Technology has always been an aid to business. Today’s advanced technologies can help businesses to manage inventory, monitor finances, and manage their personnel. 

In this article, we’ll focus on two critical pieces of technology: The financial management system (FMS) and enterprise resource planning (ERP). We’ll evaluate the relationship between the two and highlight the distinct advantages offered by an ERP system.

What is a Financial Management System?

A financial management system (FMS) refers to the software and processes used to manage an organization’s income, expenses, and financial assets. 

In today’s digital world, FMS most typically refers to the automated, electronic processes by which a company’s finances are managed.

What Does a Financial Management System Include?

A financial management system is designed to streamline a company’s operations, which improves efficiency and ensures maximum profits. 

What sorts of benefits are offered by a financial management system? An FMS can help a financial team to:

  • Optimize cash flow
  • Maintain records of audits
  • Comply with accounting regulations
  • Streamline invoicing and bill collection processes
  • Reduce errors by automating accounting processes
  • Create and maintain a budget
  • Create financial forecasts
  • Accelerate closing and reporting activities

Many financial employees rely on FMS programs that scale with the business, ensuring comprehensive management as a company evolves and grows.

What is Enterprise Resource Planning?

Typically, a financial management system is only one part of a company’s larger enterprise resource planning (ERP) system. But while an FMS offers benefits related to managing an organization’s finances, ERP tools are considerably broader than that.

ERP refers to the software and processes that are used to run every aspect of a business. An FMS can be an integral part of this overall system, but ERP also includes processes related to the supply chain, procurement, human resources, and more.  

How Does an ERP System Work?

An ERP system (sometimes referred to as an ERP suite) is actually a collection of software applications that share a common database. Each module within the ERP system focuses on one (and only one) area of the business, but the modules communicate with one another to optimize the business as a whole.

Today’s ERP systems are scalable. This means that they can grow to accommodate a surprising range of business needs. Typical starting points include finance, logistics, and human resources. 

The best part is that each component can be purchased and licensed separately, so businesses can pick and choose which core components to focus on. ERP systems can be cloud-based, located on site, or work as a hybrid of the two models.

What Does Enterprise Resource Planning Include?

An ERP system may include an FMS, but the ERP system also contains so much more. What is included in an ERP system? Typical features include:

  • Financial management
  • Research and development
  • Sales management and monitoring
  • Supply chain management and monitoring
  • Sourcing and procurement
  • Service and repair

These various functions are integrated together in one comprehensive management system. Today’s ERP systems rely on artificial intelligence and other innovations to enhance the performance of a business at virtually every level.

The Advantages of an ERP System

The advanced integrative technology of an ERP system can offer companies some great benefits, including:

  • Higher productivity
  • Streamlined supply chain and logistics
  • Simpler approach to information technology
  • Faster data reporting
  • Deeper insights on processes

The bottom line is that an ERP system will bring improved efficiency and agility to your business, so you can get the most from your employees and your supply chain. 

Again, an FMS can be an integral part of this technological strategy, but it will be one of many modules used to manage the business.

Choosing FMS and ERP

Because a financial management system may be integrated into an enterprise resource planning system, the choice between FMS and ERP is not necessarily a binary one. But there are some considerations that businesses should make as they seek to choose technological tools.

When to Consider ERP?

The comprehensive features of an ERP system make it an ideal choice for:

  • Retailers
  • Suppliers and distributors
  • Manufacturers
  • Logistics companies

Because the modules of an ERP system are scalable, business owners can expect the technological platform to grow as their business grows.

When to Consider FMS?

If your company doesn’t need the advanced features of an ERP system, you may still benefit from financial management applications. This could be ideal for:

  • Accounting firms and other financial institutions
  • Insurance providers
  • Law offices
  • Tax preparation services

Of course, if the needs of a company should change, an FMS can be integrated into a larger ERP system at a later date.

ERP: Good for Businesses of Any Size

An ERP system can be used for businesses of any size, thanks to the flexible way that modules are used and integrated. 

Technology has made the landscape of business more competitive than ever before. As more cloud-based management platforms take off, don’t get left behind. Today’s technology could pave the way for the future of your business. 

Looking to learn more about financial management service and enterprise resource planning? Controllers Council is a national community and platform of Controllers, Accounting and Finance professionals focused on accounting best practices, information and resources, recognition and networking. Membership has many features and benefits to propel your career and expertise, and to be an active participant in our exciting community. Discuss topics like accounting and CPA compensation and more in our forum. Become a member today.

Additional Resources

Could ERP be the Driver behind Finance Transformation?

Nine Questions Controllers Need to Ask Potential ERP Partners

Why Forecasting Tech Should be on Your Radar