How ERP Can Improve Your Company’s Valuation

ERP system implementation

Regardless of what industry a business is in, if a company is looking to sell, getting the highest possible sale price is the primary objective. There are a number of factors that can influence the ultimate valuation of a business both positively and negatively. For manufacturers – especially food manufacturers – having an ERP software system in place can have a tremendous impact on how the value of a business is evaluated.

Accurate Inventory Counts

One of the greatest assets any for any company is their inventory on hand. Companies that use paper inventory systems are automatically assumed to have errors in their records. And let’s be clear. Those errors are never assumed to mean there is extra inventory on hand. In some cases, auditors will automatically devalue reported inventory by 20% or more, depending on the severity of the discrepancies. Imagine if a business has a million dollars of inventory. That could mean a $200,000 loss. Having an integrated warehouse management system that uses barcode collection all but guarantees accurate inventory counts. It can also help to automate cycle counts, reducing the need for physical inventory counts, which is an additional benefit that makes a company more attractive to potential buyers.

Quality Management Systems for Compliance

Many industries require some sort of government compliance. Very few industries are more regulated than the food and beverage manufacturing industry. Ever since the passing of the Food Safety Modernization Act (FSMA), manufacturers are required to be more proactive, rather than reactive. While it is still important to lot, bin and serial traceability in the event of a recall, having a quality management system in place will also improve a company’s value. The reason for this is that quality management (QM) not only automates compliance processes, but it also provides an electronic audit trail that can easily be accessed in near real-time. In the event of a recall, not only is the potential risk mitigated, but an integrated quality management system also speeds up the audit process, allowing a business to get back to normal operations more quickly. Having a business’ processes recorded and tracked in an ERP system also makes it easier for accountants to assess those processes and place a higher value on said company.

When done correctly, an ERP investment can provide both immediate and long term financial benefits. In the short term, processes can be streamlined, waste can be eliminated and data can be turned into actionable information to improve how managers and C-level employees make decisions and interact with customers and vendors. If in the future that company is looking to sell their business, those same benefits will make them more attractive to interested buyers. Risk, inefficiency and inaccuracy are all things that will negatively impact a company’s value. ERP software can either eliminate or limit those factors.

For more information on how an ERP system can impact the value of a business you can call The Attivo Group at 9494-253-9639 or contact us here.