How to budget for a small business ERP

Although there are hosts of technological advantages available for those who choose to run small businesses in today’s global market, there are also financial challenges.

As one might expect, small business budgets are largely managed and limited by cost, rather than gross revenue.

Consequently, while ERP has now become a legitimate opportunity for many small players, cost of ownership issues can pose budget problems unless planned for properly. To take the edge off this potential threat, here’s a very short budget framework to help you iron out any issues you run into.

Small business ERP budgets need to be tight

In some ways budget management in the small enterprise is much more challenging and complex than budget planning within a large corporation. If a company is big and strong enough a single financial mistake won’t destroy its future.

However, when playing ‘small ball’ any ERP budget consideration should not only require detailed cost investigations, but also liberal applications of experience and wise council before pulling the trigger. After all, way down in the weeds you usually only get one shot, so you’d better hit the target the first time - or pay a bigger price later.          

Defining your ERP budget

Assuming that you have already decided that ERP will work for you operationally, the next step is which system will be most advantageous, and how much that advantage is likely to cost.

Get your comprehensive guide to selecting small business ERP

From a budgeting perspective today’s market offers two central decisions on how to pay for your ERP:

• Deciding between on-premise ERP and cloud (SaaS) ERP
• Deciding between standard (proprietary) software and open source ERP

Open source software is a great way for small businesses to save on system costs, though there are pros and cons for all of these options. We’ll start by looking at the differences between cloud and on-premise solutions:

Now let’s have a look and proprietary software and open source:

Further components of an ERP budget

Once you’ve decided on a delivery method for your ERP, it becomes significantly easier to construct a workable budget. It’s usually a good idea to add an extra 10% onto whatever you calculate to mitigate risk.

If you chose on-premise software, you’ll need to add the following costs to your budget:

• Hardware
• A large upfront license fee
• Implementation fees
• Training
• Employee overtime

In the case of cloud ERP, you’ll still need to budget for employee overtime, training and implementation efforts (although these will be less extensive than those for on-premise ERP), though there will be no hardware costs as cloud software is delivered through the web.

Of course, if you’re spinning up an open source system then you’ll likely be implementing it yourself, which saves on cost. You will need, however, to factor in costs for external development if you’re short-handed in this area internally.