The ROI of Using an ERP System for Accounting: What You Need to Know

As organizations grow or expand, managing essential functions like accounting tends to become increasingly complex.

Keeping accurate records of transactions, ensuring data consistency, and maintaining regulatory compliance can overwhelm even the most experienced and diligent finance and accounting teams. To navigate these challenges, many businesses are turning to enterprise resource planning (ERP) systems to bring efficiency and clarity to their financial and accounting processes.

In this article, you’ll learn how ERP systems can streamline your accounting operations and enhance the overall performance of your business.

What is Enterprise Resource Planning (ERP)?

An enterprise resource planning (ERP) system is a package business software that helps companies integrate and automate many of their business processes or functions, including accounting, finance, human resources, supply chain management, customer relationship management (CRM), and more.

ERP centralizes data from all these functions or processes to create a single source of truth for the entire organization. This means that all departments can access and work from the same dataset —  a powerful capability that reduces discrepancies encourages collaboration, and supports better decision-making.

Today, ERP systems have become a staple in many organizations. In fact, research shows that 64% of small and medium-sized businesses (SMBs) currently use some form of ERP. For large organizations, that number is even higher, reaching 70%.

How ERP integrates with accounting

A typical ERP system consists of several modules, each designed for a specific business function. One of the core modules is the financial module, which is specifically tailored to manage all accounting and financial management activities within a company.

This module integrates essential accounting features—such as accounts payable, accounts receivable, payroll, and trial balances—into a single, cohesive system. It’s equipped to handle a wide range of accounting tasks including general ledger management, expense tracking, and timesheet administration.

Key benefits of ERP for accounting

Improved data and reporting accuracy

ERP systems ensure data consistency by synchronizing and centralizing financial information from different organizational departments or functions into a single, unified platform.

Any updates in one area — such as sales, procurement, or inventory — automatically reflect across all relevant modules in the ERP.  This minimizes data inconsistencies or inaccuracies that often result from manual data entry or isolated systems. 

Accurate and consistent data feeds directly into financial reporting. It allows your accounting team to produce more detailed and accurate reports that not only support informed decision-making but also regulatory compliance.

Increased efficiency

ERP automates routine accounting tasks such as invoicing, payroll processing, and reconciliation. It can even automate data entry through technologies like optical character recognition (OCR) which automatically captures data from invoices and receipts, or integration with other systems, such as e-commerce platforms and payment gateways

This automation reduces the time spent on manual processes, allowing accountants to focus on more important tasks, such as financial planning. 

In addition, with all financial information in one place, retrieving data for reporting, analysis, or decision-making becomes much faster and easier. For example, users can generate reports with just a few clicks, instead of having to manually aggregate data first from disparate systems.

Real-time visibility

ERP centralizes all company data into a single platform — which different teams across the organization can access in real-time. For example, through an ERP system, accounting teams can monitor cash flow, track expenses, and assess budgets as they evolve throughout the business cycle. 

This real-time visibility allows them to respond proactively to emerging issues, such as cash shortages or overspending in certain departments. 

It also improves collaboration between accounting and other departments, as stakeholders can access the same shared and up-to-date data and make informed decisions based on it.

Reduced costs

Implementing an ERP system for accounting can significantly reduce administrative and operational costs. As we saw, ERP automates key accounting tasks like invoicing, expense tracking, and payroll. This automation not only saves time but also cuts down on manual labor costs associated with these processes.  Moreover, it reduces the risk of human errors, which can lead to costly financial discrepancies and the need for subsequent corrections.

In addition, ERP consolidates multiple accounting and financial functions into a single platform. This reduces the need for various software solutions, each of which costs money to buy, maintain, and train staff on how to use it. 

The comprehensive reporting and analytics capabilities of ERP systems also enable organizations to identify spending patterns and inefficiencies. This can facilitate more informed decisions about budget allocations and resource management.

Compliance and security

Compliance and data security are critical for maintaining credibility and avoiding financial penalties. ERP systems provide robust features that enhance both areas significantly. 

For example, these systems often come with built-in compliance features that help businesses adhere to legal requirements, such as tax regulations and financial reporting standards. Moreover, they improve audit readiness by maintaining a clear and organized trail of financial transactions. 

In terms of security, ERP systems typically include advanced protocols to protect sensitive financial data.  For example, role-based access controls allow organizations to define who can view or edit specific financial information, reducing the risk of fraud or data breaches. Many ERP systems also offer encryption, regular security updates, and data backup features to further protect firms against data loss or theft.

Suitable for businesses of all sizes

ERP is suitable for businesses of all sizes — from small and medium-sized businesses to large, multinational entities. It’s also scalable meaning that as your business grows and expands, the solution can be modified seamlessly to meet your changing demands.

Measuring the ROI of an ERP system

ERP ROI is simply a measure of the value or benefits your business receives from using an ERP compared to the costs of investing in this system or tool. It’s an important metric to measure as it helps you establish whether what you are doing is actually worth it.

The good news is that many organizations that implement ERPs end up experiencing positive results across a variety of business functions.

In a study by MintJuntras, 91% of companies that implemented ERP said it had led to some kind of return on investment (ROI).  Some of the benefits cited included improved data accuracy, enhanced inventory management, better collaboration, reduced costs, and shorter sales cycles.

So exactly how do you measure the ROI of your own ERP implementation project? The best way is to approach it step by step. Here’s a simple and practical guide you can use.

1. Define your objectives

At the very beginning of implementing an ERP system, define the specific objectives that you hope to achieve. 

Typical objectives include:

• Enhancing data and financial reporting accuracy.
• Improving efficiency by automating routine tasks such as invoicing, reconciliation, and reporting.
• Improving compliance, i.e. ensuring adherence to accounting standards and regulatory requirements.
• Improving employee productivity.
• Improving customer satisfaction.

Outlining clear objectives helps lay a good foundation for the ROI assessment that follows.

2. Identify key performance indicators (KPIs)

Next, identify relevant, quantifiable key performance indicators (KPIs) that will help measure success towards the goals you’ve set. These KPIs may include:

• Cost savings: Reductions in operational costs, such as labor.
• Time savings: Reductions in time for tasks like financial reporting.
• Lower error rate: Decreases in transaction errors and discrepancies.

3. Calculate total costs

The next step is to calculate the total costs of your investments — that is how much it has cost you to implement the ERP system. These costs include: 

• Initial setup costs: Software, hardware, and consulting fees.
• Ongoing maintenance and support: Costs associated with keeping the system updated and running smoothly.
• Training costs: Expenses related to training accounting staff to use the new system effectively.

4. Measure and quantify benefits

Now, measure the financial value of benefits that the ERP system delivers over a defined period — for instance, over a 6-month period or a year. There are two main types of benefits you’ll need to consider: tangible and intangible benefits. 

Tangible benefits are those that directly impact measurable aspects of the business, such as time saved on manual tasks, reduced error rates, and cost reductions in areas like labor. These benefits are often easier to assign a monetary value to.

For instance, if the ERP system automates invoicing, you can calculate the monetary value by multiplying the hours saved by the hourly wage of the staff involved. This provides a concrete figure that can be included in your ROI calculations.

Intangible benefits, on the other hand, are harder to measure directly and assign a monetary value, but they are still important. These might include enhanced decision-making due to improved data accuracy, better compliance with regulations, and stronger risk management.

Assigning a monetary value to these benefits requires a bit of estimation. Consider methods such as:

• Cost avoidance: This involves estimating costs that were previously incurred, such as fines for non-compliance, and are now mitigated.
• Opportunity gains: This involves estimating potential profits derived from improved financial insights and decision-making capabilities enabled by the system.

5. Calculate ROI

With benefits and costs quantified, you can calculate the ROI of your ERP system using this formula:

ROI = (Total value of returns – Cost of ERP investment) /Cost of ERP investment x 100

Where:

• Total value of returns: The overall financial benefits realized from the ERP system.
• Cost of ERP investment: The total expenses incurred for the ERP implementation and maintenance.

Example

If the total investment cost for an ERP system is $100,000 and the quantified total value of benefits over six months is $250,000, the ROI would be calculated as follows:

ROI = (250,000−100,000) / 100,000 × 100 = 150%

Final thoughts: Why choose Cin7 for ERP

As we’ve seen, using ERP for accounting is a solid choice that can translate into multiple benefits for your firm including increased data and reporting accuracy, greater operational efficiency, cost reductions, real-time visibility, and enhanced regulatory compliance. 

But to fully realize these benefits, it’s essential to select the right ERP solution and implement it effectively.

Cin7 is a powerful inventory management software (IMS) and ERP solution tailored for SMBs to help them streamline accounting, financial management, and a variety of other business processes, such as inventory management. For instance, many SMBs use Quickbooks or Xero for accounting and Cin7’s API integrations with both ensure a seamless flow of accurate financial data. So if an SMB wants to keep Quickbooks or Xero, they can do that with Cin7 and at a combined price that is still far cheaper than most ERP solutions. 

In addition, our solution takes weeks rather than months to implement, meaning you can start reaping benefits sooner. With Cin7, you won’t need to spend a fortune on expensive consultants or trainers; our user-friendly and intuitive design empowers you and your staff to use and navigate the tool with relative ease.

Schedule a demo today to Cin7 in action.