-based access control (RBAC).
GDPR Data Storage Rules
Companies that sell SaaS products to companies based and operating within Europe must comply with GDPR. The GDPR does not merely establish a policy document or guideline. It sets clear limitations on the location of the physical storage of an organization's data.
Modern cloud technology must also incorporate the ability to implement specific controls over data residency locations. In particular, the cloud platform must provide businesses the means to ensure that any data related to consumers located in the European Union remains within the borders of the European Union.
SaaS ERP Software Guide Summary: Moving to a Flexible Cloud Financial System
The move to a cloud-based financial infrastructure represents an acceleration of speed in operations. For companies to grow revenue, their accounting departments cannot spend two weeks every month manually matching invoices between separate spreadsheets used by departments that do not use the same document management tools.
The strategic advantage of using these types of automated compliance platforms is the ability to unify global reporting between multiple countries and provide an indisputable source of financial data.
For example, it is up to executive leaders to understand that the value provided by these platforms is not just tied to the monthly subscription fee but also includes costs associated with implementation. Some estimates suggest it can take up to 80% longer to implement a platform if executives are not aware of all the technical resources and requirements for implementation.
In addition, we need to assess if the current requirements for deploying finance and ERP (enterprise resource planning) platforms, such as open and unified architecture/APIs and strict global security controls, are addressed in the selected solution. Establishing the right platform, as detailed in this SaaS ERP software guide, is not just a technology purchase; it is the defining of the digital rules going forward with respect to how fast and safely you are able to expand your business.
Questions About System Setup Problems
Why do integration timelines take significantly longer than estimated when the integration was first requested?
Typically, teams will underestimate the complexity involved with data mapping in order to transition from the previous system to the current system. Examples of reasons that trigger the overestimation of integration timelines include inconsistent API standards across all integrations, hidden rate limits, and no established, unified middleware for seamless integration. Therefore, developers must develop and test custom connection codes from scratch.
How should CFOs approach evaluating their choices of per-user pricing versus usage-based pricing models?
Per-user pricing models provide a predictable cost per month to businesses, but charge greater fees (per user) to businesses that have many users who require only basic access to the system. Usage-based (or flat-fee) pricing models usually require greater upfront expenditures to initially set up and implement; however, usage-based pricing models are much more efficient and scalable for businesses with large employee numbers.
What is the #1 reason data migration fails in week 4 of the integration project?
Data migration fails when the format of the data in your old system cannot be transferred to a new system because it does not pass the strict validation rules of the new database. For example, product codes, addresses, or currency markers that were transferred without going through a rigorous process of cleaning and standardizing will be rejected from being uploaded to the new database.
How does having a unified API platform for integrating with finance-related systems change the sequence of a project's deployment for the finance department?
A unified API integrates many types of applications together by converting their data structures into one standard format. This allows finance departments to connect their core system to invoicing and customer relationship management (CRM) systems in weeks instead of months, thus allowing them to complete their testing much sooner.
