Key Takeaways:

• An enterprise resource planning (ERP) financial module is software that allows you to gather and communicate financial information clearly and timely to internal and external partners including management, vendors, and customers.
• A robust ERP financial management system contains multiple features to streamline data, enhance reporting efficiency, and minimize accounting errors.
• Implementing an ERP financial solution successfully requires meticulous planning and 100% commitment from top management beyond go-live.

Introduction to ERP Finance Modules

An enterprise resource planning (ERP) financial module is software that allows you to gather and communicate financial information clearly and timely to internal and external partners including management, vendors and customers. This is accomplished through functions such as accounts payable, accounts receivable, inventory management, the general ledger, budgeting and more. Systems for finance ERP allow you to obtain timely information so you can make initiative-taking decisions that will positively impact the profitability of the business.

Key Features of an ERP Finance System

The financial modules, General Ledger, Accounts Payable, Accounts Receivable, and Fixed Assets, are the core of the ERP instance. Every action taking place throughout the ERP system eventually registers in the financial system, usually the ledger. The financial system provides the following key business functions:

• Basic Financial Condition: Business conditions are usually measured in terms of Profit or Loss. In addition, cash balances and long and short-term debt.
• Cash Flow: Cash flow is typically measured in terms of outstanding payables and receivables. Positive cash flow is indicative of healthy business conditions while negative cash flow can indicate problems. The accounting system helps to not only track cash flow, but project and adjust for unique conditions, such as a build ahead of inventory to adjust for a season business.
• Asset Value: Fixed assets track tangible assets as well as calculating depreciation for tax purposes. These values are reflected in the balance sheet. Asset investment can be tracked not only in initial investment but reduction in income tax.
• Business Planning: Financial budgets are used both for business planning as well as tracking performance. The budgeting subsystem allows for not only basic performance but in identifying those areas that may be underperforming.
• Product Cost: The financial system tracks product cost as compared to selling price generating margin. Cost detail allows for tracking and correcting the source of variances.

General Ledger (GL)

A general ledger provides tracking and a record of all financial transactions, integrating with other ERP modules such as sales and inventory management, accounts receivable, and accounts payable. It provides an enterprise level view and the ability to track and review all transactions tied to assets, liabilities, capital accounts, income and expenses. A GL can provide excellent visibility to financial information, performance and is the basis for creating financial statements and evaluating the organization’s health.

Accounts Payable (AP)

Accounts Payable tracks the money you owe, when payments are due, and helps you take control of cash flow. It provides information on who you are purchasing products and services from, allowing you to better understand your business and focus on opportunities to increase profitability by reducing costs. Automating accounts payable can save your company time and money by processing large amounts of invoices by utilizing imaging features that convert paper invoices to electronic documents, thereby reducing human errors and ensuring vendors are paid timely.

Accounts Receivable (AR)

Accounts Receivable represents the money that is owed to you, tracking customer payments (customers that pay on time versus past-due payment customers) allowing you to take control and manage cash flow. In addition, accounts receivable helps you identify and assess credit risk and determine whether the customer should be placed on hold until payments are caught up and/or if credit terms or credit limits should be increased or decreased based on customer behavior and analysis of the customer’s business.

Fixed Assets

ERP solutions can track and manage your company’s tangible assets through Fixed Asset Management, including equipment, computers, software, company vehicles, etc. It calculates and can automatically book depreciation expenses, providing visibility to costs, utilization and maintenance. This provides the opportunity to accurately forecast and create budgets, plan for routine maintenance, understand which equipment is aging, and prevent you from paying taxes on assets that have been eliminated while assisting to identify other opportunities for tax savings.

An ERP Finance Module Enhances Financial Management

Enterprise Resource Planning modules can have a major impact on financial management by utilizing an integrated system that seamlessly combines related data from all the subsystems in a centralized location. This enhances your ability to quickly access key reports, often through a dashboard, that can allow you to make quick decisions to improve efficiencies, reduce costs, and provide invaluable insights to improve or modify business operations.

Impact on ERP and Financial Data management:

• Data security and the ability to secure data and limit access to confidential information such as financial reporting and customer relationship management information.
• Reporting real-time with centralized, enterprise level data, the system will quickly consolidate important business information helping management and key stakeholders make better business decisions, identify problems, and improve processes.
• An ERP financial management system can provide a centralized platform to manage highly visible areas, such as finance and tax management, to help minimize the risk of non-compliance and associated penalties.
• Risk Management is achieved by utilizing ERP technology to strengthen financial controls and reduce fraud.

Benefits of an ERP in the Financial Management Process:

• Improve efficiencies by providing clear insights into profits and costs, expediting business decisions to increase income and / or reduce costs.
• Reduce costs through automated and streamlined processes.
• Provides better insights based on real-time data, identifying key business trends and enabling management to make timely decisions to positively impact the company.
• Minimize risk to the organization through system checks, analytics, and the ability to predict and manage the company through a financial crisis.
• Creates financial transparency through dashboards and the GL to understand everything you need to know about the company’s financials and cash management.
• Ability to access key data through one centralized location.
• Improves budgeting and forecasting processes with access integrated system through centralized enterprise level data that facilitates better reporting and analytics.

Implementing an ERP Finance Module

Steps for Effective ERP Implementation in Financial Management

There are several steps to consider when implementing a financial enterprise resource planning module. From an elevated level they include:

• Planning: Outline the steps in the process including timelines, roles, responsibilities and training. 
• Business process re-engineering: Identify current manual or redundant processes and develop workflows to automate.
• Risks: Identify and explain risks in the business plan, including the level of commitment to be successful.
• Data Migration: Cleanse, format, and validate data from the old system to the new ERP. Establish data governance controls for new data or data updates in the new ERP.
• Customization: Identify gaps in the new ERP that are not aligned with go-forward processes, create workflows, and customize if necessary.
• Testing: Verify the system’s functionality based on expected results.
• Training: Provide training to ensure users are prepared and educated with the rollout of the new system.
• Change Management: Ensure proper communication and support to connect people, processes, and technology to ensure a success with the rollout of the new ERP project.
• Support: Provide ongoing support to review setup, work through system or configuration glitches, add additional features, provide support to accommodate changes in business processes.

Other things that should be considered including defining the chart of accounts, cost centers, and business units, understand and define user access and permissions based on roles, understanding if go-forward software can by integrated with the selected software.

Challenges in ERP Financial Management Software Implementation

Implementing an ERP finance system is very difficult and challenging because of the complexity of the process, time required, and the impact it has on the entire organization. It is a complete paradigm shift, moving away from manual processes to automation. It requires a committed project team to represent all users for the entire Enterprise Resource Planning platform. Below are some of the challenges related to ERP implementations.

• Commitment from Top Management: It is imperative leadership displays a positive attitude toward the project, for the life of the project. Keeping morale up during the whole project is a challenge and requires top leadership to lead the way and be involved, making the project one of their top priorities.
• Costs Incurred on Implementation: Organizations underestimate the amount of work required, costs associated with implementing a new system, investment in internal hardware, and the cost of customization and end up spending more than expected.
• Limited ERP Awareness: Many companies are not aware of the capabilities an ERP system can bring, automating manual processes and providing timely access to enterprise level data so management can make impactful decisions for the company.
• Data Migration: When collecting data from a legacy system, that data may not be compatible with the new ERP's accounting solution. The data must be cleansed, standardized, and validated multiple times before going live on the new software. Otherwise, data can be lost.
• Project Plan and Implementation Time: The project plan can determine the success of the program and companies often do not understand the amount of time required for a successful ERP implementation, specifically as you initiate, analyze, configure, validate, deploy, and optimize business processes.
• Resistance to Change and Employee Retention: Employees resist change due to fear or distrust of new processes and / or job security. In some instances, employees leave the organization during the implementation process because the change is too significant, or they their tasks were automated and feel devalued causing a sense of insecurity.
• Technical Issues: Includes problems with software compatibility, integration, and system performance issues.

Other challenges include adoption, proper and adequate training (including resources), selecting the right ERP software and vendor, sufficient testing, customization, maintenance costs, and over / under automation.

Best Practices for Using an ERP in Financial Management

• Make sure you have a thorough and comprehensive plan with clear objectives.
• Engage key stakeholders to understand their needs and concerns.
• Ensure proper data cleansing and establish data governance rules to standardize and maintain data accuracy.
• Implement robust controls to limit user access based on job responsibilities and to protect sensitive financial data.
• Automate workflows to optimize financial processes to utilize the system, save time, expedite the close, minimize errors, and provide timely and accurate financial data to drive impactful decisions to help the health of the business.
• Provide comprehensive training for users based on their roles and responsibilities.
• Utilize the system's reporting capabilities to generate customized dashboards and reports to monitor established Key Performance indicators (KPI), manage financial performance, and provide analytics for quicker more informed business decisions.
• Focus on continuous improvement by reviewing and updating the configuration of ERP software to adapt and align with evolving business needs.

The Importance of Financial Reporting in ERP Systems

Financial reporting in Enterprise Resource Planning (ERP) Systems is crucial because it provides companies with real-time financial data. This helps companies drive business decisions that impact the business and allow them to understand the company’s financial health. ERP reporting systems are more accurate because the financial data is stored in one central location (reducing errors). This helps companies become operationally efficient and effective because they are relying on accurate data to make informed decisions. This improved access to financial data can also help companies stay compliant with regulatory reporting requirements.

Other benefits of the financial reporting system include identifying trends, creating the baseline for budgeting and forecasting, managing cash flows, and optimizing operational efficiencies.

Financial statements are generated within an ERP system by pulling data from a central General Ledger (GL). The GL records all financial transactional data across the organization from different modules like sales, inventory, fixed assets, accounts receivable, and accounts payable and posts these transactions based on a predefined structure in the chart of accounts. This allows the system to quickly generate standard reports like the income statement, balance sheet, and the statement of cash flows. These insights into their financial performance provides a company the valuable information required to understand trends, risks, and the overall financial health of their business.

Financial reporting plays a critical role in decision making, providing valuable information and insights to the financial performance and the health of the company. When leaders and stakeholders can generate comprehensive financial reports, they are able to make informed decisions on behalf of the business. This type of view of the company's financial health also provides insights into market trends and performance benchmarks, laying the foundation for the strategic direction of the business. Financial reporting provides information required to better manage the business, track financial performance, and understand the segments of the business that are over / under performing so resources can be appropriately allocated.

An enterprise resource planning (ERP) system enhances financial transparency in several ways. To maximize the opportunity, businesses should establish data governance polices, create a transparent reporting structure, enforce role-based access controls, and make sure employees are well trained to use the ERP finance module features.

Asset Management Function in an ERP Finance Module

The asset management function is a key component that allows businesses to track the lifecycle of tangible (physical) and intangible (non-physical) assets. This includes acquisition, depreciation, maintenance, and disposal. The modules track asset details like purchase date, description, cost, and serial number. It automatically calculates and posts depreciation entries to the general ledger based on the method of depreciation chosen and the useful life of the asset. In addition, the modules create maintenance schedules and tracks the actual maintenance performed to optimize the performance and useful life of the asset. From a reporting perspective, the modules can generate reports detailing all activity related to the asset including valuation, depreciation schedules, asset utilization, maintenance performed, and other asset related expenses for financial analysis and compliance purposes.

The benefits of integrating asset management within an ERP financial model include:

• Improved financial accuracy, eliminates manual entries, and automatically updates financial records with asset transactions.
• Provides real-time insight to the performance of the asset versus standards and enhances decision making regarding maintenance, replacement or disposal of the asset.
• Creates operational efficiencies by automating routine tasks like depreciation calculations and maintenance scheduling and maintenance history.
• Supports compliance with accounting and financial standards regarding useful life and depreciation practices.
• It provides detailed information for budgeting and forecasting needs based on the remaining life of the asset and historical maintenance.

Conclusion

Utilizing an ERP financial management system does more than streamline a company's financial transactions. These systems can also make a company more profitable, more productive, and more competitive in their industry. Purchasing and/or upgrading your ERP financial software to handle your accounting and financial management is not a task to be taken lightly. RubinBrown's independent ERP consultants understand the complexities of choosing and implementing an ERP financial management software. Our partners would be delighted to delighted to discuss any questions you may have about enterprise resource planning systems and how we can assist you in making that purchase or upgrade a success.

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If you are interested in discussing how any of the above ERP system features could assist your business, feel free to reach out to one of our partners listed below. We would be delighted to discuss your company's ERP/SCM requirements with you.

Published: 12/05/2024

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