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Investing in Technology for the Small Business

By Rich Walker

Small businesses remain the main engine of economic growth, generating about half of U.S. gross domestic product and representing 99% of the nation’s employers, employing roughly half the private sector workforce, and creating the vast majority of new jobs.

A recent survey by Intuit showed that more than 80% of small businesses are very satisfied with the services their accountant provides (a 28% increase from 2002), and more than 59% would also like their accountant to provide additional services, including human resources (HR), technology, financial advising, and business consulting.

The fact that small business owners hold their accountants in such high regard offers accountants the opportunity to play a larger role as business advisors, particularly when it comes to technology. Small businesses are investing heavily in technology: According to research by AMI Partners, in 2003 the nation’s small businesses spent $86 billion on IT products and services and spending on IT grew by 11%.

Corporate America is also taking heed and paying unprecedented attention to the small business market, as companies, including IBM and Hewlett-Packard, announce initiatives to equip small businesses with the latest advances in hardware and networking, and enterprise software companies scale down their million-dollar applications to attract smaller customers. All of this, coupled with tax regulation such as the Jobs and Growth Tax Relief and Reconciliation Act of 2003 (with extended benefits into 2004) and low interest rates, could prove strong incentives for small business owners to invest in new technology.

How Accountants Can Help

With countless technology solutions available that address every facet of running a small business, choosing the right solution can be daunting. An accountant’s counsel is valuable in helping small business clients find the right technology solutions. The following suggestions can help guide them through the process:

  • Make a holistic assessment of the business. Determine which business processes (e.g., accounting, HR, inventory, contact management) need to be automated with technology or upgraded with new equipment. What will provide the return on investment? Will technology actually free up the business owner’s or manager’s time to focus on core business issues? Do the changes meet the evolving needs of the business’ industry?
  • Evaluate the business owner’s tech savvy. What is the business owner’s learning curve to use the hardware or software involved? How easy are they to use? Will owners and employees require training? Will the business rely on an IT consultant to handle installation and set-up, and will the business invest in technical support?
  • Consider how to pay for the technology. If the business is borrowing money to finance buying or leasing new equipment, it should determine how the new equipment will help generate additional revenue to repay the loan.
  • Prepare a cash flow projection for the period that it will take to pay for the technology expenditure. This helps determine if the business has sufficient operating cash for both ongoing business needs and the new technology.
  • If a lending institution is involved, determine the level of financial statements (plain paper, review, or compilation) that it expects. Prepare a list of any property or equipment to be used as collateral, along with its current market value.
Rich Walker, CPA, is a director of Intuit Accountant Central (www.accountant.intuit.com).