5 Signs It’s Time to Step Up to an ERP System
Growing pharmaceutical and biotechnology companies face evolving needs for financial tools, controls, and resource planning as their products progress through research and development. The reality is that all pharma and biotech companies are on a trajectory that trends toward risk and complexity as their products move through the phases of clinical trials. To mitigate risks and sustain growth, it's critical that they move from basic accounting tools and software (such as QuickBooks) to enterprise resource planning (ERP) tools at the right time.
Here are five signs that it's time for your organization to make the jump to ERP.
- Increasing Complexity in Clinical Trials
As the products and technologies your company develops progress from laboratory studies and pre-clinical trials to Phase 1 and then Phases 2 and 3, the quantity and complexity of resources and accounting data that need to be managed increases dramatically.
Ideally, a pharma or biotech company should make the switch to an ERP tool before their products begin Phase 2 trials. Trials become more complex and resource-intensive in Phase 2, and most companies will realize that they need an ERP system once this phase is underway. Making the move to an ERP system before Phase 2 allows for a much smoother transition and limits the amount of accounting data that will have to be moved into the new system during active trials.
- Expected Audit Activities
If your company is going public, getting ready to become an accelerated filer, or otherwise expecting increased scrutiny from auditors, you should definitely make the move to an ERP system.
Because auditors know that QuickBooks and similar accounting tools generally have fewer controls in place than full-fledged ERP systems, they often focus on the risks posed by those accounting systems' shortcomings. Auditors will focus on the limited controls offered by non-ERP tools — particularly the possibility of manual approvals and overrides that allow for entries to be revised after the books have closed.
In addition to the risk posed by audit findings citing material weaknesses in your accounting system, there is the issue of cost. Audits and audit preparation will cost you more, because audits will take longer without an ERP system in place.
- You're Hiring — A Lot
Human resource requirements are an accurate indicator of the complexity of an organization's accounting needs. This is particularly true in the pharma sector, as staffing needs can be volatile with exponential growth and abrupt layoffs based on a host of variables, including the outcomes of clinical trials, regulations, or the emergence of new, competing products.
If your organization is scaling up and you're forecasting a rapid increase in your number of employees, you need to be thinking about ERP. As your organization hires more employees, there will be corresponding increases in vendor bills and vendor bill accruals (think of software licensing costs, for example.). There will also be an increase in the complexity of your approval processes, with dispersed approvals across more employees. Equally important, your growing organization's approvals and management decisions will need to be properly documented and readily accessible to withstand audits.
- Offices in Multiple Countries or Multiple Overseas Trials
Geographic dispersion is another reason to make the move to an ERP system. Growing pharmaceutical companies often have a fluid global footprint in several countries, due to an evolving set of personnel needs, remote clinical trials, and overseas manufacturing. Traditional accounting software simply cannot manage multiple currencies and maintain compliance with regulations and tax requirements — such as value added tax (VAT) — across multiple countries with varying regulatory frameworks.
Further complicating the situation, consolidation and elimination of sites are common as companies move strategically to conserve funds until they reach commercial viability. With so many moving parts, and to avoid slow and expensive reconciliations in multiple countries, many companies choose to move to ERP before going global.
Even if your organization has offices in a single country, running multiple clinical trials in different countries overseas will significantly complicate your accounting. It can be particularly difficult to manage currency gains and losses in multiple countries while maintaining visibility and coherent reporting in your company's operating currency. As overseas locations are added, your company will need significantly stronger controls and financial tools to manage the new cost centers from afar.
- The Ultimate Litmus Test: Excel
Excel may be the ultimate canary in the coal mine for your old accounting software. Don't feel bad — it's a common scenario. As the complexity of an organization's accounting needs surpasses the abilities of its software, responsible managers often resort to all things Excel. Why?
Because it's a highly versatile, trustworthy tool they've been using for years. And, should the old accounting software collapse under the strain of the organization's needs, people know that they have their Excel tables to fall back on. If you're seeing a proliferation of Excel in your accounting department, it's time to start looking at an ERP system.
Consider Your Company's Trajectory
If your pharmaceutical or biotechnology company is going to be successful, an ERP system is somewhere in your future. Making the move to the right platform at the right time, with plenty of runway, will save you time and money, dramatically reduce audit risk, and put your company on the path to commercial viability.
AdaptaLogix specializes in technology solutions for pharma and biotech companies. We provide proven, pharma-specific financial, supply chain, and manufacturing software solutions. If you're seeing any of the signs discussed above, or expect to in the next year, please contact me through LinkedIn or at firstname.lastname@example.org. I would love to discuss your organization's software needs with you.