In this issue we talk to business consultant and broadcaster Richard Morochove about how small businesses use technology and, in particular, how businesses are beginning to use financial systems to create business advantage.
Q: How are small and medium-sized businesses thinking about technology and how is that changing?
A: Small and medium businesses range all over the map in their thinking about technology. Some are very sophisticated and have not only an internal network but also a web site for interfacing with their customers and prospects. Maybe they are selling things and taking orders on their Web site as well. Then there are others who use personal computers pretty much on a stand-alone basis internally, don’t have a web site, and if they need to transfer something from computer to computer, they use what we call “sneaker net,” you know, putting something on diskette or a USB key and giving it to someone else. And then there are still a few businesses that are using what I call the “shoebox” filing method. This is usually a one or two-person operation where they put all their receipts in one shoebox. The more sophisticated have two shoeboxes, one for money in and one for money out. They ship the boxes off to an accountant at the end of the year and say, “Tell me how I did and do my tax return.” So there’s a tremendous range in terms of the use of technology.
In the more sophisticated businesses, people do want to make the best use of technology because it can make them more efficient and also provide them with more timely information that they need to run the business. If you’re keeping everything in a shoebox and hearing once a year from your accountant how you did, that doesn’t really allow you to make readjustments in your business plan. Whereas if you do look at your results regularly, you know what orders are coming in and what your sales and profits were last month, if they’re not up to your plan, management can make a change in the approach and try to improve the results by the end of the year. That’s better than looking at things backwardly and saying “Well, we didn’t do so well last year. Too bad.”
Q: What do small businesses want from their financial systems?
A: First of all, they expect the basics from their financial systems. They want to be able to keep track of orders. If they’re selling products as opposed to services, they need to keep track of inventory, the goods they have on sale. For example, if they’re running low on some product, they need to be able to reorder or make some more. If they have too much of some good, in other words, if it isn’t selling, they need to know what to do with it. Maybe to convert it to cash, they need to just reduce the price and blow it out the door, because obviously people don’t find that particular product very attractive at its current price. Once a product is sold, you want to be able to create an invoice, and if you give your customers credit, obviously you want to be able to keep track of what those customers owe you, and you ought to be able to have an automated follow-up system that can send out statements or dunning letters or print out a schedule for some kind of call-up. You’re supposed to get paid in 30 days and if it’s been 45 days now, then it’s time to give them a call. And of course at the end of the month, you want financial statements to give you profit and loss, to tell you how you did financially.
More sophisticated small businesses want CRM, customer relationship management. This is becoming more important, because it gives you a more organized approach to dealing with your customers. Whereas an accounting system would just keep track of sales that you make to your customers and the money that’s coming to you, CRM keeps track of many more things. For example, it would keep track of when a sales rep calls a customer, perhaps trying to sell them a new product line. You could keep track of the customer’s reaction, maybe “I’m not interested right now, but call me again in 3 months.” Then the CRM system will automatically flag that for a future follow-up. CRM is a way to document more of the interaction that a small business has with its customers, with the ultimate objective of serving those customers better and thereby selling more goods and services to that customer.
Q: Do people think about integrating applications like CRM with their financials? And are there good integrated solutions for them? Are there applications that integrate easily and well?
A: Yes, businesses certainly do look at integration. Obviously most accounting systems keep track of who the customers are, their names, addresses, and how much they buy. But they’re not necessarily set up to keep track of all that additional customer contact information, such as discussions and telephone calls and that sort of thing. So the best sort of CRM system is one that can integrate with an existing customer database. The ease of that varies because different companies use different financial software. But it’s becoming more significant. I think that a lot of the financial software developers are starting to realize how important CRM is. For example, last year Microsoft came out with a beta version of their Microsoft Office Small Business accounting software, and they planned from day one to include a CRM component in there that works very well with Microsoft Outlook. Microsoft Office Small Business Accounting is out of beta test and is now available in stores. So it will not do just the financials, it will also allow people to keep track of the customer relationship piece. So they clearly decided that they shouldn’t release one without the other.
Q: In looking at financial software, it seems like the basic accounting functions don’t change a lot. It seems that big issue people are looking at is how finance software integrates with other applications so that you can look from the financial standpoint at the rest of the business.
A: Yes. CRM integration is big. Another thing many people are interested in is integration between financial software and some sort of e-commerce Web site. So, for example, they would like to be able to take orders on their web site and then be able to import them or process them through their small business accounting package. They don’t want to have to re-enter the information, because re-entering slows the process moving from one to the other. Of course, not all companies sell things on the Web, but for those that do, this is a big objective to speed their work with their distribution channels.
Q: What kind of specialized accounting packages are available for small businesses in specific vertical markets?
A: There are a number available. In fact, Sage Software has made a specialty of creating vertical market accounting packages. Of course, there are a lot of horizontal [general-purpose] accounting packages out there. But financial software makers have identified a lot of businesses such as construction and property management, retail, which includes point-of-sale applications, and charitable and non-profit organizations, that have special accounting needs. As small businesses get bigger, their needs are not necessarily met by a basic, one-size-fits-all horizontal accounting package. They start to require something that’s more tailored to their type of business. It’s still a package, not a custom program, but it is something that is designed specifically for, say, construction and property management.
Q: Are there packages like that for medical?
A: It depends what you mean by medical. There are some designed for private clinics and hospitals. There are some designed for dental practices. So there are different medical packages, because what an eye clinic needs may not be the same as what a central office [of an HMO] needs. Often the most difficult thing for medical financials is handling payment through insurance, because a lot of their patients are covered by insurance. The key thing for the vertical accounting package is to be designed to handle these common kinds of insurance claims, whether its the triple-part claim form or, what’s becoming more common, having an electronic claim form. I’ve found it’s more of a regional thing. In different countries or areas of the country, depending which types of insurance are popular, there are small companies that will tailor the accounting software to work properly in that area. A lot of these more complex financial packages are sold by VARs, value-added resellers. You wouldn’t buy them in a retail computer store because they’re a little more time-consuming to set up and install, so the businesses need some developer help. At that price range and size of business, the customization is generally done by the software vendor’s network of resellers. Typically the doctor’s office or dental office needs some software or, more commonly, an upgrade to their software, so they approach several different software vendors and those vendors out them in touch with VARs in their local vicinity who can help them get what they need.
Q: In your work, what are the biggest challenges that you see facing small business right now?
A: Keeping up with the pace of change. There’s a lot of technological change going on out there, and there’s an accelerated pace of communications. You know when I first was trained as a Chartered Accountant, the Canadian equivalent of a CPA, it was back in the late 1970’s. We communicated with a lot of our clients mainly through postal mail, or we talked to them on the phone if something was really urgent. Then in the 1980s, communications accelerated and you would usually have a letter typed out and fax it to somebody. Nowadays, it’s e-mail and in some cases even instant messaging (IM) so that we can get things done as quickly as possible. Back when you would put something in the postal mail, it would be a week or 10 days before you would get a response. Now, with instant messaging, if you haven’t got a response back in 60 seconds, you want to know what’s wrong.
The pace of communications has really accelerated, and that’s put pressure on the separation between personal and professional life. For example, if you’ve got one of these “smart phones” that can access your e-mail or instant messages, should you be checking it at night or is your family going to be upset with you for thinking about this at night or as you’re relaxing with them? You know, I went skiing in January, and there were people out on the ski hills who had their little Blackberries* [a kind of smart phone] with them, and there was one guy I saw down the slope typing something in, and then I met him coming down the next slope and he was reading and replying to his message, skiing and doing some business at the same time. So you need to ask yourself, is that the type of work we’re going to be faced with, or do you sometimes say “I’m skiing for the weekend, and I’ll get to the work on Monday.”
It’s one of those things. I held off buying a cell phone for as long as I could, but finally I just had to. But on the weekends, I try to keep my time as my own. You won’t find me on Saturday night going through my e-mail. I need that time away to re-charge my mind.
Q: So, in some ways, technology is creating pressure. Are there ways that technology can help relieve the pressure on small business?
A: There are ways technology can help make things more automated. For example, one of my clients is a small law firm, and one of the lawyers is getting married, and she’s worried about not being able to answer her e-mail on her honeymoon. So I told her, “Don’t worry about it. I’ll put up an auto-responder on your e-mail address and it will tell anyone who sends you an e-mail that you’ll be out of town for the next week, not to expect a response from you, and if it is really urgent, here’s someone else to contact for help.” So just an automatic responder makes it possible for her to go and get married and have a good time on her honeymoon and not even worry about the e-mail back at the office.
There is this pressure because of the accelerated pace of communications. If it was postal mail, no one would think about getting back a week later, but if it’s e-mail, people wonder why you’re not responding. But it’s critical to have e-mail. As more people start using a certain type of communication, the whole communication network gains more value. If there’s one telephone in the world, there’s no value. If two people have them, there’s more value, and if everyone else in the world is using telephones, you have to have a telephone. And the same thing is happening with e-mail. I initially started putting my e-mail address on my business cards back in 1991, and people would look at it and say “Gee, what’s this?” and I would explain it to them, and they would smirk and say, “Yeah, well, you’re a computer guy, so of course you would use this.” But now, if you hand out a business card and it doesn’t have an e-mail address on it, people will ask you for it. I put up a very limited website back in 1995, that had maybe half a dozen pages, and it wasn’t until 1997 that I got my first domain name. Now, even a business with half a dozen employees has to have something out there, even if it’s only a simple page that tells who you are, what business you’re in, and some basic contact information. You don’t necessarily have to sell things through your website, but people expect you to have something up there.
Q: What are the biggest changes you see happening right now in technology for small businesses?
A: We’ve talked about some of them: the rapid pace of communications, for example. Certainly the growth of the Internet is a big change — the fact that you have to have e-mail, you have to have a website. It’s starting to make a difference whether you have your own domain. People are starting to say that if your business e-mail is just joe@ aol.com or something, you’re obviously a small-time player. You may have a better image if it’s firstname.lastname@example.org. So not only do you now need an e-mail address, it also now helps if you have your own domain.
Q: What about changes to the information within the business? Are people feeling the need to be more integrated rather than having the bookkeeper and the project managers with their information on separate PCs?
A: It’s pretty simple to set up a peer-to-peer network these days, so the technology has gotten easier that way. But I’m still seeing islands of data in small business that are using applications that don’t necessarily talk to each other. You don’t necessarily have to have everything talk to everything else. For example, you don’t necessarily want the sales rep to have access to the payroll database. However, the sales rep probably should have access to at least some of the customer records because what if a customer calls and says “I still don’t have that order I placed last week. What’s happened to it?” You want the sales rep to have an answer. It’s more efficient for the business and more satisfying for the customer if, instead of bothering the bookkeeper or the shipping clerk, the sales rep can just look up the status and immediately tell the customer “There was a back-order, but it should ship tomorrow.” So integration isn’t about allowing everybody access to everything, but allowing everyone access to the information they need to do their jobs, whether it’s on their PC or someone else’s PC or on a server somewhere.
There are even some small companies that are becoming quite far-flung. It’s changing from the days where everyone in a small business came every day to one office. There are more of what I call virtual small businesses, sometimes people working independently, maybe from their homes, and who function as one business. Sometimes they may be working thousands of miles away from each other across the country. How do they share information? And you have some companies like, say NetSuite who supply accounting and CRM software as a service on their website. So as long as these far-flung employees have Internet access and a web browser, they can log into these applications on a central server and communicate that way and have access to all the data that they need.
Q: How about security and security threats to small business on an information level. How is that changing?
A: Well, malicious software is certainly a threat — everything from viruses to worms to spyware on the computer. You just have to look at this latest worm that was attacking Windows* 2000. Microsoft just announces that it’s a threat and makes a patch available, and a week later the worm is running rampant because companies didn’t take the time to apply the software patch. So it’s a challenge, particularly for small businesses that may not have a formal IT department and may not even have a full-time IT person. It’s often a part-time responsibility for one person whose efforts may be supplemented by a technical expert that the company has on call. You can’t just say, “Well, I’ll update these things once very six months.” To run a secure operation, you have to be far more proactive in updating your operating system.
Fortunately, you can now automate a lot. Microsoft has improved its system for upgrades, so you can set up your computers to get automatic updates. Interestingly, that’s what has finally persuaded a number of my clients that they need to go from dial-up to broadband Internet connections, because that makes it easier to do these automated software updates.
The other thing that you need to run a secure operation are some good internal defense mechanisms: good anti-virus software, good anti-spyware, and a firewall to protect everything on your internal network from the “wild and wooly” world of the Internet. Small businesses without IT staff should invest in some professional help with this. I would have them do a checkup, have an IT professional come in for a day every 3 to 6 months and review their OS patch levels, their security software and everything. Considering the costs of data loss and other security breaches, it’s cheap insurance.
Q: And what changes do you see in computer platforms and how small businesses view them and use them?
A: You have to remember that small businesses don’t buy computer hardware. They buy solutions that the hardware can deliver. Businesses use applications, applications need an operating system such as Windows* or Linux*, and the operating system needs hardware to run on. Small businesses don’t care about computer processor lingo. What they care about is: “Will this solve my problem?” If more powerful hardware means that businesses can run the more powerful business applications that they need, then they will buy. Faster computers by themselves aren’t worth much.
Q: So, with the many changes that we’ve talked about, what words of wisdom do you have for small businesses looking at how to gain advantage through their office technology?
A: Here’s the bottom line. Lots of my clients already have computer systems. But they call me when they’re not happy with the results they’re getting from those systems. They’re cost-conscious, and the first thing they ask me is whether they can just upgrade what they have or whether they have to buy new. I tell them that if you bought within the last 2 years and the technology was state of the art, you can probably just upgrade. If your systems are 5 years old or older, you’re better off buying something new.
For example, I had a client whose computer hardware was 8 years old, and they didn’t want to buy new stuff. But they couldn’t get upgrades for their old systems. This client is in the property management business, and they said to me “Say we buy a building and we manage it very efficiently. After 8 or 10 years, things may be looking a bit shabby, but we don’t tear down the building, we renovate the building. If we had to tear down every building after 8 years, we’d be out of business. It would be too costly. Now you’re telling me to tear down my computer system and build something new.”
So I said, “Listen. A computer system is not the same as a building. If you get a good building, it will be there for 50 years or even longer. You can’t expect a computer system to last that long.” I had to show him in terms of dollars and cents that it was more expensive for him to keep his old system than to buy a new one. He was getting quotes for maintenance of the old system, and the yearly cost for maintenance was sky-rocketing as the system got older. So I did a dollars and cents analysis that showed that if he bought a new system, he could pay for the new system in about 24 months, just through the vast reduction in his maintenance costs. When he looked at the dollars and cents savings, he said, “So what you’re telling me is that if I don’t buy a new system, I’m an idiot.” And I said, “Well, you’d be a financial fool. Let’s put it that way.”
And he said, “OK, when you put it in hard numbers, it makes financial sense. We’ll go with the new system.” That’s what it took. His intuition was that replacement was wasteful, and I needed to show him that it was not wasteful. It’s like when your car is starting to eat you up in the cost of new parts, you buy a new car. There comes a point when the most cost-effective solution is to buy new hardware.
Q: And at that point, you look for the best solution to do the job that will be the least disruptive?
A: Exactly, and in their case, they liked what their system was doing. It was just running out of capacity. They had bought additional buildings over the 8 years, and there wasn’t sufficient capacity with the hardware to handle these new properties. And it turned out that the most cost-effective way to get that capacity and allow far more headroom for business expansion in the future was to get new hardware.
Q: In looking at the new technologies and systems that are coming along, what are the things that get you the most excited?
A: I think a lot of the things that are happening in the wireless world are pretty interesting. Certainly what’s happening with cell phones is that they are becoming miniature computer workstations that give you access to a computer network. Besides allowing you to talk to someone on the phone, they’re also designed for e-mail and allowing you to share other data. I’ve seen companies that give a sales rep one of these “smart phones” so that, not only can they reach the rep on the road, but the rep can use the smart phone to access the company server to check on the status of a product, “Do I have enough of this product in stock that I can promise this customer immediate delivery, or do I have to tell them that it will be a couple of weeks before we can send that to them.” I think that whole area is developing very quickly.
Q: So if you are talking to a small business owner and helping them plan for the future, what are the biggest things that they should be thinking about?
A: I would say have a long term plan for where your business is headed and think about how technology can support your business in the future. Too many small businesses react to change rather than planning for change. Then when they have a problem, they’re fighting the fires rather than dealing with the cause of the problem. Instead, I say let’s plan for growth, let’s plan for what’s going to happen so that we make planned upgrades and aren’t faced with a crisis when something changes.
About Richard J. Morochove
Richard J. Morochove is president and founder of the Toronto-based computer consulting firm Morochove & Associates Inc. He is a computer consultant, an award-winning writer, and a popular broadcaster and speaker. Richard is a Fellow Chartered Accountant (Ontario 1977, Fellow 1994) and has a Bachelor of Commerce degree (1975) from the University of Toronto.