What is cloud ERP? How it works, benefits, and tips

Cloud ERP is a software solution that helps businesses manage and integrate their core processes, such as finance, payroll, payments, and human resources, in a unified system hosted on the cloud. Instead of dealing with complex and costly on-premise systems, businesses can access their ERP tools online, making it easier to scale, update, and maintain the software.

For companies with intricate operations, cloud ERP offers the flexibility to manage multiple business functions seamlessly, all from a central platform. This means less time juggling different software and more time focusing on growing the business. But how does it work, and why should you care? Explore all the ins and outs of cloud ERP to see if it aligns with your business needs and expectations.

Jump to:

• How does cloud ERP work?
• Types of cloud ERP software
• Cloud ERP vs. on-premise ERP
• Cloud ERP pros and cons
• When’s the right time to switch to cloud ERP?
• Navigate midsize business challenges and opportunities
• What is cloud ERP FAQ

How does cloud ERP work?

Think of cloud enterprise resource planning as a digital toolbox for your business. It's a software system that lives on the internet, not on your computer. You can access it from anywhere—all you need is an internet connection. It covers everything from finance and accounting to payroll, human resources, and even customer relationship management (CRM).

Here's how cloud ERP works:

1. You sign up for a cloud ERP service. It’s like renting a digital workspace.
2. You customize the software and set it up to fit your specific business needs.
3. Once inside, you can manage and monitor your business operations in real-time. 
4. You start using the software to manage different parts of your business, like finances, sales, and CRM.
5. Because it’s on the cloud, updates and upgrades happen automatically, so you’re always using the latest version without any downtime. 

This setup allows you to focus on your business, leaving the technical heavy lifting to the cloud ERP provider.

Components of cloud ERP software

Most businesses know about ERP with built-in accounting since financial management is one of the most common components of cloud ERP. It handles all aspects of your business's finances, including accounting, budgeting, accounts payable and receivable, and financial reporting. 

Another common component is human resources, which helps manage employee records, payroll, benefits, recruitment, and performance evaluations. What’s more? You can use it for onboarding new employees and tracking their progress within the organization.

Other components of cloud enterprise resource planning systems:

• Supply chain management: Oversees procurement, production, logistics, and distribution, ensuring that raw materials and products move smoothly through the supply chain
• Customer relationship management (CRM): Manages customer data, sales pipelines, customer interactions, and support services
• Project management: Plans, schedules, tracks, and manages projects and tasks, ensuring projects are completed on time and within budget
• Sales and order management: Automates the entire sales process, from order placement to invoicing, enhancing the customer experience
• Business intelligence and analytics: Provides tools for data analysis, reporting, and decision-making
• Inventory management: Monitors inventory levels, tracks orders, manages stock replenishment, and forecasts demand

Some ERPs also offer revenue recognition features, and some help ensure your business adheres to industry regulations, legal requirements, and standards.

Types of cloud ERP software

Cloud-based ERP software has three main types, each catering to different business needs and sizes. Let’s take a closer look at each type.

Public cloud ERP

This is the most common type, where the ERP system is hosted on the provider's servers and shared with other businesses. Public cloud ERP offers scalability and cost-effectiveness, making it a popular choice for small to medium-sized businesses. It also provides access to advanced features and regular updates without the need for significant upfront investment or IT infrastructure.

Private cloud ERP

Private cloud ERP is dedicated to a single organization, hosted either on-premises or by a third-party provider. This type offers greater control over data security and customization, making it suitable for larger businesses with specific needs or industries requiring stringent compliance standards. While it tends to be more expensive than public cloud ERP, it provides a higher level of privacy and tailored solutions.

Hybrid cloud ERP

Combining elements of both public and private cloud models, hybrid cloud ERP offers flexibility by allowing businesses to manage sensitive data and critical applications in a private cloud while leveraging the scalability and cost benefits of a public cloud for less critical functions. This approach provides a balanced solution, accommodating varying needs for security, compliance, and cost-efficiency.

Each type of cloud ERP has its advantages, and choosing the right one depends on your business’s size, budget, and specific requirements.

Cloud ERP vs. on-premise ERP

Cloud enterprise resource planning is like renting an apartment. You don't own the building, but you have access to a fully furnished space. On-premise ERP is like buying a house. You own the building and everything in it.

Here's how ERP in the cloud differs from on-premise ERP:

• Cost: Cloud ERP is typically cheaper upfront, but you pay ongoing subscription fees. On-premise ERP requires a large upfront investment, but you own the software outright.
• Maintenance: The provider maintains cloud enterprise resource planning software, while on-premise ERP requires your IT team to handle updates and security.
• Scalability: Cloud ERP is easy to scale up or down as your business grows. On-premise ERP can be more difficult to scale.
• Security: Cloud ERP providers have strict security measures, but you have more control over your data with on-premise ERP.

If your business needs extensive customization or has specific regulatory needs, on-premise solutions might be a better choice. Cloud ERP is a more flexible and cost-effective solution for growing businesses.

Cloud ERP pros and cons

Cloud ERP offers a lot of benefits for businesses of all sizes. For instance, there are lower upfront costs—no need for expensive hardware or software licenses. Here are some more benefits of ERP in the cloud:

• Scalability: Easily adjust your software to meet your changing needs
• Accessibility: Access your ERP software from anywhere in the world through a stable internet connection
• Regular updates: Always have the latest version of the software
• Reduced maintenance: No need for in-house IT staff to manage updates and security
• Integration: Easily connect to other business applications
• Improved collaboration: Streamline communication and teamwork across departments

Cloud ERP offers numerous advantages, but it’s essential to weigh these against potential drawbacks to decide if cloud ERP is the right fit for your business. Common challenges include:

• Dependency on Internet connection: Relying on a stable Internet connection can be a challenge.
• Security concerns: Some businesses may have concerns about data security in the cloud.
• Limited customization: On-premise ERP offers more customization than cloud ERP.
• Vendor lock-in: Switching providers can be difficult and expensive.
• Data migration: Moving data to (or from) the cloud can be complex and challenging.

You may also face difficulties with ERP implementation or integrating it with other existing systems or software, depending on the provider’s compatibility and support.

When’s the right time to switch to cloud ERP?

Switching to cloud ERP can significantly boost the efficiency and growth of your business. Consider making the switch if:

1. Your current system needs to be updated for your complex business: If your existing ERP system is aging, difficult to maintain or lacks the features you need, it might be time to upgrade to a cloud-based ERP solution that offers modern functionality and ease of use.
2. You’re experiencing rapid growth: As your business expands, managing operations with outdated or disparate systems can become challenging. Cloud ERP provides scalability and flexibility, allowing you to handle increased demands without major overhauls.
3. You need remote access: If your team works from various locations or requires access to the system from mobile devices, cloud ERP offers the accessibility and collaboration features that on-premise systems might lack.
4. You’re facing high IT costs: If maintaining your current ERP system is becoming increasingly costly due to hardware, software updates, and IT support, switching to cloud enterprise resource planning can reduce these expenses and simplify management.
5. You want to improve efficiency: Cloud ERP systems offer advanced features and integrations that can streamline operations, enhance data visibility, and improve decision-making processes. If you’re looking to boost efficiency and productivity, cloud ERP might be the answer.

Also, some industries have strict data security and privacy regulations that may make cloud ERP a better fit. Hence, assess your needs and industry regulations carefully before choosing an ERP or going ahead with accounting software selection, in general.

Navigate midsize business challenges and opportunities

Switching to cloud ERP can address many challenges midsize businesses usually face—outdated systems, high IT costs, and the need for scalability. It can also open up new opportunities for growth and efficiency by offering modern features and remote access. If you’re ready to explore how cloud ERP can transform your business, check out our advanced accounting software to see how it can streamline your operations.  

If your business is more complex, an all-in-one enterprise resource planning system like Intuit Enterprise Suite can help you manage your finances with precision and ease. Keep growing with a more powerful suite, and boost productivity with business and financial management all in one solution.