It’s very easy for business managers to put off an enterprise application upgrade. The tendency is to only look at the immediate and obvious impact on cash flow. There are other factors so often overlooked that also impact cash flow. While they may seem less tangible, these seven factors directly effect the medium term and more importantly the long term, profitability of your organisation.

First, let’s explode the two most common myths to delay taking up an ERP software upgrade.

Excuse #1: “Upgrades are by the vendor and for the vendor.”

It’s true, and it’s not true.

Having worked as a developer in a software house and in the customer support team, I can say from first-hand experience that customers demand enhancements. This means existing customers and prospective customers ultimately drive upgrades.

The true part is yes, vendors want new customers and so they will adapt the software to be more attractive to new customers.

The false part is that many software houses earn more money per year from their existing customer base than from new customers. To stay in business, the vendors must listen to and respond to their existing customer base. Over the last 10-15 years, we’ve all seen the impact on even the large software manufacturers that didn’t get this right.

To suggest the only benefactors of upgrades are the software vendors is not correct. To suggest that your business will necessarily benefit from every upgrade is also not correct.

The rate at which upgrades are offered is not going to suit all customers all of the time. So the rate at which your business adopts the upgrades is certainly in your complete control. You have the challenge of finding the right balance between the benefits of the upgrade and when you adopt them, relative to your environment and industry.

Excuse #2: “If it ain’t broke – don’t fix it.”

If we’re going to throw adages around, this one could equally be discredited with “if you’re standing still, you’re falling behind”.

Exposing the 7 costs

1) Skilled resources – it’s perfectly natural and normal for people to want to be skilled up on the “new thing”. I don’t mean the leading-edge of technology, I mean current.

a. From an employee’s perspective, any future employer is going to look favourably on an applicant with updated skills, and far less favourably on a skilled-but-outdated applicant.

b. From a contractor’s perspective, you can usually find more work in the “new” area and its usually more interesting.

c. From a business perspective – quality skilled resources of older skills become harder and harder to find and more costly over time. Current staff become stagnant and stale, and prospective employees you would want to attract will be more attracted to your competitors.

2) Competitiveness – the fast paced world we all live in demands your business adapts as well. Software vendors rely on a combination of customer requests and best-business practice of the day to form their enhancements strategy and direction. If your business is still using the best practice of 10 years ago, your business is struggling. Software upgrades give the enhanced functionality and efficient business processes to help keep your business competitive.

3) Return on investment – if you prefer the DIY approach to updating your software, you will be weakening the investment the business made in selecting the enterprise application.

It costs more to develop the software in-house than to adopt the enhancements produced by the software vendor. And even if you don’t see staff costs as direct costs to the business, or you get developers at rock-bottom prices, you will be missing out on the strategic integration of those enhancements to the product core. The end result is you will be spending more and benefiting less from IT than your competitors.

4) Compliance – software manufacturers stay on well informed on legislative changes that may impact the design or flow of information in their systems. Why re-invent the wheel?

5) Innovation – when businesses develop in-house systems, they become reliant on internal knowledge. Another way of looking at it is they become insular or stale. If your business systems are in large part “stock standard” then you can easily infuse new ideas from outside consultants, experts from other industries, and even from new staff, to help foster growth and excellence across the enterprise.

6) Productivity – Software upgrades provide the perfect catalyst for a business to adopt and effect process change and gain productivity.

7) Staying on the same page – This is one of the most common “opportunity cost” mistakes made, even by companies that keep their software versions current.

Upgrades serve as a reminder that business technology needs to stay in touch with the business it serves, and visa versa. This is a perfect opportunity to review the business strategy and the IT strategy, and re-align both to the same long-term goals

Proper analysis of the risks and costs should be done as part of the normal planning process of an upgrade. Pro-active engagement by the business and planning by the business overall (not just seeing it as a technical exercise) will help your organisation achieve and realise value out of your software investment.

Typically, as a Small Business owner or manager, you don’t normally associate purchasing software to reduce costs. However, CRM software specifically has some cost reduction advantages that are discussed below:

1. No More Looking for Documents. According to research by Delphi Group, a Boston consultancy group, 30% of all employee time is spent trying to find “lost” documents. Do the math and you will be shocked at how much wastage is going on in your company!

2. No More Spending on Advertisements that Don’t Bring in Revenue. With marketing automation, you will know exactly which advertisements bring in the revenue so that you can toss out the other ads.

3. No More Wondering What Activities took place When & Where. Since all communication is tracked in CRM software, all your employees will always have insights as to a customer or vendors history with your business.

4. Reduce Customer Service costs up to 70%. By using web self-service (a way for your customers to receive Client Specific information from your web site), you will be able to reduce customer service calls and staffing.

5. Reduce printing costs. Why print when you can distribute your brochures online. With CRM, you can automate distribution of brochures and other documents through email and web self-service access.

6. Consolidate Custom Databases. Because you can create custom screens, consolidating other databases in your CRM Software will reduce licensing and maintenance costs.

7. Layoff the “extra” Help. With CRM, each of your employees will be able to accomplish a lot more. So, it will allow you to review your staffing needs for all the “extra” help that you have from time to time. For example, new leads can come in through your web-site automatically into your CRM system and assigned to the appropriate sales rep – all through automation. You will be able to import leads from other sources as well – no more manual data entry!

Now, Go Save Money with CRM!

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Sunk costs are usually defined as previously incurred costs that are not recoverable and should not be taken into account in decision making. Here is a slightly modified example of a sunk cost from Jerold Zimmerman’s “Accounting for Decision Making and Control” (Irwin McGraw-Hill):

Example. Abadabba Berman, the comptroller of the Schultz Cement Shoe Company, has contracted with Microstiff to design a proprietary accounting software package for the company at a cost of ,000. After months of dealing with countless glitches and bugs the system just barely works. Finally one of the frustrated bookkeepers points out to Abadabba that for only ,000 they could purchase an off the shelf package from Quickcrooks that would generate all the reports that the more expensive system provides with a fraction of the aggravations and crashes. Abadabba cannot bring himself to invest the additional ,000 in the replacement system even though the company will easily save that much and more in the improved productivity of the accounting department. Abaddaba reasons that they have too much invested in the old accounting system to simply abandon it.

Abaddaba should consider the past investment in the expensive Microstiff software a sunk cost. He should ignore the past investment in deciding whether to abandon the software and replace it with the Quickcrooks package. According to cost accounting theory the only relevant costs to consider are the future costs associated with each option. If retaining the Microstiff software is more expensive going forward than buying the Quickcrooks package then the Microstiff software should be abandoned. The previous heavy investment in Microstiff should not be a consideration in making his decision.

Loss Aversion: Why Abaddaba Won’t Let Go of Microstiff

According to cost accounting theory Abaddaba’s choice to hold on to Microstiff is irrational. The best choice for the company is to abandon the software, not keep it. Now of course, the irrational choice for the company may be a very rational choice for Abaddaba personally. Why? Because the boss of the company, Dutch Schultz, has a notoriously bad temper and Abaddaba does not want to face Dutch’s wrath when he tells him that he made a ,000 mistake going with Microstiff. So from Abaddaba’s perspective it is rational to cover his rear and stick with the bad software.

But this is not really the full story because even if Abaddaba was the owner of the firm the odds are that he would still make the irrational choice to stick with the crummy software. Why? Because he, like all of us, tends to be very reluctant to accept losses. Abaddaba’s failure to treat the prior investment as irrelevant is a species of a very common behavioral trait known as loss avoidance.

Varieties of Loss Aversion

For most people losses loom larger than gains. The pain we feel from a loss generally outweighs the pleasure we feel from a comparable gain. This is what the social scientists term loss aversion. Variations of loss aversions are common place in business and investing. For example, investors are, as a rule, much quicker to realize gains than losses. This is the reason why automatic stop loss orders are implemented when buying stock. An automatic stop loss triggers a sale when a stock investment’s price drops to a certain point. It is automatic and commonly used because it is the all too human trait of loss aversion that often keeps people from cutting their losses. The tendency is for people to hold on to losers in the hopes that the loss will reverse.

Real World Decisions

In the above example all the consequences of the different courses of action were specified. I told you what the dollar consequences of keeping the old software versus buying new software would be. Rarely in real world situations do we have precise dollar estimates for the results of different courses of action. The tendency to stick with losers, and thus not cut our losses, can be reinforced by the ambiguity surrounding real world decisions. If you are in a position of being emotionally invested in a bad decision, the tendency will be for you to filter out and skew data that would support abandoning the course of action you are invested in.

Practical Advice on Dealing with Sunk Costs and Loss Aversion

First recognize that there is no way to detach yourself emotionally from the consequences of important decisions that you have made. Recognizing that you have made a poor important decision is always going to be painful. What you can do is recognize that you have an emotional investment in your decisions and seek the advice of individuals who are not so emotionally invested. These individuals are less likely to filter out information that might call for abandoning a bad investment.

So who can you consult with about important decisions? If you are a small business owner it is important to have an outside advisor. Outside accountants, Small Business Extension Center staff, or volunteers from S.C.O.R.E are all good possibilities that will not break your budget. Trade or business associations often have staff available for advice on business operations. Also do not overlook the web as a possible resource of good advice. Almost every type of industry or business has forums where similarly situated owners can offer each other advice.

For larger businesses, independent boards of directors can fulfill the role of detached advisors as well as outside consulting specialists. Also remember loss aversion and the unwillingness to abandon sunk costs can exhibit itself in groups as well as individuals.

Finally, do not forget that even the smartest people make mistakes and often very big ones. Ignoring non-recoverable costs requires admitting that we have made bad decisions. Never an easy thing to do. But the ability to admit mistakes, abandon sunk costs and move on is vital to success in any enterprise.

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With business being competitive companies are always in search of opportunities to cut costs and to gain competitive advantage. On the other hand, the internet has been changing the way business is done and business is managed today.

Web-based software for various back office functions has been developed. It has become the way cash flow management, inventory management and accounting has been done recently. It has become possible for such functions to be performed electronically through the internet.

Many companies offer web-based accounting services. By running a web-based accounting software, the company will be able to do accounting more easily and information will be more accessible. A web-based accounting can be done anywhere and anytime so business owners or business executives will be able to view the transaction records and employee records through the internet. With such web-based accounting software running in the business, employees can even view their own information records such as their own salary, their retirement plans and their vacation days.

For a minimal monthly payment, these services can be available to all companies. A company can now compete with bigger companies with a low cost web-based accounting. A company will be able to cut cost but it will have a more efficient accounting. With a web-based accounting system, accounting can be done easily so it’s done faster and more accurately. Reports will be readily accessible as well. Managers can have access to them whenever and wherever they are needed. Decision making will be supported with up to date figures too. A low cost web-based accounting really is the answer to cost cutting and the need for a fast and current accounting and reporting.

A web-based accounting system can be customized according to the company’s need. While a predefined web-based accounting system is provided to subscribers, it can be set up quite easily when the software is installed. What are important are the needs of the company and the fact that they can be provided. A web-based accounting system is capable of delivering to the expectations and needs of many companies. Web-based accounting software can even be customized to keep it in line with company goals.

Taking advantage of web-based accounting assures the company of a continuous server uptime. But choosing the right provider will be vital. They should subscribe to a company whose services will be available to them at all times. With lesser downtime, the company is assured that the needed information will be ready for access. The company should also choose a system that is reliable so the company can truly depend on them to deliver what the company needs when they need it. And company personnel need not be specially trained in IT in order to be able to use the system. Most web-based accounting software are easy to use and they are powerful enough to record all transactions and provide all the information needed. And since it is internet based, information is available even in remote locations.

If the company chooses to do web-based accounting, accounting will be easily performed through the internet. Information access will be facilitated and information will be guarded from unauthorized parties as well.

CRM Software Systems have grown from simple contact management systems that can store customer addresses, e-mails and track customer calls – and businesses vying for larger market shares often resorted to massive customization of their CRM software system– to the monolithic systems provided by such software giants as Oracle, SAP and Microsoft.

These mega systems offer feature-rich components separated over numerous software modules that include marketing, sales, analytics, customer service and social media. Each module is integrated so that sales data entered at one site in the company can be viewed by a member of the customer service team in another department, which may be located on another continent.

These large systems are often integrated with accounting, asset management and inventory systems, providing customer-facing departments with considerable information to influence or win customers. However, these systems come with a steep cost both in licensing and the professional services required to implement such solutions.

There is an alternative – and one that doesn’t require an army of contractors – to the big CRM vendors: FileMaker Solutions. FileMaker, Inc., is a wholly owned subsidiary of Apple Inc. and prides itself in the development of an easy to use database software that makes managing projects, assets, customers and anything else you can think of easy.

FileMaker solutions cover a wide variety of business and home computing needs for small and large businesses, schools and government, and home and non-profit entities. Each has specific offerings that keep to the mission of providing easy to use solutions at a low cost. Large businesses can expect offerings that larger scale vendors provide in areas such as call center management, data warehousing, CRM solutions, and asset management.

At the heart of any major software application is data and data is managed by a database. FileMaker Pro Software is FileMaker’s flagship database product for medium to large businesses. This software offers several major features that allow the sharing of business data over a company network to be done easily and safely.

The FileMaker Pro Software database eliminates much of the hassle of other relational database management systems by making integration easy like dropping an excel spreadsheet directly into FileMaker Pro. Reports are almost as easy with the Report Assistant tool that quickly generates reports from templates or provides for custom reports that can be printed in any number of formats including PDF or EXCEL.

Sharing information in the FileMaker database can be done with a few clicks and then it is available on both Windows and Mac computers.

ERP and ERP Solutions Reducing Costs and Streamlining Operations

Companies all across the board are getting squeezed by higher costs of goods and services and the increasing demands of consumers.  In general, businesses have always understood that it takes money to make money, however, with the current global environment and the increased pressure to cut costs, companies are lamenting the fact this it is taking more money than ever before to make money.  Smaller companies are finding it more difficult to compete with the economies of scale and deeper pockets of the large players in their industry, however, ERP solutions and ERP applications available on the market today are giving smaller companies the tools necessary to compete and get a handle on their costs by streamlining their operations.

Companies are implementing enterprise software to dramatically reduce waste, streamline labor and other key resources across the organization.  Streamlining operations and driving down costs and prices spark a positive catalyst throughout the organization as more competitive pricing and service levels lead to more market share and revenue growth and other positive employee morale and productivity trends.  Most cost drivers are out of a company’s control, such as the price of fuel, energy, bank rates and healthcare costs.  However, other significant cost drivers such as labor, materials, waste and other resources can.

For example, ERP solutions and enterprise applications can help companies get visibility on their business and processes by providing the analytical tools to filter through the mountain of information in the company’s database to focus on the biggest bang for the buck when it comes to products, service and customer offerings.  With respect to service offerings, cost benefit analysis that will help managers decide which services and products and support levels to scrap and which ones to green light based on visibility reports that segregate programs whose costs outweigh the financial benefits to the organization.  The same technology benefits from enterprise software solutions analytical tools can be applied to the other key cost components such as unproductive labor areas, low yield working capital initiatives, and an inefficient use of assets and materials in product development.

ERP applications can help to automate processes and reduce labor costs by relieving staff and sales reps of routine manual task that are prone to data entry mistakes and require a lot of time.  Particularly for sales reps, the automation of administrative tasks can free these valuable resources to focus on higher touch, higher impact activities that can drive critical revenues to the company.  Similarly, for customer service reps who are another example of customer facing resources can focus on providing higher touch, better customer service to the company’s most valuable asset, it customers.

Streamlining and automating business processes is the key benefit of enterprise software applications and can be applied to all business units and business processes to reduce cycle times and errors, such as with order entry and fulfillment activities as well as with waste reduction initiatives by reducing reworks, excessive inventory levels and everyday business process redundancies performed by every department in the organization.  Unified visibility with sales, customers operations and accounting, which is what erp applications and tools provide, can significantly reduce costs in many facets in an organization.

The bottom line is companies have limited resources, and they need to maximize all of their assets and focus on key areas to stay competitive and in business. Helping a company to better manage their resources and maximize the return on their assets is the foundation of what ERP software and applications were developed to deliver.

A major part of manufacturing costs are overhead costs. Broadly defined, overhead costs are costs related to manufacturing which do not add intrinsic value to the product. Some processes are value added and some are not. Some examples using production of balls are used as follows;

Taking raw rubber and manufacturing a ball is value added. Adding a team logo to the ball is value added. Packing the ball in an attractive display box is value added. Packing a dozen balls in a shipping crate is not value added. Inspecting the balls for flaws does not add value. Counting production at the end of a shift does not add value and adds overhead. In the office, printing, signing, and faxing a purchase order is non-value added. Holding a meeting to figure out a production schedule is non-value added. Anything that does not contribute to the manufacture of a product from one material state to another (Raw to WIP or WIP to Finished Goods) is non-value added. Rework, while it may save costs of making the item again from scratch is non-value added. Excess inventory, while not normally considered overhead may incur carrying costs, which are non-value added and therefore overhead. (The accountants my take issue on this one)

Now that we are through that long-winded explanation, how can ERP or Enterprise Resource Planning software reduce or eliminate overhead? The answer should be obvious; by eliminating or reducing the small mundane and expensive tasks that do not add value.

ERP software can be added directly to a process; Using ERP software combined with a bar code scanner, manual inventory counts can be eliminated. Parts are scanned and counted as they are produced. There is also a reduced chance for a counting error as well.

The bread and butter of an ERP system are the ability to not only plan a given part, but to fit it into a schedule is another way to eliminate overhead waste. With ERP, scheduling and planning meetings are reduced to confirming schedules produced by the ERP system.

In the front office, printing and faxing confirming purchase orders becomes a thing of the past. Purchase orders are confirmed with a few mouse clicks and some light data entry. The overhead costs also become a thing of the past.

On the accounts receivable side, ERP software can reduce overhead costs of billing. Instead of the accounting department entering data from bills of lading, materials can be scanned as they are packed and shipped. Invoices then can be generated based on the agreed terms and sent with minimal overhead labor.

While not a direct part of manufacturing, overhead costs never the less need to be controlled as closely as production costs. It does little good to make a product efficiently on the production line and then spend all of the profits administering to the packaging and distribution of the product.

ERP software manages overhead costs just as efficiently as it does direct production costs. The name its self states this; Enterprise Resource Planning. Are you ready to get on board?

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Direct Benefits of Auto Recurring Billing for Businesses include:

* Faster payment processing (you get your money faster)
* Elimination of printing, mailing and postage costs
* Elimination of defaults and associated collections activities
* Streamlined data entry and bookkeeping
* Elimination of time consuming trips to the bank
* Normalized cash flow
* 24 hour NSF notification
* Improved customer service
* Ability to accept payments funded from credit/debit cards, checking account and savings accounts.

Auto recurring billing systems can be used for both static recurring charges (the same amount each time) or for variable bills. In either case, the recurring billing system saves time and money by obtaining advance authorization from customers to charge their accounts on a regular frequency and by entering customer information into a database system only once. That data is then accessed whenever payments are processed, and the customer record is updated to reflect each payment collected. The two examples below provide the steps involved in auto recurring billing systems that process static and variable recurring charges.

Auto Recurring Billing: Static Amount

1. Customer data is entered once (including amount, frequency, duration, type of transaction and account information)

2. Payment Processing System charges/debits account on schedule and counts down payments left (system can also be set for indefinite duration)

3. Payment processing system automatically generates an email receipt for the customer and copies the vendor.

4. Payment Processing System automatically identifies all failed transactions and reconciles with main database.

Auto Recurring Billing: Variable Amount

1. Customer data resides in external database that calculates payment due

2. Data, including amount due and account information is exported to .csv file.

3. .csv file is uploaded to payment processing system as a batch

4. Payment processing system processes all transactions in batch

5. Report is generated for all successful and unsuccessful transactions

6. Report is exported and then uploaded back into original database, reconciling all open balances with processed payments

Why Your Customers Want Auto Recurring Billing

Auto recurring billing is not only a time and money saver for businesses, but for consumers as well. In fact, many consumers are demanding it from the companies with which they do business-and if you don’t offer it, your customers may select a competitor who does.

NACHA.org, the organization that oversees all electronic payments, reports that 54% of all US households currently use ACH (a direct-debit from a checking or savings account) for at least one monthly bill. Auto recurring billing takes ACH to the next level-eliminating the need for the customer to actively pay a bill (whether by paper check or online).

Direct Benefits of Auto Recurring Billing for Customers include:

* Bills are automatically paid on-time, every-time, even if customers are ill or out of town.
* Late payment fees are eliminated
* Time and expense of writing and mailing checks is eliminated
* Customers can keep electronic records of all invoices and receipts
* Electronic payments are more secure than paper checks

How to Implement an Auto Recurring Billing Program

Implementing an auto recurring billing program is simple. If you currently accept payments electronically via direct-debit from a checking or savings account, or via credit card, you can likely use your current payment processing system to implement auto recurring billing. The auto recurring program can be implemented in two ways.

1. Use the auto recurring billing functionality in your business management software (such as QuickBooks), and export a batch (daily, weekly, monthly) for processing in your payment processing system. This is best for variable payments.

2. Implement the auto recurring billing function in your payment processing program (note that some companies require an additional charge for this function.) This is best for static payments.

If you don’t already accept electronic payments, you will need to subscribe to this type of service. The simplest way to do this to find a service such as PaySimple that will enable you to perform ACH transactions using your current business bank account. This system will enable you to set-up an auto recurring billing program for your customers where you can direct-debit their checking accounts for outstanding balances. (An additional benefit to this type of system is that you can electronically process any paper checks you still receive from customers who do not elect to participate in the auto recurring billing program.)

Marketing an Auto Recurring Billing Program to Your Customers

Once you have processing capability in place, you can open the auto recurring billing program to your entire customer base. Many consumers know about these programs and are excited to sign-up for the new offering. Others need to be educated about the electronic payment process, and the benefits it can provide them.

Note that you cannot enroll a customer in an auto recurring billing program without explicit permission. Each customer must provide you with bank account information and sign a form giving you permission to debit that account.

Electronicpayments.org provides a wealth of information about electronic payment processing, and also provides materials you can use to educate your customers. PaySimple also provides a welcome kit to all customers that contains a complete auto recurring billing marketing plan with associated materials.

Most organizations introduce auto-recurring billing programs by sending a letter to the customer base, and asking them to sign-up for the program. A sample customer letter is available from: http://www.paysimple.com/sample_auto_recurring_billing_letter.pdf

When customers have signed up, you stop mailing them paper invoices, they stop mailing you paper checks and all billing and collections are handled electronically.