Pragmatic ERP Selection Approach for Startups. Karsten Roigk (PDG) and Jan Richter (KPMG)

Transcription

1 Pragmatic ERP Selection Approach for Startups Karsten Roigk (PDG) and Jan Richter (KPMG) *

2 Phase Overview lifecycle stages Focus on initial situation and objectives of growth phase Typical lifecycle Explore / build Company setup (legal and regulatory requirements) Business plan / model Launch Funding Market entry Back office setup (e.g. tax, accounting) Growth Scalability (product, market) IT systems (e.g. ERP) Expansion Strategic investors, IPO Expansion funding Cash needs Revenue Profit Time Initial situation Objectives High number of stand-alone systems (e.g. CRM, Webshop, Excel, BI) High manual effort in back office processes (e.g. adhoc and management reporting) Data inconsistency and reconciliation effort for financial figures Flexible and scalable processes and systems to support rapid business growth Integrated platform to enable efficient business processes through standardization and automation Meet internal (e.g. management) and external (e.g. regulatory, investors) reporting requirements Trigger the next lifecycle phase and ensure rapid growth through integrated ERP system

3 Selection process for ERP vendor key activities 1 ERP Selection Process 2 ERP Implementation I) Scope, requirements and selection criteria II) Compilation of ERP long-list III) Compilation of ERP short-list IV) Selection of ERP-vendor Key activities Identification of organization entities and functions within scope, as well as affected processes, systems and master data Compilation and prioritization of functional and technical requirements (workshop based) Compilation of requirements specifications Identification of relevant vendors (market analysis / desk research, KPMG and client experiences) Qualitative evaluation of features of identified ERP systems against criteria Compilation of a longlist RFI dispatch to longlist vendors Quantitative evaluation of ERP systems of the longlist (based on selection criteria and weighting) Compilation of a shortlist RFP preparation and initiation of tender process Review of proposals (legal and commercial) Reference client visit (optional) Assessment of proposal presentation Final selection decision Generation of functional specification document, negotiation and contract closing Definition of selection criteria and decision-making body (incl. criteria and weighting)

4 Typical timeline ERP selection process 1 ERP Selection Process Kick-off Month 1 Month 2 Month 3 Month 8 I) Scope definition, requirements and selection criteria II) + III) Compilation of an ERP vendor shortlist and RFI dispatch Contract closing 2 IV) Selection of ERP vendor ERP Implementation Impact analysis (e.g. invoicing, master data, interface) & kick-off

5 Key Aspects in the Selection Process A pragmatic ERP selection in the start-up environment should limit its focus to the following six aspects: Integration of operative systems Growth Reporting Certificates Generally, it is recommended that an independent auditing expert be consulted to help with the selection and introduction of the system. 5

6 Cloud vs. On-Premises Background Cloud-based ERP systems differ from classic onpremises systems in a number of ways. Cloud: Created for operation in data centers which also take care of all other necessary operations, including patches, upgrades etc. Available at short notice, short release cycles Extremely scalable, flexible interface technologies, extreme flexibility when it comes to configuration Modifying/expanding the code is time-consuming On-premises: Comparatively simple platform, optimized for local operation Operation, patches, upgrades etc. are the responsibility of the end user Limited scalability and flexibility when it comes to configuration Modifying/expanding the code is a relatively simple affair

7 Cloud vs. On-Premises Background The decision of whether to use cloud or on-premises software not only determines the operating model, but also influences the pre-selection of potential providers. Whatever the software manufacturer may say: Cloud software is only suited for on-premises operation to a limited extent. An on-premises solution will never become a competitive cloud solution.

8 Cloud vs. On-Premises Recommendation 1 First decide on the approach that is most appropriate for your company. 8

9 Cloud vs. On-Premises Recommendation 2 Only after you have done this should you shortlist potential providers. Focus on specialists for the approach you have chosen. 9

10 External Reporting Background For the fulfillment of external reporting obligations in Germany, a statement that complies with the HGB (German Commercial Code) or the IFRS is required. Generally, the fulfillment of additional accounting standards (e.g. US GAAP) will also be required for other interest groups (e.g. investors). For any other entities located overseas that need to be taken into account in the balance sheet, the respective local accounting standards will also need to be observed. This may be a relatively easy matter (e.g. Benelux, Scandinavia), but it can also be a rather complex issue (e.g. France, Italy, Russia). In cases where consolidation across international boundaries is required, an accounting standard will need to be defined for the consolidation (usually IFRS or US GAAP).

11 External Reporting Background It will need to be decided if multiple accounting standards are to be represented in the system in parallel (-> available in real time), or if offsetting and reconciliation at the level of account balances at the end of a reporting period is sufficient (-> results are only available at the end of a period). Generally, in cases where the differences in the accounting standards used are limited to asset posting and general ledger postings, offsetting and reconciliation is sufficient as long as real-time availability of the data is not required.

12 Internal Reporting Background In addition to external reporting, an internal reporting system will also be required for planning, supervision, and monitoring. In most cases, investors will also require a special internal reporting system which usually documents the company's progress based on the original business case. Internal reporting requires additional dimensions; e.g. Channel, Service Type, Customer Type etc. Modern ERP systems can represent these reporting dimensions without needing an additional data warehouse to be installed.

13 Analyze Reporting Recommendation Which external accounting standards are required? Define your "corporate" standard Define all other necessary standards / country-specific requirements Should these be maintained in the system in parallel (i.e.: "dual GAAP accounting") or will offsetting and reconciliation at the end of a report period be sufficient? What are your requirements for the consolidation? Define What are the quantities, key figures, and dimensions required for internal reporting? Verify Test it out yourself and ask to be shown the implementation of these requirements in the system.

14 Integration of Operative Systems Background For core business activities, proprietary systems are often used which map processes that are the focus of value generation. These systems are generally completely complementary to the ERP system. The accounting-relevant transaction data from this system needs to be transferred to the ERP quickly, accurately, and due to the high volumes involved without requiring manual intervention. In general, this data consists of revenue entries which, depending on the location where open items are cleared, either need to be transferred to the sales ledger (clearing open items in ERP) or to the general ledger (clearing open items in upstream system).

15 Integration of Operative Systems Background Tax-relevant aspects For sales tax/vat balancing and the generation of advance sales tax/vat returns, the ERP system will always remain the leading system. If tax calculations are already performed in the upstream system, technical measures must be taken to ensure that there are no rounding-off differences between the ERP and the upstream system, as this may significantly complicate the balancing process. Not only tax tariffs, but also the details of tax postings may vary from country to country (e.g. deferred VAT, withholding tax).

16 Integration of Operative Systems Background Accounting aspects If dual GAAP accounting is used, two completely different accounting records may need to be created for each transaction (cf. "revenue recognition" and "deferred revenue"). A fully automated integration of the upstream system also requires a fully automated reposting for those transactions in which the realization of the revenue in the accounting system is delayed as compared to the original posting.

17 Integration of Operative Systems Background Technical aspects Due to the volume involved, it may be necessary to condense the data relevant for accounting before import. When doing so, ensure that the condensed accounting records in the ERP system can be traced back to the original transaction in the upstream system. (cf. "Generally accepted accounting principles")

18 Integration of Operative Systems Recommendation Sales tax / VAT Perform an analysis to determine if the revenue recognition principle applies to you. If yes, verify the extent to which the "revenue realizations" can also be posted fully automatically via the interfaces. Postings Define the countries for which accurate tax calculations need to be mapped in the ERP system and have the provider confirm the availability. Perform an analysis to determine if it will be necessary to determine sales tax/vat in a manner external to the ERP system. If this is the case, have the provider show you methods that will enable a regulated tax balancing process. Technology Together with your provider, define how the linking of collective postings in the ERP system to the individual transactions in the upstream system can be realized.

19 Processes Background Particularly in start-up environments, the introduction of ERP is also used to structure many processes, which is why a broad-based definition and documentation of target processes is expedient. Recommendation Assess if the higher-ranking standard processes of the ERP system correspond to your expectations and if they will improve your internal processes. The focus of this assessment should include the following processes: Procure2Pay, Order2Cash, JournalEntry2 MonthEnd Closure Analyze and document selected processes which you already know to be particularly crucial before selecting an ERP system, and have the provider demonstrate them to you in the system. Example: If it is necessary to invoice thousands of incoming receivables per month, this invoicing process should not only satisfy your requirements, but also be fully automatic due to the high volume of transactions.

20 Growth As a company grows, so does its requirements where the ERP system used is concerned. Hence, the following aspects should be critically assessed as part of the selection process: Functional expandability Can the ERP system be Can the ERP system expanded with be expanded with additional functional additional areas (e.g. merchandise functional areas management, (e.g. merchandise personnel, project management, management) without personnel, project needing reconfiguration management) and additional without needing interfaces? reconfiguration and additional interfaces? Regional expandability Are the accounting requirements of all countries into which expansion is planned over the short and medium term already covered by the ERP system? (accounting standards, tax calculations, payment formats, special reports etc.) Scalability Will the ERP system also be able to handle the Will the ERP system expected transaction also be able to handle volume five years down the expected the road? transaction volume (postings, incoming five years down the invoices, outgoing road? invoices, payments etc.) (postings, incoming invoices, outgoing invoices, payments etc.)

21 Accounting in the cloud Certificates Background General During an audit by your accountant or tax auditor, it is often necessary to prove that your ERP system complies with generally accepted accounting principles (GoBD, Ger.: Grundsätze ordnungsgemäßer Speicherbuchführung). If the software manufacturer is able to provide a certificate that satisfies the IDW PS 880 test standard, additional cumbersome and high-risk follow-up tests are then often no longer necessary. If a cloud solution is used, the statement IDW ERS FAIT 5 of the Institute of Public Auditors in Germany, Incorporated Association, is to be taken into account ("Grundsätze ordnungsmäßiger Buchführung bei Auslagerung von rechnungslegungsrelevanten Dienstleistungen einschließlich Cloud Computing" (Generally accepted accounting principles when outsourcing accounting services, including cloud computing) ). The gist of this statement is: The responsibility for proper accounting remains entirely with the legal representatives of the company performing the accounting, even if third parties manage the operation of the accounting platform. In order to overcome this hurdle as well, it is necessary to obtain a certificate from the operator of the data center which satisfies test requirements where IT security, the operator's internal monitoring systems, as well as the efficacy of these monitoring systems are concerned.

22 Certificates Background The following certificates are an indication that the relevant test requirements have been fulfilled. SSAE 16 ISAE 3402 IDW PS 951 All certificates come in two versions: Type 1/2 or A/B; Type 2/B While Type I certificates primarily assess the design of the monitoring systems, Type II also include an assessment of the efficacy of the monitoring systems, thus providing a greater degree of certainty. Because the SSAE 16 and ISAE 3402 test standards are by and large the same, reputable operators generally provide a certificate which covers both standards.

23 Certificates Recommendation Get it in black and white Ask for a copy of the IDW PS 880 test certificate as well as existing test certificates concerning data center operation (e.g. SSAE 16 / ISAE3402 / IDW PS 951). Get an expert on board Ask an auditor to critically examine these certificates. This avoids unpleasant surprises during the first audit.

24 PDG and KPMG's roles Our areas of expertise A strong team Independent software selection (ERP market overview) Business process modeling (process models and better practice library) Specialist (process) know-how (e.g. accounting, taxes, regulatory requirements) Internal monitoring systems, risk management Project management Independent quality assurance Migration and test management Stakeholder and change management Oracle ERP cloud service implementation; all functional aspects including HCM Best practice process implementation using the latest cloud service functionalities System integration expertise that guarantees seamless data transfer between ERP and other systems Multi-GAAP system implementations Customized internal reporting Fixed price and framework contracts Proven track record in the start-up community

25 Do you have any questions? Karsten Roigk Managing Director Birkerfeld 15 D Warngau bei München Tel. +49(0) Fax-25 Jan Richter Senior Manager Consulting Ganghoferstraße 29 Phone D Munich Mobile Fax