What is enterprise resource planning? Definition and FAQs

Published Friday 12 September 2025

Table of contents

• What is an ERP system?
• How ERP solutions work
• Benefits of an ERP system
• Getting started with ERP
• Choose the right ERP for your small business
• FAQs on enterprise resource planning

Key takeaways

• Implement an ERP system by starting with a cloud-based solution that connects your existing accounting software with other business apps, eliminating the need for expensive traditional enterprise systems.
• Prioritise centralised data management to create a single source of truth across all departments, which automatically eliminates manual data entry and conflicting information between systems.
• Utilise automation features to handle routine tasks like generating financial reports, reordering inventory when stock runs low, and sending payment reminders to customers.
• Begin your ERP implementation with core functions like accounting and inventory management, then gradually add other modules as your business grows and needs expand.

What is an ERP system?

An ERP system connects your separate business applications so they share data automatically. Instead of manually transferring information between your accounting software, inventory system, and customer relationship management (CRM) system, your ERP creates seamless data flow.

This integration delivers three key benefits:

• Work from a single source of truth so all departments use the same accurate data
• Reduce manual work by eliminating duplicate data entry across systems
• Get real-time visibility to see your complete business picture instantly

Xero’s online accounting software connects with hundreds of business apps.

How ERP solutions work

ERP solutions work by creating a central hub that connects your business software. Most modern ERP systems are cloud-based, so you can access them through your web browser without installing complex software.

Automatic data sharing: Your ERP pulls information from connected apps and sends updated data back to them automatically.

Resolve data differences: When different systems show conflicting numbers, your ERP resolves these differences to give you one accurate figure.

See real-time updates: Changes you make in one system instantly appear across all connected applications.

Business functions that feed into ERP systems

• Finance and accounting: including accounts payable and receivable, cash flow, asset and liability management, taxes and financial reporting
• Billing: including invoice creation, invoice reconciliation, and aged receivables reporting
• Human resources and payroll: including rostering, time-recording, training, performance management, and payroll. Expertise in this area is highly valued, as financial managers with ERP skills earn 8 per cent more.
• Supply chain: including procurement, inventory management, production planning and logistics
• Customer relationship management (CRM): including lead tracking, transaction history, and sales activity reporting

ERP systems can be tailored to specific industries and businesses.

Benefits of an ERP system

A Forrester report found that while many CFOs focus on financial reporting, this function only represented 10 – 15 per cent of an ERP system’s total benefits.

Centralised data

Centralised data means all your business information lives in one place. Your sales, inventory and financial data update automatically across all systems.

This eliminates:

• Manual data entry between systems
• Conflicting numbers from different departments
• Time spent reconciling spreadsheets

Improved decision making

Improved decision making happens when you can see connections between different parts of your business. There is a 28 per cent increase in demand for people who can analyse data.

Instead of gathering reports from multiple systems, you get complete insights from one dashboard.

Automation

Automation handles routine tasks so you can focus on growing your business. Your ERP can automatically:

• Generate financial reports at month-end
• Reorder inventory when stock runs low
• Send payment reminders to overdue customers
• Update product availability on your website

Increased productivity

Increased productivity means you spend less time on manual tasks and more time on strategic work. For example, one local council used integrated systems to cut invoice and payment processing times from four weeks to just one.

You can find more benefits of ERP systems for small businesses.

Getting started with ERP

Getting started with ERP is simpler than you might think. You can choose a cloud-based solution that requires no IT expertise.

Three steps to begin:

1. Assess your current systems: List the software you use for accounting, inventory, and customer management
2. Choose an ERP provider: Look for solutions that integrate with your existing tools
3. Start with core functions: Begin with accounting and inventory, then add other modules as needed

Cloud ERP benefits:

• No upfront hardware costs
• Automatic updates and security
• Pay monthly as you grow
• Access from anywhere with internet

Choose the right ERP for your small business

While traditional ERP systems are built for large corporations, you can get the same benefits by building your own flexible system. Start with a powerful accounting platform at the core, then connect specialised apps for other functions like inventory or project management.

Xero’s online accounting software acts as the financial heart of your business, integrating with over 1,000 apps to create a single source of truth. This gives you a real-time view of your business and the power to make smarter decisions, without the cost and complexity of a traditional ERP system. Ready to build a system that grows with you? Try Xero for free.

Handy ERP resources

Advisor directory

• You can search for experts in the Xero advisor directory to help you build the right system for your business.

Connecting apps to Xero

• Explore the Xero App Store to see all the apps that connect with Xero’s online accounting software.

Get a real-time view of financials

• Once connected, you can see income, expenses, cash flow and all your financial metrics on a live dashboard in Xero’s online accounting software.

FAQs on enterprise resource planning

Here are some common questions and answers small business owners may have about ERP systems.

What are examples of ERP systems?

Large, well-known ERP systems include SAP, Oracle NetSuite and Microsoft Dynamics 365. For small businesses, you can build an ERP-like system by connecting specialised apps to a central accounting platform like Xero’s online accounting software.

What's the difference between ERP and CRM?

An ERP system helps manage core business operations like finance, supply chain, and HR. A Customer Relationship Management (CRM) system focuses specifically on managing interactions with customers, like sales, marketing, and service.

Do small businesses need ERP?

Most small businesses do not need a traditional, all-in-one ERP system. However, you can benefit greatly by integrating your accounting software with other apps for inventory, project management or payroll to get a unified view of your business.

How is ERP different from accounting software?

Accounting software is a key part of an ERP system, but an ERP system is much broader. While accounting software manages financial data like income and expenses, an ERP system integrates data from all parts of the business, including human resources (HR), manufacturing and supply chain.