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ERP vs. Accounting Software Explained: What Are the Differences?

Eva on August 17, 2022

  • NetSuite

ERP vs. Accounting Software Explained: What Are the Differences?

If they are successful, small businesses quickly outgrow their improvised processes and rudimentary technologies. A company that goes from dozens of customers to hundreds and then thousands, that opens additional offices and that has a growing staff is going to have a hard time managing its affairs with the spreadsheets and paper records it relied on during startup. But the people running these companies are often not sure what type of software they need — basic accounting functionality or something broader. Such companies typically end up weighing the pluses and minuses of accounting systems against those of enterprise resource planning (ERP) systems.

What Is ERP?

ERP is an integrated suite of software applications that businesses can use to run almost every aspect of their organizations. The databases of ERP systems generally include inputs from accounting, human resources, manufacturing, marketing, sales, supply chain and other departments. Thus, business managers can use an ERP system’s unified view of enterprise data to automate business processes and generate insights across multiple departments. Company managers can use ERP systems to identify process improvements and drive efficiencies.

ERP came into the lexicon of corporate technology in 1990 when Gartner first identified it as a distinct class of software. Many of the world’s biggest and most successful companies have been using ERP systems for decades. Now, smaller companies are joining the ranks of ERP users, attracted by the availability of cloud-based ERP systems.

erp modules
With an ERP system, businesses can manage all aspects of their operations from a single seamlessly integrated system with a unified database at its heart.

What Is Accounting Software?

By definition, accounting software is focused solely on a company’s financial activities. An accounting system helps companies manage their accounts payable and accounts receivable, along with their bookkeeping activities. For instance, an accounting system helps with the generation of a trial balance, an integral part of double-entry bookkeeping. Accounting software also helps companies put together financial statements, such as profit and loss reports and balance sheets.

What Is the Difference Between ERP and Accounting Software?

The big difference between ERP and accounting software relates to scope. Accounting software helps manage and automate a companies’ financial activities, and in so doing it can move small companies beyond their initial manual processes and spreadsheets. ERP software offers accounting functionality but also has many other capabilities.

Key Differences

When they reach a certain size, many small businesses find themselves spending more and more time managing their books. An entrepreneur who starts a business making and distributing meal kits — home-delivered ingredients with easy-to-follow cooking instructions — might be perfectly happy doing their accounting by hand, or on some sort of spreadsheet, when they have 50 or 60 customers. But if their business booms and they end up with 1,000 customers — and then 5,000 and then 10,000 — the accounting and bookkeeping will get overwhelming pretty quickly.

This is the point at which entrepreneurs generally start looking for software systems to make their businesses run more efficiently. Their first thought might well be of an accounting package, since their biggest problem when they are growing rapidly is organizational: keeping track of sales, collecting payments, paying suppliers and calculating profitability. An accounting package can certainly help with these things, but no accounting package on its own can keep track of suppliers, help manage a growing staff or provide a view of warehouse costs and activities.

Instead of entrepreneurs having their data in separate places — the accounting data in one software package and the HR, manufacturing and customer data in a patchwork of spreadsheets — they can have it all centrally located and get a view of their entire business in one ERP system. In doing so, small businesses can gain insights they wouldn’t otherwise have and make decisions that increase their companies’ profitability.

Key Differences of ERP & Accounting Software Capabilities

ERPAccounting Software
Can manage virtually all aspects of a businessFocuses on bookkeeping — general ledger, chart of accounts, accounts payable & receivable
Able to generate insights for all business operating areasAnalysis limited to financial data
Produces reports for all business aspects, incorporating financial and operational dataProduces reports based solely on financial information
Scales from small businesses to large enterprisesUser seats or licenses and customer record numbers limit scalability
Costlier, but cloud-based offerings are affordableRelatively inexpensive for small businesses
Requires a business case with needs analysis before deployingEasy to deploy, even ad-hoc
Substantial learning curve to exploit full capabilitiesEasy to learn; self-training usually sufficient

ERP systems represent a unified approach to managing all business operations, whereas accounting software focuses strictly on the finances.

Why ERP Is the Right Choice for Growth

When companies start out, their way of doing things is typically very ad hoc. As they grow, this must change. It may no longer make sense to maintain inventory in, or send out orders from, the founder’s garage. New resources, a mile away, a state away, half a world away, are now handling aspects of the business. And those resources must be managed.

Because ERP has so many modules to it — modules for supply chain management, customer relationship management (CRM) and HR, among others — it is often the most scalable option for a company that’s growing. For instance, suppose an office supply product your company recently created and patented has a long list of distributors and retail suppliers. You wouldn’t be able to keep track of the orders, shipments and supplies on an accounting system. If that’s all you have, this data is most likely going to end up in different spreadsheets. But if you have an ERP system, you have a way to organize this information and quickly access the portions you may need at any time.

In addition to managing the different ways your business will be doing things as it grows, ERP software gives you an integrated view of your business; it puts all your business processes and functions in a single database. This can make a business much more efficient. Take the example of a company that uses an order-to-cash process in which a sales team gets the order — or maybe the order comes through a web purchase — and sends it to the warehouse. Then a pick list has to be created, meaning someone must take the product off the shelf, record it as deducted from inventory and bring it to the shipping department. When the product is shipped, accounting needs to send an invoice. If these activities are all recorded manually, the process will be slow and have a high chance of errors. With an ERP system, many parts of the order-to-cash process would be automated.

The integrated nature of ERP — being able to see all aspects of your business together in one place and connect them with each other — could lead to other improvements, as well. You could become better at production planning and scheduling, and you could automate some aspects of your supply chain.

Conclusion

“I need accounting software” is often the first thought of a small-business owner when their business starts to expand. Such entrepreneurs often feel pressure to get their financial systems under control. But most small businesses would also benefit from other types of software — to manage their customers and their supply chains, to process orders and to handle a variety of other operational activities. Enterprise resource planning systems integrate a wide range of business functionality. For many business owners wondering how they are going to scale, a cloud-based ERP system is well worth considering.

ERP and Accounting Software FAQs

Is accounting an ERP?

Accounting software is typically included as one part of the functionality of an ERP system. But accounting software has a narrower purpose and the two types of software are not identical.

Is Xero an ERP?

Xero is a cloud-based accounting system for small businesses, not an ERP system. It is designed to help with bill-paying, expenses and certain banking activities. It does not have the broad functionality of ERP.

What is the difference between traditional accounting systems and enterprise systems?

Accounting systems help companies manage the financial aspects of their businesses. Accounting software is often used by small businesses early in their growth trajectories. Enterprise systems perform accounting tasks but have considerable functionality beyond that, including supply chain, distribution and customer management.

Want to know more?

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How Business Intelligence Is Used in Accounting Today

Eva on August 16, 2022

  • NetSuite

How Business Intelligence Is Used in Accounting Today

What Is Business Intelligence?

Business intelligence is a technology driven practice of analyzing data by developing key performance indicators (KPIs) and monitoring performance to inform decision making. BI provides historical, current and predictive views of business operations in easy to understand, interactive, data visualizations. Organizations use business intelligence software to analyze data and inform performance metrics, such as financial, sales, marketing or operations KPIs. With BI, companies can closely track financials, optimize their supply chains and make better decisions on everything from marketing to M&A.

BI functionality centers on built-in, customizable dashboards that allow for real-time reporting and analysis based on a central database. Decision-makers can identify exceptions, trends and opportunities and drill down into any underlying metric or transaction for greater detail.

Business intelligence systems allow the entire organization to make better decisions by analyzing very large volumes of data from all lines of business. Look for a scalable system that allows for mobile access from wherever people are working and that provides a range of connectors and integrations for you applications so you can pull in all the data needed to analyze the KPIs that your organization considers important.

Why Is Business Intelligence Vital in Accounting?

BI-enabled financial management software makes accounting professionals more productive and minimizes errors by automating data collection and analysis. Once CFOs determine what KPIs are important, BI keeps those metrics up to date and readily available in dashboards.

For example, a cash flow dashboard could show at a glance your current cash conversion cycle, quick and current ratios, days sales outstanding, accounts payable and accounts receivable turnover and other KPIs compared to historical periods. And the dashboard would provide continuous updates.

Accounting teams that aren’t manually compiling this data can spend time interpreting it and sharing insights with business colleagues.

Does Business Intelligence Relate to Accounting? How?

Efficient accounting is crucial for a business’s success, and business intelligence can help promote accounting success. Let’s look at an example of how we can draw a straight line from an accounting team’s use of BI to a business win.

If you are a retailer selling products and you’re out of a popular item, customers will click over to a competitor’s site, so having the right level of inventory is fundamental for retailers. Stockout rate is a KPI that helps with inventory analysis — it measures how often an item a customer orders is unavailable.

Take fictional sporting goods retailer VolleyTech. The start of spring soccer season brings demand for cleats, and VolleyTech merchandisers know that one British manufacturer’s footwear sells out quickly every year, leading to disappointed customers. They push to order extra pairs in the most popular sizes, but leadership balks.

Thinking about why the retailer didn’t want to order enough to avoid stockouts, one factor might be uncertainty about cash flow. VolleyTech has difficulty projecting revenue, so it chooses to run a tight, just-in-time ordering strategy that accepts some items being out of stock to save on costs, like storage, shipping and import fees. Plus, that manufacturer, U.K. FootballWear, knows its cleats are popular, so it can demand down payments on orders from smaller retailers like VolleyTech. That ties up funds that could be needed for operations or payroll.

With business intelligence, VolleyTech’s accountants can do in-depth cash flow analysis and forecasting. The team can take inputs, like expected operating and capital expenses, historical sales and stockout rate data, projected accounts receivables and payables balances, and even pull in external data sources, like long-term weather forecasts for prime cleat-buying months in locales where VolleyTech has stores. With that information, the company may find it can invest more in inventory. That keeps customers happy and may earn it a more favored partner status with U.K. FootballWear.

Can I Use BI Tactics in Accounting?

Using BI tactically in accounting will raise the team’s status as trusted strategic advisers, as the above example shows. Business intelligence tools also give accountants, including outsourced accounting professionals, the ability to quantify their own value within the company or for clients.

Think about the KPIs leaders use to evaluate the effectiveness of their accounting departments. For example, a good DSO, or days sales outstanding, ratio shows that accountants are effectively collecting the funds owed by customers. But dig deeper, and you’ll see that fast collections are based on effectively negotiating payment terms, and on the accounts receivable group tightly managing the credit extended to customers and collecting outstanding debts with few write-offs.

Business intelligence dashboards help accountants improve DSO ratios by, for example, setting up alerts to flag customers who are paying more slowly and thus may no longer be creditworthy.

BI means fewer errors and more complete documentation, which improves audit performance. It enables accountants to explain complex financial concepts to business users by generating easy-to-read charts and visualizations, and it lets accounting teams work leaner by automating manual tasks.

Tactical? Sure — but in sum, a strategic advantage.

How to Use BI to Influence and Improve Accounting

Successful use of BI to influence and improve the accounting function is all about how quickly an end user can access data and convert it into understanding or insight that allows for more accurate, timely decision-making that leads to increased profitability and business success.

When evaluating your program, ask: How are business intelligence capabilities actually being used? Do we have dashboards and data that further our accounting goals and the organization’s long-term vision and overall strategy?

Look also at these seven areas.

Improve insights

Business intelligence platforms allow accounting teams to pull together disparate data and communicate insights in a way that can deliver an “aha moment.”

Take our sporting goods retailer. BI-driven retail analysis might use purchasing behavior and retail trends data to show that younger soccer players are interested in competing year-round, and that indoor soccer leagues are springing up in a few northern states where VolleyTech operates. Cleats aren’t appropriate for indoors, so merchandisers might move quickly to source affordable shoes in sizes and designs suitable for the demographics most interested in year-round play. Using BI software to analyze inventory data will help VolleyTech create a purchasing and distribution process to get this stock into geographies with indoor facilities and leagues.

Improve accounting processes

BI improves accounting processes in obvious ways — aggregating data, creating dashboards more efficiently, improved planning and budgeting — and in less readily apparent areas.

infograph business intelligence in accounting

For example, the Brainyard survey showed that business leaders are concerned about the effects of supply chain disruptions, lingering effects of the pandemic and a shortage of talent.

Accounting teams that use BI in their processes can help address all of these:

  • Better visibility into complex supply chains translates to fewer disruptions, and BI is all about visibility. For example, companies are considering onshoring and localizing their supply chains. This is expensive, though. How much more can you spend on raw materials and still be profitable? What effects do exchange rates and shipping have on costs?
  • Accounting teams can pull in external data sources to improve forecasting and inform financial decisions as the economy recovers. For example, the U.S. government’s data.gov site offers free access to more than 218,000 data sets, including a number of COVID-19 data sets, many of which can be integrated with BI dashboards.
  • Addressing a talent shortage is easier when companies can hire without worrying about proximity to a physical office. With BI tools, accounting can break down relevant data so that all departmental teams can work on their headcount budgets and collaborate remotely using a central database. This not only improves communication between accounting and hiring managers but also can improve the recruitment process.

Accounting data visualization

Accounting data visualization is the process of presenting financial information in a dynamic, graphical manner. Effective data visualizations help decision-makers consume a lot of sometimes complex information in a way that’s seen as intuitive and holistic.

There are obvious benefits to the ability to visualize data, including those “aha moment” insights we’ve discussed. But one upside that’s often overlooked is that, if you make data consumption enjoyable, decision-makers and relevant stakeholders will ask accounting to help them use dashboards more often. That may drive investments in new data sources and finance systems with built-in BI.

Improve productivity

One key payoff of the increased productivity benefits of business intelligence capabilities in accounting software is being able to scale without needing to add headcount.

First, the types and volume of data and requests for analysis and reports tend to grow along with the organization. With BI-capable accounting software, new data sources can be easily added to dashboards. And, accounting can set up customized dashboards and automatically generate analyses, minimizing manual effort.

And of course, business intelligence allows many finance processes to be automated. Let’s say it takes the accounting department days to prepare monthly financial reports when using traditional tools like spreadsheets. With BI-capable software, charts and graphs can be exported to reduce the amount of time needed to prepare financial reports.

Data-driven decision-making

Accounting professionals are natural-born data champions. Say a merchandise manager at VolleyTech has a gut feeling that customers would spend more for a line of fair-trade-certified soccer balls. Marketing agrees and believe that adding this line would be a sales opportunity.

How could accounting help quantify that hunch?

Tactics to apply data-driven decision-making to assumptions include applying inventory cost accounting metrics to the more expensive fair-trade balls, helping calculate cost-plus pricing to estimate a sales price point and comparing that to the highest-priced balls currently stocked. All these data points can help merchandisers determine if any new product makes sense financially.

Improved product and revenue analysis

With BI, finance can compile data from various sources into customized dashboards to allow for in-depth analysis that will yield ways to improve products and increase revenue.

For instance, let’s say business leaders need to figure out what’s behind a reduction in revenue. Digging into relevant data, they can identify any specific departments, offices or regions that are underperforming. Or, there may be other factors, such as new sales reps who may not have enough training to perform, or a product upgrade that temporarily drove down revenue.

One area to focus on might be total sales revenue.

Sales revenue is recognized on the income statement for the month in which the product or service was delivered or fulfilled, according to GAAP rules for revenue recognition. For example, say a VolleyTech location decides to offer in-person goalkeeping classes. It signs up 40 students in June, each paying $50 per session, and collected $2,500 in receipts. But it held only 20 of those sessions in June. It can recognize revenue for only those 20 students, making recognized sales revenue for June $1,250. The remaining $1,250 of sessions booked for July is recorded to deferred revenue. Given that, does it make sense to add another instructor to double the number of classes available in a given month? BI can help model adding another instructor a month to determine if it makes financial sense or not.

Improved KPI analysis

Key performance indicators, or KPIs, are metrics that are closely tied to strategic business objectives. Leaders should identify their key metrics early on and revisit that KPIs list periodically based on changes to the market, economic conditions or the business itself.

Once a list is established, companies need to agree on what numbers represent success — and signal rough times ahead.

For example, our U.K. cleat manufacturer might see fewer orders coming from EU countries as a result of Brexit. If its finance and accounting software had BI built-in, the company could have identified at-risk clients and worked with its FP&A (financial planning and analysis team) to run scenarios on how it could still meet its revenue goals, such as by offering a discount to increase its exports to U.S. distributors.

Business intelligence is the perfect complement to data-driven accounting professionals. It helps take the guesswork or opinions out of the decision-making process by providing real-time, factual results compared to business goals. When these results are shared across the company, decisions can be made faster. The accounting team not only becomes a trusted business partner but also has the information to improve business processes and performance.

A New Way of Doing Business

Cloud computing turns conventional software delivery on its head in a number of ways:

  • Low overhead: Upgrades, maintenance and system administration take place in the cloud and are managed by the vendor, so you don’t have to spend nights or weekends supervising a new version upgrade or a failed server. One industry analyst study found that cloud-based business software cost 50% less than on-premise software over a four-year period for a 100-employee company
  • Ease of access at anytime, and from anywhere: Cloud computing is “always on,” making it easy to grow your business and support remote workers and locations, or support a highly mobile sales or service team, because people can access the cloud any time, day or night, from any browser, desktop or mobile device around the globe, 24×7
  • High availability: Cloud software architectures are designed from the ground up for maximum network performance, so they frequently deliver better application-level availability than conventional, on-premise solutions. For example, NetSuite commits to 99.5% availability for its customers, and provides data security such as PCI DSS compliance that would be cost prohibitive to achieve with on-premise software
  • Security: For many companies, the level of security and availability, disaster recovery and back-up provided by a software-as-a-service provider far exceeds that which they can provide themselves. NetSuite, for example, provides data security such as PCI DSS compliance that would be cost prohibitive to achieve with on-premise software
  • Fast deployment: You can be up and running with ERP, CRM or ecommerce applications, on a local or global scale, within a few months, rather than the six to 12 months it would take to install and troubleshoot conventional servers and software
  • Optimized performance: The cloud adjusts to your performance needs, dynamically assigning server cycles whenever and wherever you need them, and automatically adjusting to spikes in your business.
  • Subscription-based pricing: You pay as you go, often on an annual basis, unlike conventional systems where you have to make a major up-front investment in licenses, hardware and software. You benefit from better cash flow and far greater IT flexibility
  • Energy savings: By eliminating the need for on-premise hardware, cloud computing reduces overall server room electric consumption as well, which can save a mid-size businesses more $10,000 or more per year, according to a recent sustainability impact study.

You’re in Control

Best of all, cloud computing lets you focus on your business rather than on your software. You don’t have to use valuable IT resources to keep business systems on life support. Instead, you can re-deploy them to focus on more strategic business initiatives while leaving your cloud computing vendor to worry about scalability, security, uptime, application maintenance and system upgrades.

And you can be confident in taking your business public, or into new regions of the world, without outgrowing your cloud computing resources, thanks to the world-class datacenters typically provided by cloud computing vendors.

Want to know more?

Our experts are more than happy to listen to your enquires and provide you with the information you need.
Book a consultation

Related Post

Cloud Computing

Eva on August 15, 2022

  • NetSuite

Cloud Computing

The concept behind cloud computing is simple: it lets you run computer applications over the Internet, without having to buy, install or manage your own servers. You can run your company’s IT operations with nothing more than a browser and an Internet connection. Applications, operating systems, servers and network switches all reside out of sight and within the metaphorical cloud, the Internet and are managed by your cloud computing vendor.

A New Way of Doing Business

Cloud computing turns conventional software delivery on its head in a number of ways:

  • Low overhead: Upgrades, maintenance and system administration take place in the cloud and are managed by the vendor, so you don’t have to spend nights or weekends supervising a new version upgrade or a failed server. One industry analyst study found that cloud-based business software cost 50% less than on-premise software over a four-year period for a 100-employee company
  • Ease of access at anytime, and from anywhere: Cloud computing is “always on,” making it easy to grow your business and support remote workers and locations, or support a highly mobile sales or service team, because people can access the cloud any time, day or night, from any browser, desktop or mobile device around the globe, 24×7
  • High availability: Cloud software architectures are designed from the ground up for maximum network performance, so they frequently deliver better application-level availability than conventional, on-premise solutions. For example, NetSuite commits to 99.5% availability for its customers, and provides data security such as PCI DSS compliance that would be cost prohibitive to achieve with on-premise software
  • Security: For many companies, the level of security and availability, disaster recovery and back-up provided by a software-as-a-service provider far exceeds that which they can provide themselves. NetSuite, for example, provides data security such as PCI DSS compliance that would be cost prohibitive to achieve with on-premise software
  • Fast deployment: You can be up and running with ERP, CRM or ecommerce applications, on a local or global scale, within a few months, rather than the six to 12 months it would take to install and troubleshoot conventional servers and software
  • Optimized performance: The cloud adjusts to your performance needs, dynamically assigning server cycles whenever and wherever you need them, and automatically adjusting to spikes in your business.
  • Subscription-based pricing: You pay as you go, often on an annual basis, unlike conventional systems where you have to make a major up-front investment in licenses, hardware and software. You benefit from better cash flow and far greater IT flexibility
  • Energy savings: By eliminating the need for on-premise hardware, cloud computing reduces overall server room electric consumption as well, which can save a mid-size businesses more $10,000 or more per year, according to a recent sustainability impact study.

You’re in Control

Best of all, cloud computing lets you focus on your business rather than on your software. You don’t have to use valuable IT resources to keep business systems on life support. Instead, you can re-deploy them to focus on more strategic business initiatives while leaving your cloud computing vendor to worry about scalability, security, uptime, application maintenance and system upgrades.

And you can be confident in taking your business public, or into new regions of the world, without outgrowing your cloud computing resources, thanks to the world-class datacenters typically provided by cloud computing vendors.

Want to know more?

Our experts are more than happy to listen to your enquires and provide you with the information you need.
Book a consultation

Related Post

8 Tips for Writing An Effective and Compelling Email

Eva on August 12, 2022

  • NetSuite

8 Tips for Writing An Effective and Compelling Email

Have you ever had to hype yourself up to send an email? Because, same.

There’s something that feels monumental about sending an email that you don’t always get with other forms of communication. And if you’re a non-native English speaker, that task can seem even more daunting.

This article will provide some helpful tips to help you improve the overall quality of your emails, no matter your perspective. Once you’ve applied these simple strategies to your writing, you should be able to confidently send emails to anyone and get rid of that post-send anxiety.

Let’s get started.

1. Have a compelling subject line.

Subject lines can make or break your email’s success. It’s often the deciding factor on whether someone will open your email.

Unfortunately, a lot of people struggle with this part.

This particular subject line (real-life example by the way) is vague, indirect, and does not hint to me at all what the content of the email will be about.

Subject lines are especially important if you’re reaching out to someone for the first time. The recipient doesn’t know who you are, and can only judge you from your subject line.

Even if you’re sending emails internally at your company, it still pays to write a great subject line so your recipient has an idea of what to expect. Like any busy person, your teammates receive a ton of emails every day, and would certainly appreciate the extra effort of a descriptive subject line.

So, how do you write a good subject line?

Be clear, direct, and describe the content of your email. Don’t be afraid to take up the whole subject line. Here are some good examples of subject lines:

  • [Action Required] Monthly Marketing Meeting
  • FYI/Informational
  • Request for [Insert here]
  • [Reminder] Survey to Complete | Will Take 2 Minutes
  • [Name] suggested I reach out to you
  • I’m going to be in town next Tues – are you available?

If you’re sending a promotional email, avoid deceptive subject lines like:

  • RE:
  • FWD:
  • Urgent
  • Order confirmation
  • Account Status

There’s no need to resort to sneaky tricks or clickbait titles just to induce an open. They make recipients feel cheated and tricked, according to a 2019 Litmus survey. You’ll lose trust and may end up in their junk mail as a result.

You want to associate positive feelings with your email, not anger and disappointment.

2. Start with an appropriate greeting.

To kick off the email, you should begin with an appropriate greeting. There are two components to the greeting: the salutation and the opening sentence.

The appropriate salutation actually depends on the situation. If you’re writing a formal email to a bank or government institution, it would be better to start off with “Dear [X].”

If you’re sending an email to someone you know, or work in a casual environment, then it is perfectly fine to go with a “Hi [name]” or “Hello [Name].”

There’s also “To Whom It May Concern,” when you’re sending an email to a group email and not sure who will be reading it.

One thing you want to avoid is using gendered and non-inclusive terms like “Hi guys” and “Mr./Ms/Mrs.” in your salutation.

To help you out, here is a list of salutations you can open in your emails:

  • Dear [First Name
  • [Name]
  • Good morning/afternoon
  • Hi team
  • Hey
  • Hi there

3. Have a strong attention grabber.

Once you’ve gotten the salutation out of the way, it’s time to start your email.

While the subject line determines whether your email is opened, your opening sentence determines whether your email is read till the end.

If it’s an introduction, you can open with something you know will interest your recipient. You can find this out through a little research on their social media profiles. Perhaps they Tweeted something interesting or recently posted something on LinkedIn you can reference.

This will help you build rapport and show that you’re not sending a generic email to multiple people.

Of course, this is not necessary if you’re emailing a colleague or someone you know, but it is still important to establish some kind of context so that they know what’s happening.

With a colleague, start with the “why.”

No one has the time (and patience) to guess what an email is about. The sooner you answer the “why,” the faster you’ll capture their attention.

Quick tip: If you’re sending out sales emails and need inspiration of exactly what to say, take a look at HubSpot’s free email templates. With this tool, you can access a library of built-in templates designed for each stage of the customer journey.

4. Keep your message short and concise.

According to Statista, we send and receive roughly 319 billion emails a day worldwide.

This statistic makes one thing very clear: We spend a lot of time reading emails. And because of this, many people simply scan emails to get the essence of the message and move on to the next.

With this in mind, you want to optimize your email for readability and scannability. This will look like:

  • Keeping paragraphs short.
  • Adding bullet points.
  • Using visuals to break up the text.

While you may feel like you need to tell them everything in one email, don’t.

No one is eagerly awaiting a three-page essay arriving in their inbox. Think about it this way: What’s the main takeaway from your email and is there a particular action you want your recipient to take?

From there, draft your email and when you re-read it, make sure every line you add is helping you meet this goal. If it’s not, remove it.

When you need to include a lot of information in an email, it’s probably better to suggest a phone call or a meeting instead. You can use this free meeting tool to schedule your meetings faster and avoid back-and-forth emails.

5. Be consistent with your font.

Emails can be fun. You can add images, GIFs, and colors. However, there’s a way to do it that’s not too jarring or distracting.

This is an example of what not to do. There are several fonts used in the email, different font sizes along with different colors. As a result, the eye doesn’t know where to go and it’s a bit overwhelming.

Furthermore, the message gets lost, as your recipient is too distracted by all these elements fighting for their attention.

So, as a rule of thumb: Stick to one font. If you want to use a secondary one, use it sparingly. Follow the same rule for color.

If you’re using a non-English keyboard, your fonts may not show up properly on the other person’s device. Instead, use web-safe email fonts like:

  • Arial
  • Courier
  • Georgia
  • Helvetica
  • Lucida Sans
  • Tahoma
  • Times New Roman
  • Trebuchet MS
  • Verdana

In fact, this is the exact list Gmail gives:

This will ensure that your recipient will receive your message in a regular font, regardless of device or operating system.

6. Write a simple closing.

Once you’re done with the content of your email, it’s time to close it off.

You don’t have to make it fancy – just keep your closing simple and straightforward.

So, nothing like this:

example of bad email closer

Instead, stick to the safe, proven closing lines and you should be good.

You can choose from some of the most common closing lines below:

  • Sincerely
  • Best regards
  • Best
  • Warm regards
  • Warm wishes
  • Kind regards
  • Kind wishes
  • Thank you
  • Take care

7. Schedule your emails.

One 2020 survey by Sleep Advisor found that around 54% of Americans check their work email immediately after or within an hour of waking up.

Another study by Litmus on the State of Email Engagement in the United States in 2021 supports this. It reveals that the most popular time for reading emails is in the morning. Open rates start around 6 a.m. but usually peak between 9 a.m. and noon local time.

Given this information, you can follow one of two strategies: Send your email in the morning when you know they’re scrolling or wait for a less busy time.

On one hand, your email runs the risk of being buried if you send it in the morning. However, if you wait for a later time, your email may never get opened.

It takes trial and error to figure out what works best when emailing with your team.

If you’re writing an email to someone in another state or country, you also have to factor in time zones. Noon for you may be 7 p.m. for someone else. As such, keep in mind who your recipient is and when they would be most receptive to your email.

Pro-tip: You can use our free email scheduling tool to ensure that your emails are sent at the right time.

8. Do a final spelling and grammar check.

You’re almost there – don’t mess up at the last stretch.

Imagine spending time crafting a perfect message, only to be ignored because the email riddled with spelling and grammar errors.

how to write an email: step 8 grammar check

Here’s how you avoid this: Once you finish drafting your email, copy and paste it into Microsoft Word or Google Docs to give it a quick grammar, phrasing, and spelling check.

Alternatively, you can also use free checkers like Grammarly to automate the process while you’re drafting.

how to write an email using grammar check grammarly

Image Source

In addition, read the message out loud to make sure the sentences aren’t too long, sound clunky, or robotic. You want your email copy to sound human.

All of these tips help the reader focus on your message, not the other elements of your email.

Email Writing Tips for International Teams

Most people won’t tell you this, but crafting a good email begins even before you put down a single word. It starts with your mindset.

When you’re in the correct frame of mind, you’ll be able to write effective emails that communicate and persuade.

Sounds logical … but how do you enter the “correct frame of mind”? Well, there are two ways: Put yourself in the recipient’s shoes and write the way you talk.

More on that below.

Imagine receiving the email you’re writing.

Have you ever received an email that it was so incoherent you couldn’t even finish reading it, let alone even consider replying? Or included a completely irrelevant proposition?

how to write an email

Image Source

Ahrefs is an SEO tool, yet they received an email from a fishing company.

One of the biggest problems when it comes to email writing is the lack of empathy for the recipient. Ask yourself these questions:

  • Why am I emailing this person?
  • Is this the right person to contact, considering what I’m trying to achieve?
  • Is my message clear and to the point?
  • Would this be better discussed in a meeting?
  • Does each line help or hurt my goal?

This is especially important when emailing someone new but still valuable when contacting a colleague.

Write like you talk.

If you’re not a native English speaker, it’s normal to feel like you should be more formal when it comes to your email writing.

However, this results in emails that are too formal, and come off as awkward or stiff. For example:

how to write an email for international teams

Native English speakers write more informally — their writing sounds like one person talking to another.

Here is a quick grammar tip that will always help you sound more native: Write in an active voice and avoid the passive voice.

An “active voice” shows that a subject is performing the verb’s action, e.g.: “Marilyn mailed the letter.”

In contrast, the “passive voice” shows that the verb is acted upon by the subject, e.g.: “The letter was mailed by Marilyn.”

Instead of writing “your feedback would be much appreciated”, try saying “I would appreciate your feedback.” Instead of writing “your request has been received”, try “I received your request.”

Notice how writing in an active voice sounds more human.

Writing an email shouldn’t be daunting. With these simple tips, you’ll make sure your email is effective every time.

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8 Ways to Make Every Interaction With Customers Fantastic

Eva on August 2, 2022

  • NetSuite

8 Ways to Make Every Interaction With Customers Fantastic

Your customers have high expectations — and if your business can’t meet them, they’re going to leave you for your competitors.

If that sounds harsh, well, it is. In addition to getting a product or service that works for them, they want to buy from companies that make it easy to get help when they need it, that go above and beyond for them, and that make them proud to support their corporate culture and philosophy.

You already know that the customer experience doesn’t end with a sale — it’s an ongoing work in progress that companies should be constantly seeking to improve and iterate on. To get you started, here are our suggestions for how you can make your customers love interacting with your business.

Customer Interaction

Customer interactions are instances when people communicate and engage with businesses. These moments occur throughout the customer journey and typically relate to marketing campaigns, sales promotions, and service-related issues.

There are plenty of reasons customers interact with businesses — not to mention the plethora of channels they use, too. In fact, the image below shows us five general examples that can be applied to most customer experiences.

The three main ways a customer is drawn to a business is through marketing, sales, and customer service. In each of these, customers have different needs, goals, and expectations from your brand, but that doesn’t make one reason more important than another. These are all opportunities for your brand to acquire, convert, and delight your customers.

Let’s look at some examples of customer interactions, categorized by marketing, sales, and customer service.

Examples of Customer Interactions

Customer Interactions in Marketing

  • A customer sees an advertisement for your brand on social media and comments on it.
  • A customer sees store signage that details features of a specific product or service.
  • A customer signs up for your email newsletter to receive weekly updates and promotions.
  • A customer goes to one of your company events.

Customer Interactions in Sales

  • A customer calls your support line and asks to speak with a sales representative.
  • A customer is surfing your website and decides to open a live chat conversation with a sales representative.
  • A customer receives an email from your sales team and schedules a meeting.
  • A sales representative calls a customer to see how they are liking their new product or service.
  • A sales representative emails a customer to follow up on a conversation that had earlier.

Customer Interactions in Customer Service

  • A customer calls a support line to get help with a product or service.
  • A customer has a question about a product, service, or marketing promotion, and reaches out to your brand on social media.
  • A customer who’s upset with their customer experience writes a negative review of your brand.
  • A customer success manager reaches out to a customer who’s showing signs of churn.

Across these functions of business, these various interactions are tracked in a single repository known as customer interaction management (CIM) software.

Customer Interaction Management (CIM)

This CIM software is used to manage and record interactions between an organization and its customers. From the beginning of a buyer’s journey to its completion, this type of software tracks all historical data from customers through a multitude of digital and in-person channels.

Customers interact with your business in many different ways, and CIM software can help you manage this communication across many of the following channels:

  • Email
  • Phone
  • Live Chat
  • Social Media
  • Webpage
  • Live Video
  • In-Person
  • Snail Mail

So we’ve discussed the different types of information tracked by customer interaction management, but why do we want to record this data in the first place?

Why is customer interaction important?

Customer interactions give businesses the data needed to improve customer satisfaction.

Without looking at customer interaction data, a business could be churning customers without knowing why. Reviewing that data can uncover gaps in communication, common occurrences that drive customers away, or other poor practices.

By taking the time to review the average customer interaction, your business can adjust its customer experience (CX) strategy to provide a more useful, pleasant shopping experience. And the more enjoyable the interactions become, the more likely customers are to become loyal to your business.

Now, let’s look at how you can make every customer interaction memorable with these handy tips.

How to Improve Customer Interaction Management

  1. Show empathy and gratitude.
  2. Be conscientious.
  3. Be transparent and communicative.
  4. Ask for and act on customer feedback.
  5. Surprise and delight your customers.
  6. Go where your customers are.
  7. Talk like a human.
  8. Give a gift that gains their loyalty.

1. Show empathy and gratitude.

Are you familiar with the golden rule? “Treat others as you want to be treated.”

The customer service golden rule should be “Treat customers as you want to be treated as a customer.” (I know it’s not as catchy, but I’m making a point here.)

We’ve written about the importance of empathy in a customer-facing role a few times before, and it deserves to be underscored again here.

It might sound simple, but making sure each and every one of your customer interactions demonstrate your empathy for your customers’ struggles, and your gratitude for their loyalty, goes a long way. Here are some ways to do that:

  • Thank your customers — for everything. Thank them for their patience if your company experiences an outage or disruption in service. Thank them for understanding if you or your company makes an error. Thank them for their loyalty when they renew or buy again. Thank them for taking the time to share their feedback, whether it’s good or bad.
  • Be empathic in your responses to customer complaints and issues. Say “I’m sorry” for whatever the issue is impacting in their day-to-day. The issue could be losing them time or money, or just causing a tremendous headache. You don’t always know what’s going on in your customers’ daily lives, so err on the side of apologetic if they come to you with an issue — great or small.

Customers are more likely to spend more and be loyal, longer, if they have a history of positive experiences with your company. Do your part to make each sign-off positive and gracious to make your customers feel good about working with you.

2. Be conscientious.

This is a lesson you may have learned when you were a student, or in your first job, and it’s important in your customer-facing job, too.

It’s of utmost importance to be conscientious and to responsibly follow-up to every customer communication you engage in with a solution, a forum for feedback, or helpful educational resources they can benefit from.

Whether you’re connecting with customers on the phones, via email, or by commenting on social media, your customers might think that reaching out won’t solve their problem (because — let’s face it — it can feel like that’s often the case when it comes to contacting customer service). Here are a few ways you can prove them wrong:

  • If you can’t solve a customer’s problem with them in the first interaction, provide them with an exact and reasonable timeframe within which they can expect a resolution. Set a clear time and date, and put the responsibility on your plate to follow up.
  • If your customer runs into an issue that you resolve, follow up with them a week or two later to make sure they aren’t still running into the same issue.
  • Better yet, do research to investigate when your customers typically encounter issues with your product, and reach out proactively with educational communications to try to prevent that friction in the first place.
  • If you’re in an ongoing relationship with a group of customers, take the time to learn more about them and their business, and reach out from time to time with information about their industry, or congratulations about a milestone.

3. Be transparent and communicative.

It’s extremely important to be transparent when you communicate with your customers — especially if it’s about a mistake or error caused by you or your product.

Using your empathy and gratitude muscles, don’t hesitate to explain the situation, apologize for the issue, and communicate how it happened — and how it won’t happen again. If it could happen again, be clear on that so your customer can prepare for the future.

Particularly if your product or service concerns customers’ personal data or information, or if your product serves as a system of record for a customer’s own business, you need to take your responsibility to your customers seriously. In today’s era of data breaches and credit card hacking, customers want to understand what you’re doing to fix problems and prevent them from happening again. Make sure you’re prepared with transparent customer communications during times like these — and if you’re not, ask your team manager or director for better guidance.

4. Ask for and act on customer feedback.

You can’t just give the term “valued customer” lip service — you need to walk the walk by regularly asking for and acting on customer feedback.

Regularly asking customers for feedback via surveys is an effective way to identify potential problems before they cause your customers to churn. Surveys also provide customers with an avenue to voice their thoughts on your product or your customer service in a way that makes them truly feel valued, and their specific feedback on 1:1 interactions with employees allows you to better hone your processes — or to shout out employees going above and beyond.

Your company may already have a process in place for regularly soliciting feedback, in which case you don’t want to inundate your customers with even more communications that could lead to survey fatigue.

If your company already has asking for feedback down pat, make sure you’re soliciting feedback in your 1:1 conversations with customers. Even if it’s not official or on the record, qualitative feedback will help you improve your service, and customers will appreciate the opportunity to be honest and share their views. And if your team isn’t already deploying post-call Net Promoter Score® surveys, it can be a helpful way to develop your skills and share learnings with the greater team.

5. Delight your customers whenever you can.

We’re big advocates of delighting your customers, and a big element of delight is the surprise element.

Make sure to take time periodically to surprise your customers. You don’t necessarily need to surprise them with a gift or a discount (although those can be nice). Sometimes, something as simple as a thank you letter, company swag, or a shoutout on social media can go a long way towards building goodwill and an emotional connection with your customers. And an emotional connection can sometimes be a bigger predictor of loyalty than responses to customer satisfaction surveys.

6. Go where your customers are.

As a customer, nothing annoys me more than when I send a Twitter DM to a company to complain about something, and they reply with a number I can call to voice my concerns. I’m already experiencing friction dealing with an issue with the product — I shouldn’t have to wait on hold to hear from a customer support rep, too.

It’s your job to make it as easy and painless as possible for your customers to get the answers they need to use your product or service. To do that, you should have a plan in place for providing service across a variety of channels where your customers typically reach out to you.

Strive to always respond to customer requests and issues on the same platform where they originally reached out. There are always exceptions to this — sometimes, you just have to talk out an issue or hop on a video call — but you should make every effort to keep communications on the same platform where your customer originally asked you for help. This helps you engage with customers faster to get them the answer they need.

7. Talk like a human.

Our final suggestion to make your customers love reaching out to you — even in cases of problems — is to talk like a human.

Your customers aren’t looking for scripted corporate-speak when they call or write to you in need of assistance. Particularly if you’re communicating with customers on social media, scripted, formal language can ring hollow and insincere.

If you’re in the middle of solving a customer issue, feel free to keep language professional. But once you’ve solved a customer’s problem, or if a customer is reaching out to share positive feedback, feel free to be less scripted, and more yourself.

Use good judgment to communicate with customers authentically in your own voice. For example, if customers are reaching out to you on Twitter, don’t be shy about responding back to them with a GIF or a hashtag. If you’re leaving them a comment on Instagram, try to work in an emoji. Little personal touches can endear you to your customers and make them more excited to connect with you.

8. Give a gift that gains their loyalty.

Thank you cards are great, but customers admire it when brands go the extra mile by sending them nice little gifts. Not only do gifts instill memories in customers, but they also add a special layer of happiness. So the next time you want to thank your customers, consider emailing them a gift card, grocery coupon, or a discount on your service/products.

Consider leveraging reward platforms for this, as they do all the heavy-lifting for your business. Xoxoday is a good option here — it’s cloud-based, robust, and lets you send gifts from your existing workflows instantly.

We are living in a world that’s highly competitive, and the way you deal with a customer leaves a big impact on your brand name. That’s why customer interaction must be done with extra care, as it serves as an incredible opportunity to grow your business.

While there are bad days and it is okay to make mistakes, it shouldn’t be the case often. With little planning and well-thought-out actions, you can pull this off right. The journey from customer interaction to customer loyalty isn’t overnight, but it isn’t complicated either. All it takes is the right loyalty rewards to appreciate them. Happy customers = Loyal customers! Let’s not forget that.

Make Your Customers Love Interacting with Your Business

The way your customers interact with your business will determine how you keep them engaged and coming back. We hope this article gave you a better understanding of how these interactions can be tracked, analyzed, and improved upon for happier, more satisfied customers to come.

Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.

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Web Service vs. API, Explained

Eva on August 1, 2022

  • HubSpot

Web Service vs. API, Explained

Both web services and APIs are vital to modern software architecture, but developers need to remember that while these terms have some overlap, they are fundamentally not the same.

Learning APIs for the first time is tricky — not only are there many technical terms involved, but these terms often have similar meanings.

Today, we’re going to help you understand what distinguishes a web service vs. API since they have different uses depending on the needs of your software. This guide will briefly review what APIs and web services are individually, then compare the two and highlight their disparities.

What is an API?

An application programming interface (or API for short) is a software component that enables two otherwise unrelated applications to communicate with each other. The result of this communication is increased functionality. An API consists of standardized rules and functions that determine what data may be taken or modified within an application and how the process occurs.

APIs enable software integrations since they expose some of an application’s inner data that developers use. This makes an API an “interface” — you can request data from an otherwise closed-off application. Remember: it’s not uncommon for organizations to use several APIs. You might even have an API catalog.

While some APIs are open (free and publicly available), others are private. In other words, some are only accessible by approved developers — and likely have a price tag attached. Alternatively, a company may create internal APIs to connect its systems, such as in a microservice.

Thanks to today’s API economy, these components are behind most integrations we see over the internet. Web APIs are software components that send data over the internet. As an example, think about your weather apps. Your weather app isn’t generating the data itself — it’s simply requesting this information from a weather API. From there, the weather API will connect software that gathers and stores the data with the application on your phone that tells you it’s going to rain tomorrow (sorry).

There are several architectures software developers follow to create an API, but the most popular is Representational State Transfer (REST) or Simple Object Access Protocol (SOAP). These have some differences but have a shared central goal. API architectures standardize APIs, ensuring they can communicate using standard languages and procedures.

Web API Advantages

When comparing web services vs. API software components, it helps to have a thorough understanding of the merits of both. Here are some of the many reasons an API is beneficial.

  • Improves connectivity
  • Supports traditional create, read, update, delete (CRUD) actions
  • Works with HTTP verbs including PUT, POST, DELETE, and GET
  • Assists by exposing service data to the browser
  • Based on HTTP, which you can define and expose in a REST-ful manner

Web API Disadvantages

Like any software component, APIs do have some potential drawbacks. Here’s what you should look out for when working with web APIs:

  • Time-consuming to create an API — and you need a skilled programmer
  • Requires a fixed scale
  • Maintenance is costly
  • Potential to crash
  • An imprecise boundary delineation

In addition to knowing web API’s advantages and disadvantages, it’s helpful to have an understanding of its main features to comprehend why this software is essential.

What is a web service?

A web service is a resource that is available over the internet. It’s valuable because it provides functionality other applications can use, such as payment processing, logins, and database storage. This collection of protocols and standards is typically used to exchange data between apps or systems. 

According to the World Wide Web Consortium (W3C), web services “provide a standard means of interoperating between different software applications, running on a variety of platforms and/or frameworks. Web services are characterized by their great interoperability and extensibility, as well as their machine-processable descriptions thanks to the use of XML. They can be combined in a loosely coupled way in order to achieve complex operations.”

Because web services enable software applications to work in tandem (even when built in disparate ways), utilizing different web services can help a developer combine many functions without having to code them all. The result is saving time, energy, and money in-house. 

If you’re familiar with Service Orientated Architecture (SOA), you’re likely aware of how vital web services are. SOA divides the software’s function applications into modular services connected over a network. Then, SOA enables the reuse of the same function across multiple applications. The best part? There will be no need to re-code anything. 

Keep in mind, however, that web services require a network to interact, and this networked communication is usually achieved thanks to SOAP. SOAP encodes data in XML, a common markup language for storing and transferring information, and sends it via HTTP, which is the same protocol that delivers web pages from web servers to browsers. An application sends an XML request to the service and replies with a response formatted in XML. 

Web services can also follow REST principles — but SOAP is more common.

Web Service Advantages

There are a plethora of reasons that people choose to use web services. Here are some of the most popular: 

  • Web services exist independently 
  • Help rectify interoperability issues by offering applications a different way to connect data 
  • Enables communication and data exchange
  • Increases communication speed within and organization and externally (if desired) 
  • Easy to use (and reuse) 
  • Agile 

Web Service Disadvantages

Just as there are possible disadvantages to APIs, there are drawbacks to think about with web services. Here are some of the most common: 

  • You can’t leverage emerging web developments such as Semantic Web and AJAX XML HTTP Request
  • HTTP protocol can be unreliable 
  • When a service is created to handle various customers, there’s a demand for specialization 
  • Not accessible from a browser
  • Web services may be flawed 

Next, we’ll review some of the main features of a web service. 

Web Services vs. APIs

Though APIs and web services can both facilitate data transfers between applications over the internet, they are not the same, and the terms should not be used interchangeably in every case. The key distinction is that web services are a type of API: All web services are APIs, but not all APIs are web services.

‘API’ is the broader category because, by definition, it refers to any software component that acts as an intermediary between two otherwise disconnected applications. 

Since web services are designed to share data with other disconnected applications, this qualifies them as APIs. However, a web service is just a way you can implement an API. Let’s review what makes a web service different from other types of APIs in use today.

Communication Over a Network

A significant difference between web services and API is that they communicate dissimilarly. To communicate, web services use a system connecting two or more software applications on different machines called a network. Usually, the network in question is the internet. 

However, APIs aren’t required to utilize networks. Of course, they can, but they may also function offline. For example, two apps on the same computer may integrate via APIs. You can still transfer data without a network. 

Limited Accessibility

APIs can be divided into types based on their scope of users. Some APIs allow developers to mess around with them with limited oversight, while others are restricted to paid clients. On the contrary, web services are only accessible to approved partners. This provides web service owners greater control over who accesses data, how they use the service, and its functions.

Architecture and Format

An API may adhere to various designs, including REST, SOAP, XML-RPC, or JSON-RPC. On the other hand, web services typically stick to SOAP because it tends to be more secure and better at preserving data integrity than others. 

The main trade-off is that SOAP is more strict in its requirements than RESTful design, making it more code-heavy and process-intensive. That’s why a web service may incorporate principles from REST or XML-RPC. Still, it’s primarily agreed that SOAP is the go-to protocol.

Web services also tend to use the XML format to encode data, while APIs generally may use any language to store data. For instance, the language is JavaScript Object Notation (JSON), a more lightweight alternative.

APIs and Web Services: Similar, but Not Identical

Both APIs and web services are technologies that enable the transfer of data between separate software applications. API is an interface that exposes an application’s data to outside software, whereas web applications are one type of API with stricter requirements. These requirements include network communication, SOAP as the primary protocol, and less accessibility for the public. 

While these definitions might seem quite nuanced, it’s essential to comprehend the subtle but important distinctions between web technologies. Armed with this knowledge, you’ll be well-equipped for discussions with developers and better understand your product’s integrations.

Editor’s note: This post was originally published in September 2021 and has been updated for comprehensiveness.

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Building an ERP Business Case: How-To & Template

Eva on July 29, 2022

  • NetSuite

Building an ERP Business Case: How-To & Template

Because ERP consolidates and automates critical business processes like accounting, inventory management, HR, CRM, financial planning and more, implementing it is both an exciting and serious undertaking that takes time and resources to accomplish effectively.

Most organizations considering an ERP implementation must therefore build an ERP business case that goes beyond outlining pain points and into the overarching benefits of an ERP. The business case details and formally presents the costs and benefits of such an implementation, along with the opportunities and risks—and we’ll outline that process for you here.

If your company is not yet enjoying the benefits of a modern ERP, the first step is to build a business case that illustrates the benefits, costs, opportunities and risks of launching an implementation project. By breaking down data silos, ERP connects the dots on business processes including accounting, operations, manufacturing, sales and HR; enables better FP&A and reporting; and adds efficiencies through automation technology.

A tailored ERP business case enables any organization to evaluate its specific benefits, costs and risks. The document may also serve as the basis of an ERP implementation plan because it provides the project team with clear direction on priorities and responsibilities.

Goals of Implementing ERP

Organizations typically decide to implement or upgrade an outdated ERP system because they need to solve problems caused by using a patchwork of different applications for different business processes such as finance, supply chain management and warehouse management. Pain points include dwindling productivity, an inability to provide insights into business growth, expensive inaccuracies and problems meeting customer expectations.

If business leaders can’t take advantage of market opportunities because they’re operating with information they can’t trust, can’t effectively use or both, that’s a sign you need to consider buying an ERP.

ERP systems can help solve these problems by providing an integrated suite of applications that share common data. Typical goals of implementing ERP include:

  • Increased productivity: Because the system integrates information and processes across multiple departments, like finance, HR, sales and operations, employees can do more work and complete processes faster.
  • Reduced cost: Especially when delivered as software-as-a-servce (SaaS), ERP systems automate manual processes and eliminate the need to transfer data between systems, reducing cost.
  • Enhanced decision-making: Managers can get a clearer, more up-to-date view of information across the business, helping them better analyze trends and anticipate customer needs.
  • Higher customer satisfaction: Product-oriented organizations can better manage their supply chains to deliver customer orders on time with fewer errors and more easily track information across the entire order fulfillment process to support a better customer experience.

Why Build an ERP Business Case?

Implementing an ERP system typically requires a significant investment in data migration, change management and leader buy-in over three to four months of effort. Furthermore, the system will change the way that people do their jobs across the organization. Before implementing an ERP, leaders and departmental stakeholders need to be convinced that the effort is justified—particularly since some of the people expected to use the system will likely resist the change.

Building a business case for ERP solves that challenge. It gives the organization’s stakeholders a tool for measuring the value that the system will deliver, so they can weigh that value against the costs and risks. It presents a variety of ERP use cases, describes exactly why the organization needs an ERP and the specific business benefits that the organization may expect.

For example, a business case may pinpoint the inefficiencies in order processing and fulfillment, show how the ERP system will improve those processes and estimate the business value of those improvements. That value can include both tangible benefits, such as cost reductions or the ability to handle more orders without hiring more staff, and intangible—but sometimes equally important—benefits such as higher customer satisfaction.

How to Build a Business Case

When an organization starts seriously investigating whether to implement an ERP, it generally sets up a project team that includes an executive sponsor—the CEO, CFO or other senior manager. One of the project team’s first jobs is to build an ERP business case.

Often, the team enlists the help of an external consultant who can provide a fresh perspective and has the expertise to build an ERP requirements checklist to analyze how the system may help the business.

This isn’t just a PowerPoint you throw together, but a thorough, numbers-based detailed analysis that is a process of documenting all of the benefits (both tangible and intangible), putting KPIs behind it all and weighing the benefits of ERP against the costs. The focus is detail how the investment will deliver true business value—why the project is needed and what benefits it will offer when finished.

7 Steps to Building an ERP Business Case

The process of building a business case generally includes at least seven major steps:

  1. Identify and analyze current issues
  2. Assess the benefits of ERP
  3. Evaluate ERP options
  4. Estimate project costs
  5. Determine ROI
  6. Identify implementation risks
  7. Create a high-level ERP implementation plan

  1. Identify and analyze current issues

    The first step is to analyze the specific problems that the organization wants to solve, measuring the business impact of those problems wherever possible and analyzing the processes that cause those issues.

    Typical issues include:

    Costly process inefficiencies: Many organizations have processes that involve time-consuming, error-prone manual steps. Employees may have to reenter customer data into different systems, or manually extract order information from an online sales system and transfer it to another system for processing and fulfillment. It’s often possible to quantify how much these processes cost and to use benchmarking information to compare your costs with those of other organizations. One local government found that its accounts payable staff, for example, was processing less than half as many invoices, on average, as comparable organizations. A pharmaceutical repackaging company found that the need to reenter data into multiple systems resulted in error rates of 15% to 25%—and as a result, it had to employ staff whose sole function was to check data accuracy.

    Obstacles to growth: Business growth may be pushing current systems beyond their limits by requiring that you add more users, transactions or data than the tools can handle. An over-reliance on manual processes may limit your ability to grow without forcing costly finance hires before the company really needs that expertise. Or, you may need more sophisticated capabilities as your business grows globally—for example, the volume and complexity of sales data may expand to the point where it’s almost impossible to analyze using spreadsheets.

    Inability to meet customer expectations: Is the organization continually missing deadlines or shipment dates? Are orders frequently inaccurate, are there service disruptions? Resolving customer services issues such as order status and processing inquiries faster will avoid customer displeasure and may even reduce churn.

    Lack of real-time data for decision-making: As the business grows and becomes more complex, it often becomes more difficult to find out what’s happening across the organization in real time. While up-to-the-minute views are often necessary to enable managers to make decisions that help the business thrive, the data that managers need may be buried within various sales force automation, CRM, project management, inventory management, supply chain, human resource and customer service systems. People may spend more time trying to find data than analyzing it and making decisions.

    Cost of existing systems: A business case should factor in the current cost of operating the multiple systems that will be replaced by ERP—including the cost of any technology staff as well as product licensing, IT infrastructure—such as servers, switches, routers, networks, etc.—and support.

  2. Analyze the benefits of ERP

    Next, the organization begins building a list of achievable goals for the ERP implementation.

    At least initially, the list may be broad, but aim to address the main pain points identified in the previous step. Reexamine each pain point to analyze how the ERP system will address the issue, then define realistic goals.

    To illustrate, consider a manufacturing company that has an inefficient raw materials purchasing process, which is becoming increasingly unmanageable as the business grows. Purchasing agents work with each supplier on contracts then create purchase orders and get internal approvals—all of which are manual processes.

    An ERP expert hired by the company determines that the manufacturing plant is operating below capacity in part because the purchasing function is a bottleneck. The consultant uses their knowledge of ERP and the company’s operations to show how, by implementing ERP, the company could redeploy or avoid adding purchasing staff while increasing manufacturing output, enabling the company to grow total sales revenue.

    The consultant estimates the reductions in staff costs that can be achieved by automating the purchasing processes, as well as the additional potential revenue due to better utilization of manufacturing capacity. Both of these benefits become part of the business case, and the consultant moves on to examine the next process issue.

    A best practice is to ensure that goals are specific, measurable, achievable, realistic and time-based—generally condensed to the acronym “SMART.”

    Examples of high-level SMART goals could include:

    • Reduce manufacturing defects by 20% this year.
    • Reduce inaccurate orders by 25% within six months of ERP implementation.
    • Increase the number of invoices processed per employee by 35% by August 1.

    The types of benefits that companies realize by implementing ERP typically include:

    Greater efficiency and productivity: The transition to ERP typically enables organizations to automate manual steps and eliminate the need to enter data, providing measurable reductions in the time needed for processes. The resulting improvements in productivity can also enable the organization to handle business growth without hiring more staff.

    Optimized inventory levels: ERP systems give the organization a clear view across the supply chain, facilitating better demand forecasting and helping the organization optimize inventory. That can reduce inventory costs while ensuring the company can meet demand in a timely way, keeping customers happy.

    Better cash flow: More efficient invoicing can help ensure faster payment, so the company has more cash available rather than tied up in receivables.

    Improved customer service: With better visibility into customer information and orders, the organization can respond more quickly to customer requests and solve problems more easily.

    Higher employee retention: With more processes automated, employees find their jobs to be easier and are more likely to stay with company.

    Better workforce management: With a centralized data model, ERP systems can connect employee performance to business performance giving decision makers better insights on how to plan and manage the workforce.

    Better decision-making: Managers have access to more complete data from across the business in real time, gathering data from sales, HR, financial and inventory. Executives can use this information to make more informed decisions and take advantage of new opportunities.

    For example, with ERP, the CFO may have access to financial reports in a fraction of the time that would be required to extract and combine information from multiple systems. This also frees the CFO to spend more time on financial forecasting, finding areas for savings, producing better KPIs and other strategic activities.

Revenue and profitability: Greater productivity, accelerated processes and better relations with customers drive revenue and profitability.

  1. Evaluate ERP solutions

    If you haven’t already begun evaluating specific ERP solutions, now is a good time to start. The analysis of current issues and desired benefits should give the organization a clear picture of the ERP modules and specific features that it needs. As with any important business decision, start by clarifying your goals and expectations to help you choose your ERP, and involve key stakeholders who have the most to gain from a successful implementation (and the most to lose if there are problems). Once you have an ERP implementation team, identify the offerings that might be appropriate for your business.

    You have a wide variety of ERP solutions to choose from. They include cloud-based ERP systems, which you access over the internet and generally pay for on a subscription basis. There are also on-premises systems that an organization installs in its own data center and manages itself. Hybrid ERP is also a possibility.

    Because organizations typically rely on the ERP system to run many aspects of the business, factors such as support and the long-term viability of the supplier are important considerations.

  2. Estimate project costs

    A realistic business case will depend on getting an accurate estimate of the cost of the new ERP system. There are several key factors to consider. The most obvious are the licensing costs for the software itself. If you’re buying a cloud-based ERP system, you’ll need to factor in a subscription cost based on factors such as the number of modules and users. If you’re using an on-premises system, the cost will include software licenses, the hardware needed to run the system, and any technology experts or ERP professionals needed to install, run and maintain the system.

    But you also need to consider the costs of implementing the new system. These include:

    Software configuration and deployment: For all systems, you’ll need to include the cost of setting up the system and customizing it to your business needs if necessary, for which you’ll probably need professional help—or at least someone on your IT team who has experience and expertise with the system you’re implementing. If you choose an on-premises system, also include the cost of on-site hardware and software licenses, plus the cost of the expertise needed for installation and maintenance.

    Process redesign: Improved business processes are a key goal of many ERP implementations. Companies generally either need professional help or they need to allocate internal resources to determine how to redesign business processes. Data migration—moving data from legacy systems into the ERP is a time consuming and tedious process. Determine how much history you need in the new ERP and how you can still get historical information from the previous systems. Most companies take no more than 3 years of data forward into the new ERP to help reduce implementation costs.

    Report writing: Most projects include a report writer who will develop customized reports for people throughout the company. Good ERP solutions will include a decent selection of standard reports; some of them make creating customized reports manageable for most power users.

    Training: Include costs for training employees on how to use the system, plus any training required for the IT staff needed to install on-premises systems and other specialists, such as the report writer. Change management—change is inevitable with any ERP implementation. Not just for employees who use the new systems but also for customers who get a new looking invoice, suppliers who have to learn a new purchasing process or managers who receive new reports.

  3. Analyze returns on investment

    A comparison of the value of the anticipated business benefits with the costs involved is key in the decision whether to go forward. The analysis should include both tangible benefits, such as reduced costs and increased revenue, and less-tangible benefits, such as customer satisfaction. The ROI analysis will include a comparison of the cost of the ERP software with the operating costs of the systems it will replace.

    In practice, ERP statistics show companies achieve a wide variety of measurable benefits. A Forrester analysis of four companies’ experiences found that they reported average finance reporting and management efficiencies of more than $408,000 due to improved procurement efficiency and ability to reduce hiring, revenue growth due to improved customer and order management and communication and reduced and avoided IT costs of nearly $749,000.

  4. Identify implementation risks

    All major changes to the organization include risks, and a business plan should explain those risks—including the risk that the implementation may be unsuccessful. Careful planning of the ERP implementation can mitigate those risks.

    For example, involving all departments that will use the ERP system during the design phase can help to ensure that users take full advantage of the system when it is deployed, improving the chances the organization will actually realize predicted benefits. Different implementation strategies can be used, depending on the organization’s risk tolerance and how quickly it wants to reap the benefits of the new system. For example, rolling out an ERP system in stages is less risky than a “big bang” all-at-once deployment, but a staged approach may result in a slower payback.

  5. Create a high-level implementation plan

    The business case should include a high-level implementation strategy—not a detailed step-by-step description, but enough information to give everyone an idea of how the project will proceed, the resources that will be needed and the expected timeframe for achieving results.

    Once you get buy-in, then it’s time for a detailed ERP implementation checklist.

How to Convince Stakeholders

Multiple departments are likely to benefit from an ERP system implementation—but that also means that each of those departments may have to change the way they work, to some extent.

To convince them that it’s worthwhile, the project’s sponsor and ERP implementation team need to explain the business case in terms that are meaningful to the stakeholders. Take time to understand each stakeholder’s agenda and prepare information that’s tailored to address their values and concerns. For example, when speaking to customer service, the project team might focus on faster resolution of customer problems and the ability to interact with customers via different channels.

The CEO and corporate decision-makers generally need hard financial data to rationalize the investment. An ERP can be the power behind a mature financial modeling practice, for example.

Why Replace Your ERP System?

A new ERP system doesn’t always replace a hodge-podge of older standalone applications. Sometimes an organization has an older system that it’s outgrown, or that hasn’t kept up with ERP trends such as mobility or machine learning. Some organizations have older on-premises or two-tier ERP systems that have been so highly customized over the years that it’s extremely difficult to upgrade to new releases.

The process for building a business case is similar to the process described above: Analyze the issues, costs and potential benefits, explore some ERP implementation case studies, consider the risks and develop a high-level implementation plan.

By building a business case for your company that covers the benefits, costs, risks and opportunities of launching an implementation, you can take the first step towards reaping the benefits of a modern ERP.

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6 Expense Management Best Practices: The Complete Guide for CFOs and Experts

Eva on July 26, 2022

  • NetSuite

6 Expense Management Best Practices: The Complete Guide for CFOs and Experts

After employee payroll and benefits, travel and entertainment (T&E) is the second-largest controllable expense for companies. That makes following expense management best practices—the process and technologies involved in reimbursing workers for travel, hotels, meals, entertainment and other out-of-pocket expenses—a big deal.

Automated expense management can simplify the report submission process, minimize lost documentation, reduce errors and reimburse employees faster. Still, tech needs to be underpinned by policy. When establishing procedures governing expense reports, companies of all sizes should follow industry best practices. The IRS and auditors expect nothing less.

Advantages of Effectively Tracking and Managing Employee Expenses

You likely have some guidelines in place for expense reporting, but have they kept pace with changing business realities? If not, it’s time for a refresh. When making the case for such an initiative, CFOs should point out that organizations that effectively track and manage  employee expenses can:

  • Take full advantage of tax deductions. By maintaining the right documentation for the right period of time, and ensuring that all deductions are valid, companies can be confident they can take all the deductions allowable and have the correct level of reporting for the IRS.
  • Develop more accurate budgeting and forecasting. T&E expenses make up a large portion of the average company’s operating budget. When these expenses aren’t properly tracked and processed, that can interfere with a CFO’s ability to accurately budget and forecast for the future.
  • Manage expenditures. Not knowing how much people are spending while they’re out on the road (or at home) working makes it hard to manage cash flow effectively. With improved oversight in this area, you’ll not only know who is spending what, you’ll also have more control of these expenses, making it easier to prevent employees from abusing the system.
  • Minimize business expense fraud. Occupational fraud includes overstating business expenses, submitting fraudulent records and other abuses that can be curtailed through good oversight, policies and controls.

 

6 Expense Management Best Practices

Maybe you already have an expense management plan in place and need an upgraded approach to this critical business process. Or, maybe you’ve operated for years without a well-thought-out plan and are now ready to develop one from the ground-up. Regardless of which end of the spectrum your company is on, these best practices will help you develop an effective expense management approach.

1. Expense Policy

One of the best ways to control employee spend is by implementing an expense management policy that everyone in the organization must follow. Your policy should outline exactly what is and isn’t an approvable expense based on up-to-date IRS regulations governing reimbursements and your company’s culture and budget reality.

A companywide expense policy also helps the accounting department and/or approvers quickly decide—and build automated rules governing—whether an expense is reimbursable or not. Be sure to establish budgets for each category; for example, any flight that exceeds a certain cost threshold requires prior approval from a supervisor.

The policy should also include information about when employees can expect to be reimbursed for their expenses, typically 30 days or less, depending on the company, and what recourse they have in the event an expense is rejected or questioned. That way, your policy will serve as a standard for making final decisions on whether to reimburse the costs (or not).

What makes a good expense policy?

In a few words, fairness, transparency, comprehensiveness and clarity.

We already mentioned having everyone in the company subject to policy. In addition, review state and federal laws governing expense reporting and reimbursement and develop a policy that complies with these laws. Ask your employees and senior managers for input: What technology would make the process easier for them? What rules need to be more clearly stated? Use this input to create a program that meets everyone’s needs.

2. Expense Reporting

Rule No. 1: If you want prompt, complete reporting, give employees an easy way to submit their expenses. The more Excel spreadsheets, forms, clunky interfaces and documentation people have to wrestle with, the more they’ll delay, the higher the frustration level will be and the more errors you’ll have to fix.

With traditional expense management, companies use a paper- and spreadsheet-based system of processing, paying and auditing their employees’ expenses. This typically covers travel, accommodations, meals and other expenses incurred while an employee is conducting “official business.”

In other words, while they’re on the road. Why not let them photograph and submit receipts from an app rather than keeping  track of paper?

3. Collecting Critical Expense Information

While working offsite, your employees will be collecting receipts in different formats to substantiate their expenses and to be reimbursed for them. E-receipts are accepted by the IRS; by following suit, you simplify the process of accumulating, submitting and reviewing supporting documentation.

To control operating costs and minimize red tape, you’ll need an automated way to gather invoices, receipts and supporting documentation from employees. Clearly outline this process in your business expense management policy, which associates can refer to when submitting their documentation for approval.

4. Establishing Accountability

Established processes are only as good as the people who rely on them and refer to them on a regular basis. To ensure that your business expense plan and the related policy are prioritized, you’ll have to hold associates accountable. To start, managers and supervisors must be made aware of the organization’s expense policies and, in turn, hold their teams responsible for following them.

To ensure high levels of accountability in this area, give managers an easy way to access, review and provide feedback on their employees’ expense reports. Using expense management software that can be accessed via a mobile device, for example, puts more power into your managers’ hands and helps them guide their team members toward good business expense management processes.

5. Timeliness

No one wants to pay $1,000 in travel costs out-of-pocket for a business trip and then wait around for months while those expenses are reviewed, approved and reimbursed.

Unfortunately, this is exactly what happens in the absence of solid business expense management policies and processes.

To avoid this problem, and the unhappy employees that come with it, create service-level timeframes that work for both the company and employees. For example, make clear that associates must submit their expense reports by “X” day of the month, with complete required documentation, to receive reimbursement by “Y” day. If they miss these deadlines, clearly spell out how much additional time it will take to process their reports and reimbursements.

Make sure managers and senior leaders also understand the importance of approving reported expenses promptly. When everyone understands their individual obligations in making the system run smoothly, the reporting, authorization and reimbursement process will take place in a timelier manner.

6. Regular Audits of Process for Fraud

Conducting regular audits of your expense management processes and doing regular reviews for potential fraud are two best practices that all CFOs should follow. Expense management audits can identify areas of potential improvement while also pinpointing variances that may be substantially increasing operating costs.

The audit process also helps uncover expense fraud. Of the internal fraud schemes reported by small businesses, those with fewer than 100 employees, and larger organizations, the Association of Certified Fraud Examiners’ (ACFE) says 20% of small businesses and 13% of larger firms have reported fraudulent expense reimbursements.

ACFE says the top fraudulent expense reimbursement activities are: 

  • Mischaracterized expenses
  • Overstated expenses
  • Fictitious expenses
  • Multiple reimbursements for the same expense

An automated system can flag anomalies, such as double filing, and thus help companies spot and crack down on fraudulent claims.

 

7 Key Strategies for Expense Management

To recap, here are the top expense management strategies that all organizations can start using today to improve their existing processes—or, develop new ones:  

  1. Write a solid expense policy that reflects the needs of your company, its managers and leaders and its employees.
  2. Be fair, transparent and comprehensive with your policy.
  3. Provide an easy way for employees to submit their expense reports.
  4. Gather and retain critical expense information as required by law.
  5. Keep everyone, from managers to employees to finance staff, accountable throughout the entire process.
  6. Be timely with employee reimbursements so they’re not carrying balances.
  7. Conduct regular audits of your process, and pay attention to flagged anomalies that could signal abuses and fraud.

 

Make the Process Easy (with Expense Management Software)

With 43% of companies still using manual processes to manage their expense reports—and 46% of organizations not tracking the associated costs—implementing automated expense management software is one more best practice for companies to consider.

According to the 82% of companies that either have invested in or are planning to invest in technology to facilitate improved expense management, simplifying the reporting process for employees and managers is a key motivator.

In particular, a simplified receipt collection, retention and submission process eliminates the pain of expense reporting and makes it easier for associates to submit their expense reports. Stored in a central location, those reports can then be accessed by all approvers and reviewers, speeding up the approval process, enabling regular audits and supporting good compliance.

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5 Tips to Improve Ecommerce Site Search and Increase Conversions

Eva on July 26, 2022

  • NetSuite

5 Tips to Improve Ecommerce Site Search and Increase Conversions

Learn how to configure your ecommerce on-site search to show more relevant results that drive purchases

Today, consumers expect answers quickly.

Constant access to the internet has diminished attention spans and patience. A simple Google search can answer a historical question, end a trivial disagreement, help you find a product you need and everything in between—all in a matter of seconds.

Customers expect the same ease and convenience Google provides when searching on an ecommerce website. Ecommerce on-site search helps shoppers quickly find the items they want, add them to their shopping cart and check out.

With the holiday season and Cyber Monday fast approaching, there’s no better time to boost your site’s conversion rate. Let’s look at five ways ecommerce managers can improve search performance on their ecommerce sites:

  1.  Use Google Analytics to understand your shoppers

    An on-site search strategy that leads to conversions starts with knowing your audience. You may have an idea of how most of your shoppers search—do they look for products via SKUs, categories, or features?—but an analytics platform like Google Analytics will confirm or deny those suspicions and provide much more detailed information. If you already have a Google Analytics account, simply go to Settings and turn on Site Search Tracking.

    Connecting Google Analytics to your internal site search reveals all the keywords people search for on your site—including the most popular search terms and those that lead to the most conversions. Once you understand what your shoppers search for, you can adjust your online store accordingly. Which brings us to our next point…

  2.  Match keywords to content

    Keyword matching should be attached to all item names in your ecommerce platform because it ensures customers get relevant results for popular search terms. Lean on Google Analytics data to determine the relevant keywords for a product or group of products and include them in product names and the search keywords field.

    Keyword matching in ecommerce site search ensures that singular/plural versions of a word and root words are all included in search results as well. For instance, if a customer searches for “running shoes,” any products with a combination of “run” and “shoe” in the name will show up. If someone looks for “short,” results for “shorts” will come up.

    SuiteCommerce users should use the “Starts with” match type for the item name and “Starts with exact” match type for the item name and SKU. “Starts with” helps with type ahead, when a list of suggested items shows up in a drop-down as the shopper types. “Starts with exact” is great for customers who have a specific item in mind and search by manufacturer or retailer SKU.

    Finally, use exact matching on the item name. If a customer knows the complete name of the product they want, there’s a great chance they will convert if they can quickly find what they’re looking for.

  3.  Take advantage of synonyms

    The value of Google Analytics data doesn’t end there. The tool will also show you common alternate names and spellings that users search, which you can add as “synonyms” in your ecommerce platform. Using synonyms will help avoid searches that return zero results.

    There are a few types of synonyms. Group synonyms trigger results for multiple words with the same meaning. For example, a search for “sneakers,” “runners” or “training shoes” would each return results for all three keywords. A niche retailer that sells backpacks might set up “office backpack,” “commuter backpack” and “laptop backpack” as group synonyms because all terms are relevant to someone looking for a work backpack.

    One-way synonyms return synonyms if you search a “trigger word.” For example, if someone enters “tablet” in the search bar, it brings back results for “iPad,” “Galaxy Tab” and “Kindle Fire.” But it only works one way—a search for iPad will not bring back results for all brands of tablets. In addition to misspellings, one-way synonyms are valuable for abbreviations (HP renders results for Hewlett Packard) and different spellings of the same word (tee shirt vs. T-shirt, gray vs. grey, etc.).

    Always use synonyms with care. When used properly, they improve the customer experience, but if there are too many or they are not set up well, it causes confusion and hurts your search credibility.

  4.  Use fuzzy matching (with caution)

    Think of fuzzy matching as a more flexible version of keyword matching. Fuzzy matching allows queries that are one or two characters away from a keyword to show up in ecommerce site search results. This includes missing characters, extra characters and mixed up letters. So if a shopper is looking for shorts but accidentally inputs “sorts,” “shortss” or “shorst,” they still get relevant results.

    Many businesses assume that they should turn on fuzzy matching for all fields with the thought that the customer will always get search results, but that leads to a lot of false positives and therefore irrelevant results. It usually makes sense to turn on fuzzy matching for the name, but you should never use it for the description field—all that text increases the chance of false matches. 

  5.  Clean up your catalog data

    Adding products to your catalog should not begin and end with uploading a spreadsheet to your ecommerce platform. The product name and description need to include the information shoppers are looking for, not just the internal name in that spreadsheet. Sizing and dimensions must be consistent—you cannot have some T-shirts listed by S, M, L and others measured in inches.

    Additionally, don’t optimize a product description for SEO and expect it to work for on-site search. That’s why it is smart to separate the information into different fields and only make the relevant field accessible to site search.

These simple adjustments to your ecommerce site search settings can boost conversions and ultimately revenue in a big way. Site searchers converting at twice the rate of other users is actually conservative—some research indicates their conversion rate is at least 200 percent higher. These are also your most valuable customers, accounting for a disproportionate amount of revenue.

That’s all the evidence you need to explain why optimizing your catalog for on-site search must be a priority.

Want more ecommerce site search best practices? Watch this video to learn how to set up your SuiteCommerce Advanced website for better on-site search experiences.

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Our experts are more than happy to listen to your enquires and provide you with the information you need.
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Financial Analysis Guide for Small Businesses

Eva on July 26, 2022

  • NetSuite

Financial Analysis Guide for Small Businesses

In looking for a financial analyst, one small business posted a listing looking for someone who could work with the finance team to create financial reports, analyze data, review costs and prepare monthly financial statements. Job duties include analyzing and interpreting financials to look at past financial performance and positively influence “future financial probabilities.”

The person would compare actual results to budgets and forecasts to determine financial performance. They would regularly review costs and perform project analysis, develop forecasting reports and create financial schedules used in monthly operational reviews and the budgeting and forecasting processes. And they would combine historical financial and operational data with other unstructured data throughout all of it.

That job description provides a great introduction to what financial analysis entails for a small business.

What Is Financial Analysis?

Like the job description suggests, financial analysis is the practice of reviewing past financial performance, comparing budgets to actual results and running financial forecasts to provide small businesses with the data they need to make informed decisions. This exercise helps a company understand where it stands financially as it plans for the short- and long-term future.

Financial Analysis Basics for Small Businesses

Ideally, small businesses should analyze their finances every week. There is a strong link between business leaders monitoring and understanding the financial health of their business and successful, growing companies. A Federal Reserve study noted 78% and 92% of companies with above-average and excellent financial health, respectively, had an annual income of at least $1 million. Forty percent of businesses with poor financial health, on the other hand, had revenue of less than $100,000.

Additionally, the study found 90% of organizations with excellent financial health always build a budget and have a separate bank account for payroll, compared to just 5% of those with poor financial health.

What Do I Need to Conduct a Financial Analysis?

To conduct a financial analysis, a business needs all its historical data. Track all revenue, payments, deposits, invoices and business expense records because you will need that information to create financial statements. The most critical financial statements include the income statement, balance sheet and cash flow statement, plus accounts receivable reports, accounts payable reports and inventory reports.

Inspect the numbers on those statements carefully to spot anything that doesn’t make sense or is anomalous compared to past weeks/months. That could signal a problem or reveal a change the business should make to save money or drive sales growth. This information will help you assess two dimensions of the financial health of the business—margins and utilization of capital—and provide the basis for many other detailed metrics.

Why Do I Need to Conduct a Financial Analysis?

The Federal Reserve study says financially healthy small businesses have four things in common: they have strong knowledge and experience with various types of credit, keep a higher level of unused credit balances, put together a budget more regularly and save cash specifically for payroll obligations.

That study showed that there is a “direct correlation between financial management and small business financial health.” Being able to understand a financial statement—and make decisions based on the numbers—can make the difference in a company being able to survive and grow. Factors and metrics to track in an analysis include profitability, cash flow cycle, working capital requirements, available liquid/near liquid assets, credit to fund operations/expansion and personal credit score.

Key Components for Financial Analysis

Producing accurate financial statements to work from is the first step in sound financial analysis. Each statement provides information that can be used to analyze the business’s financial standing. Four statements every company needs are an income statement, balance sheet, cash flow statement and statement of retained earnings.

Income Statement

An income statement illustrates the net income or net loss of the business—if the expenses exceed revenue, then you’ll see a net loss and vice versa. This is measured by calculating profit margins, including the gross profit margin, operating profit margin and net profit margin. Board Evaluation, a UK-based consultancy that helps boards and directors develop best practices for governance, says that at a financially strong company, these metrics shouldn’t change much year-over-year.

To find gross profit margin, a company simply divides gross profit by sales and multiplies that number by 100.

Say the cookie bakery “Chip Off the Old Block” has a gross profit of $800 and $1,000 in revenue; the gross profit margin is 80%. That means the direct costs of producing its tasty treats are 20% of the revenue, and there’s 80% left over to cover other expenses and distribute profit to stakeholders. Higher gross profit margins are good—they indicate the company is efficiently converting its product into profits.

The second number to look at is operating profit margin, which is a good indicator of whether the company is making money from its core business and how well it’s being managed. Operating profit margin is calculated by taking earnings before interest and taxes or EBIT (gross profit – operating expenses), dividing that by revenue and multiplying that number by 100.

If Chip Off the Old Block has $500 in EBIT from $1,000 in revenue, the operating profit margin is 50%. That means 50% of the company’s revenue is available to pay non-operating costs. Increasing operating margins can indicate better management and cost controls within a company.

Finally, net profit margin is an indication of the overall success of the business. Higher net profit margin indicates that the company is efficiently converting sales into profit. Profit margin should be measured within the context of the specific industry in which the company operates.

To calculate net profit margin, divide net profit by sales and multiple the result by 100. If Chip Off the Old Block has h $400 in net profit and $1,000 in revenue, the net profit margin is 40%. That means for every $1 of revenue, the company earns 40 cents in profit.

Balance Sheet

Analyzing balance sheets can indicate how well the company is using its capital, why the company may be borrowing money and whether that borrowing is justified.

Two calculations completed by using information from the income statement and the balance sheet are return on assets percentage and working capital ratio. Return on assets is found by dividing profit after tax by total assets and multiplying that number by 100.

So, if Chip Off the Old Block earned $400 in net profit and has $10,000 in assets, that would make its return on assets 4%. For every dollar in assets, it earned four cents of profit. The company can then compare that percentage to other bakeries how efficiently it converts money invested in assets into profit.

Another important financial metric is working capital ratio and what that ratio is as a percentage of sales, for instance. The working capital ratio and working capital as a percentage of sales metrics show how well the company is using its capital and also its liquidity.

To find the working capital ratio, simply divide current assets by current liabilities. A ratio of less than one is a warning sign of cash flow issues, while a ratio of around two indicates solid short-term liquidity. If Chip Off the Old Block has $10,000 in assets and $5,000 in liabilities its working capital ratio is 2.

The business can measure how well it’s using that capital to generate sales by evaluating working capital turnover. You can calculate working capital turnover by taking net annual sales and dividing that by the average amount of working capital for the same year. A lower ratio could suggest that the business isn’t running efficiently, but there is a lot of nuance in those numbers and they must be viewed in the context of the industry.

Cash Flow Statement

To measure solvency, use the cash flow statement. Calculating operating cash flow will indicate how easily the company can cover its current liabilities. To find the operating cash flow ratio, take the total cash flow from operations on the cash flow statement and divide it by the current liabilities (accounts payable, debt, other liabilities).

If the business has $10,000 in assets but $5,000 of that is from operating cash flow, and $5,000 in liabilities, its operating cash ratio is 1. The company earns $1 for every $1 in liabilities. In general, positive cash flow is a good thing, of course. The company wants to have enough cash to cover its liabilities. But taking a deeper dive into the cash flow statement can shed light on some important nuances. Positive investing cash flow and negative operating cash flow could be a sign of problems—the company may be selling off assets in order to pay its operating expenses, which could quickly become unsustainable.

Negative cash flow isn’t always bad, either. A negative investing cash flow could mean the business is making investments in property and equipment to produce more of its products. The key is to look at all the cash coming in during the year—what is driving cash on hand, what is absorbing cash and is cash inflow bigger than cash outflow?

Calculate Sales Forecast

With accurate information from these financial statements, the company can complete one of the most important forecasts: the sales forecast. It enables the business to make connections between sales and expenses that inform how to make business decisions moving forward. You should break sales into units and price per unit to see whether price, volume or both caused a gap between expected and actual results.

In a simple sales forecast, Chip Off the Old Block multiplies how many cookies it sold by the price per cookie and looks at how that changed month over month. For instance, on Valentine’s Day, it sold three as many cookies as in January. This helps the company to plan inventory needs, staff and set prices.

Calculate Cash Disbursements

These statements can also give small businesses a good idea of how much they will need to spend and then plan accordingly. Cash disbursement is when organizations use cash or cash equivalents to pay for expenses like materials, labor, manufacturing overhead (minus depreciation because it’s not a cash flow) and other costs. Cash disbursements are recorded in the general ledger.

For small businesses, analyzing cash disbursement on a regular basis could show meaningful trends in payments to vendors and can help prevent duplicate payments or overpayments.

For instance, Chip Off the Old Block gets its flour from its vendor Sunflower. Early payment terms have enabled the company to save 5% on its monthly invoices. But in January, it didn’t make the payment early and missed out on really good payment terms for the additional flour it orders for the February Valentine’s Day rush.

Statement of Retained Earnings

The statement of retained earnings show how much of a business’s profit remains in the business and how much is distributed to stakeholders. A statement of retained earnings shows beginning retained earnings for year, net income, dividends paid to stakeholders and ending retained earnings balance.

For instance, a Chip Off the Old Block just launched this year and had no earning, so it started with a balance of $0. It made $1,000 in revenue. It paid out $250 to the owner and the owner’s grandfather who lent him the money to start the business. That means retained earnings for the year are $500.

Financial statementWhat Is Included?Why Is It Important?Example
Income Statement
  • Total revenue
  • Cost of Goods/Services Sold (COGS)
  • Gross profit (Total revenue – COGS)
  • Operating income (Gross profit – Operating expenses)
  • Net profit (Operating Income +/– Non-operating income and expenses)
Income statements show profitability. The numbers help the business calculate important profitability metrics, like gross profit margin, operating profit margin and net profit margin.
  • Revenue = $1,000
  • COGS = $200
  • Operating expenses = $300
  • Non-operating expenses = $100
  • Non-operating income = $100

Gross Profit
$1,000 – $200 = $800

Operating Income
$800 – $300 = $500

Net Profit
$500 + $50 – $50 = $400

Balance Sheet
  • Assets
  • Liabilities
  • Shareholders’ Equity
By showing what a business owns and what it owes others, the balance sheet gives a snapshot of a company’s overall financial health.

After a business spends $1,000 to purchase inventory, it has:

  • An asset in the form of additional inventory
  • A liability of $1,000 (outstanding payment)
Cash Flow Statement
  • Cash inflows
  • Cash outflows (Operating Expenses)
  • Other cash outflows (Non-operating expenses)
The cash flow statement shows whether the business has enough cash available to cover its financial obligations.
  • Cash inflows: $5,000 in accounts receivable
  • Cash outflows: $2,500 for supplies, payroll, taxes and advertising

Ending cash balance
$5,000 – $2,500 = $2,500

Statement of Retained Earnings
  • Beginning retained earnings for year
  • Net income, Dividends paid to stakeholders
  • Ending retained earnings balance
The statement of retained earnings show how much of a business’s profit remains in the business and how much is distributed to stakeholders.
  • A new business with no earnings starts with a balance of $0.
  • The business made $1,000 in revenue.
  • The company paid out $250 each to two partners.

Retained Earnings
$0 + $1,000 – $500 = $500

How to Use Financial Analysis Findings

The Federal Reserve’s analysis of the financial health indicators of small businesses says leaders and investors should not put too much weight to revenue growth as an indicator of financial health. The study also showed that better financial planning and management contribute to a higher financial health score. Discipline in digging into the numbers and analyzing metrics that point to profitability, efficiency and liquidity will give small businesses the information they need to make sound business decisions.

Automating more accounting processes also gives the finance team easy access to data for financial analysis. Businesses of every size increased their accounting automation with software over the last year, with the most likely functions automated including invoicing, financial report generation, data collection and document storage and compliance.

Having accurate data to create financial reports and make sales forecasts is the foundation of strong financial analysis to help the business determine when to hire people, buy more inventory, scale back and more.

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