What is sole proprietorship? Definition and FAQs

Published Thursday 4 September 2025

Table of contents

• What is an ERP system?
• How ERP solutions work
• Core ERP components for small businesses
• The benefits of an ERP system
• Why is ERP important for small businesses?
• ERP vs other business systems
• ERP examples and use cases
• Getting started with ERP
• FAQs on enterprise resource planning

Key takeaways

• ERP systems connect your business software to create a single source of truth, saving you time and reducing errors.
• While once for large corporations, modern cloud ERPs are now accessible and beneficial for small businesses looking to grow.
• Key benefits include making better decisions, automating processes, and seeing your business performance in real time.
• Xero integrates with hundreds of apps, acting as the financial core of your business's ERP-like structure.

What is an ERP system?

An ERP system is a centralized platform that connects all your business software and shares data between them automatically. Instead of managing separate systems for accounting, inventory, sales, and HR, ERP creates one unified database.

This integration removes barriers between your systems and gives you one place for all your business information. When you connect your systems, you can track every detail and keep your business running smoothly, no matter how much data you have. When your sales team closes a deal, your inventory, accounting, and fulfilment systems update instantly.

Xero accounting software connects with hundreds of business apps.

How ERP solutions work

Modern ERP systems work in the cloud and automatically sync data across all your business applications. Here's how the process works:

• Data collection: ERP pulls information from all connected systems in real-time
• Two-way sync: Changes in one system automatically update everywhere else
• Data reconciliation: ERP eliminates conflicts and ensures everyone works with the same numbers
• Cloud access: Access your unified data from anywhere, on any device

Business functions that feed into ERP systems

ERP systems integrate the core functions that drive your business operations. Each module shares data with the others, creating seamless workflows across departments:

• Finance and accounting: Automates accounts payable/receivable, cash flow tracking, and financial reporting
• Billing and invoicing: Streamlines invoice creation, payment tracking, and collections management
• Human resources: Manages payroll, time tracking, performance reviews, and employee records
• Supply chain: Coordinates procurement, inventory levels, and logistics planning
• Customer management: Tracks leads, sales history, and customer interactions

ERP systems can be tailored to specific industries and businesses.

Core ERP components for small businesses

You don't need a large, complicated system to benefit from ERP. Most small businesses only need a few key tools that work together.

• Accounting and financials: Accounting and financials are the heart of your system. They track money in and out, manage your general ledger, and handle financial reporting.
• Customer relationship management (CRM): Manages all your customer interactions, from initial contact to sales and support.
• Inventory management: Tracks stock levels, manages orders, and helps you avoid running out of your best-selling products.
• Human resources (HR): Handles payroll, employee records, and time tracking to keep your team running smoothly.

Benefits of an ERP system

ERP systems deliver measurable benefits that directly impact your bottom line. Here are the four core advantages every business can expect:

Centralized data

Centralized data eliminates the chaos of managing multiple spreadsheets and disconnected systems. ERP consolidates information from every department into one real-time database.

This means no more manual data entry between systems, fewer errors, and everyone working with the same accurate numbers.

Improved decision making

Improved decision making happens when you can see the complete picture instantly. Instead of hunting through multiple systems, you get real-time dashboards showing sales, inventory, cash flow, and performance metrics in one place.

Spot trends quickly, solve problems early, and make decisions based on up-to-date information. For large-scale IT projects, success is often tied to factors like support from senior department and agency executives.

Automation

ERP software automates repetitive tasks and makes your processes faster. For example, you can automate reporting, customer outreach, stock management, or marketing campaigns.

Increased productivity

When you use better analytics, make informed decisions, and automate tasks, you reduce waste and increase productivity.

The US Chamber of Commerce has more benefits of ERP systems for small businesses.

Why is ERP important for small businesses?

You started your business for more flexibility and control, not to get stuck in admin. As you grow, managing everything with separate spreadsheets and tools takes up more time. This is where using an ERP system helps.

It helps you link different parts of your business, like sales and inventory, or projects and payroll. This gives you a clear, real-time picture of your business's health, so you can make smarter decisions, faster. It automates the repetitive tasks that eat up your day, freeing you to focus on strategy, customer relationships, and the passion that got you started in the first place.

ERP vs other business systems

With so many software acronyms, it can be confusing. Here is a simple way to compare them.

ERP vs CRM

A customer relationship management (CRM) system focuses on the customer relationship—sales, marketing, and service.

An enterprise resource planning (ERP) system is broader, covering the entire business operation, including financials, supply chain, and human resources (HR). Your CRM is often one important part of a larger ERP system.

ERP vs accounting software

Your accounting software (like Xero) is the financial engine of your business. An ERP system integrates that financial data with information from all other departments.

For many small businesses, using a powerful accounting platform that connects with other specialised apps creates a flexible, ERP-like system without the cost and complexity of a traditional, monolithic ERP.

ERP examples and use cases

An ERP system is not just about the software—it is about how it helps you run your business.

• A retail shop can connect its point-of-sale (POS) system to its inventory and accounting software. When a sale is made, inventory levels update automatically, and the revenue is recorded in the books, giving the owner a real-time view of sales and stock.
• A construction company can use an ERP approach to link project management tools with payroll and invoicing. This ensures that project costs are tracked accurately, staff are paid for the correct hours, and clients are billed on time.
• An ecommerce business can integrate its online store with its shipping and accounting platforms. This automates the entire order-to-cash process, from the moment a customer clicks 'buy' to when the payment is reconciled in the bank.

Getting started with ERP

Getting started with ERP is simpler than most small businesses expect. Modern cloud-based solutions require no IT expertise or expensive hardware.

To get started, you can:

• Choose a cloud ERP solution that fits your industry and budget
• Connect your existing software through built-in integrations
• Import your current data with guided migration tools
• Train your team using the provider's onboarding resources. Testing and validating your system helps make your ERP setup a success.

Your ERP provider handles security, updates, and maintenance automatically. Most small businesses see results within the first month of implementation.

With Xero as the financial hub, you can connect to over 1,000 third party apps to build a system that's right for your business. See how you can run your business, not just your books, and try Xero for free.

FAQs on enterprise resource planning

Here are answers to common questions about enterprise resource planning.

What is an ERP example?

If you run a retail business, you can connect your sales, inventory, and accounting software. When you sell an item, your system updates stock levels and financial records automatically, giving you a complete, real-time view of your business.

What is ERP vs CRM?

A customer relationship management (CRM) system focuses on managing your interactions with customers, like sales and support.

An enterprise resource planning (ERP) system is broader and brings together data from across your business, including finance, human resources, and supply chain, often including a CRM as one of its components.

Is ERP only for large companies?

Not anymore. While traditional ERP systems were built for large corporations, modern cloud-based solutions are affordable and scalable for small and medium-sized businesses.

Many small businesses create an ERP-like system by integrating specialised apps with their core accounting software.

How much does ERP cost for small businesses?

Costs vary widely. Instead of a single large investment, many small businesses build their system using affordable, subscription-based apps.

You might pay a monthly fee for your accounting software and another for inventory management. This approach lets you control costs and only pay for what you need.

How long does ERP implementation take?

For a small business building a system with integrated cloud apps, you can get set up quickly. You can connect a new app to your Xero account in minutes.

This is much faster than setting up a traditional ERP system, which could take months or even years.