Technology: are you keeping pace?

How firms are allocating their technology budgets.

Is your firm current in terms of technology investments? Are you getting the most value out of the money you spend on hardware and software? A random sampling of small practitioners who concentrate on accounting and tax services shares their plans for technology spending so fellow CPAs can see how their firms compare.

UPGRADES

Installing networks and upgrading to Pentium processors were the top goals for the firms interviewed. At Caswell & Associates in Phoenix, New York, Brian Caswell has just added both a network and Pentiums to his eight-person, nine-workstation firm. He continues to run both DOS and Windows 3.1 because he prefers the DOS version of Accountants Trial Balance and found it hard to run DOS with Windows 95. The firm spent about 4% of its overall budget on the network upgrade, and he usually commits another $5,000 each year on upgrading one or more workstations. In the coming year he also plans to replace two of his four printers.

At Gill & Co., John Gill has a similar policy of replacing one computer every two to three years, "so we do not have a huge investment in any one year." The special projects in his five-person, Newport News, Virginia, firm include an upgrade of his network to Windows NT and the purchase of a scanner. "We plan on 7% to 9% for hardware and software, including our annual tax software licensing, but when you add training costs, we are devoting closer to 12% to technology," Gill says.

At Chicago-based Pier & Associates, Ltd., the firm has upgraded to Pentium on all its computers and "in August, we went from sneaker net to a real network," says Mary Lou Pier. In the coming months, she plans to add remote access capabilities for herself and her three staff members, so they can all work and communicate with the office network from home. "It makes life so much easier," observes Pier. "When we go to a client in Milwaukee, we may be there until 5 P.M., which for us during January and February is really just the start of the day. If I get home from Milwaukee at 6, I might still have three to four hours of work ahead of me and it would be a great benefit to be able to do it at home." Pier's firm usually spends about 2% of gross fees on its technology investment.

At Christine Lauber's eight-person firm in South Bend, Indiana, planned purchases include a flatbed scanner (at an estimated cost of $400). The firm completed a large technology upgrade during the spring and early summer, when it installed Windows 95 and Microsoft Office 97 at an expense of roughly $10,000. During tax season, Lauber added a $2,500 laptop computer as well.

In making purchases, Caswell advises plunging ahead without worrying about the arrival of the next high-tech wrinkle. "I was one of the ones who waited for the next version when the PC first came out. Then I bought the XT and the AT came out practically the next day. My policy now is just to do my upgrades regularly once a year because the next version will come out the next day anyway." He typically plans his changes in the fall and implements them about a month after tax season ends. (For more practical tips, see the sidebar above.)

THE PAYBACK 

Once a firm has gotten the newest equipment, the next question is how to make it pay for itself. Gill has made a science out of gamma greater savings and efficiencies through technology. For example, he and some of his staff work part-time at home and part-time at the office, communicating with clients and each other by phone, fax or e-mail, with all offices connected to the central office telephone and computer system. That enabled the firm to move from a large--and costly--downtown office to a smaller space used mainly to meet clients. The firm also purchases more technologically advanced equipment than many small firms in order to rely on automation rather than staff support, which results in savings in overall operating costs. "We spent money on the best automated copy machine so we do not have to spend money on personnel supervising the machine. The same goes for office technologies." Gill uses his Web site and visits to Internet news groups and mail lists to generate more business. "Our technology investment leads to more business and more efficient workflow," he says. "This works well, since much of our billing is fixed fee. For our hourly billing, we plan to add a computer charge of $15 per hour, strictly for technology. We will probably add it to our client billing as a separate line item in the next few months, as well as incorporate it into our new engagement letters." Some of the firm's billing--for individual tax engagements, for example--is billed by the hour, but the hours and rates aren't shown. The client sees only a total and thus may not ever know of the computer charge.

Caswell's firm installs software and trains clients individually on its use, although this is a small part of his practice. "We are registered as a Quickbooks resource. We have two people in the firm who are quite well trained in it. People call us with questions and we bill them for that." Lauber's firm members similarly are qualified installers for a program that has an accounting package, a rudimentary spreadsheet, word processing and a database called Harmony, which the firm has sold for about 10 years. Her firm also installs Peachtree and Quickbooks software, but she does not consider this a major service area. "We do it only as a sideline of serving the client. We don't pursue it as a standalone product line," she says. Both Lauber and Caswell say their computer consulting amounts to no more than 5% of revenues.

To recoup their technology investments in traditional service engagements, Lauber adds flat computer charges to different services, while Pier and Caswell have both built technology costs into their rate structures, changes that clients are aware of. "Computers have become like calculators used to be: You've got to have them," Pier says. "They're a tool that makes us more efficient." She does vary her rates when she believes it's called for, however. "With a small firm like ours, my philosophy on billing and rates is to be extremely flexible. If I have a program that is saving the client a lot of money, my rates will be different from my rates for doing manual spreadsheets." She notes, though, that she accepts some expenses because of the benefits they offer the firm. "Sometimes, an initial technology investment is high, but in the following years, I'm so much more efficient. And at that point, I don't reduce my rates to clients."

MAKING IT WORK

Technology is not useful if staff can't understand how to use it. The members of Pier's firm spent a Saturday afternoon learning from their computer consultant how to use their new network. Gill & Co. devotes about 5% of its gross revenue on training and continuing professional education, roughly one-half of which is technology training. "Much of the training budget is for nonbillable time of professional staff," Gill says. To get its technology information, the firm uses video tapes, CD-ROMs, books, seminars, hands-on training and online resources.

Caswell defines a professional as anyone with two or more years of college, so everyone but the firm secretary is doing 120 hours of CPE every three years. "Training is very important to us," he says. "The people who are not doing technical accounting work get courses in other areas, which includes technology."

Lauber would be willing to spend more on computer training at her firm, but she has not been able to find high enough quality accounting-oriented technology courses. Although she has gone to universities and other seemingly well-qualified instructors, "they don't seem to understand us. Most of our training actually comes through learning by doing."

BEHIND THE CURVE

As more firms move forward technologically, clients will become used to a minimum level of sophistication among their CPAs. Practitioners should at least become aware of what their peers--and their competitors--are doing in order to continue meeting client expectations. Is it time for a network in your firm? Would it be appropriate to begin adding technology charges to fees? The answers to these questions will help firms position themselves to take the best advantage of existing technologies.

RELATED ARTICLE:

Problem: How to spend high-tech dollars.

Solution: Make judicious upgrades and come up with strategies to recoup outlays.

RELATED ARTICLE: Best Tech Strategies

Here are tips from Christine Lauber for other small firms. The other CPAs interviewed for this article agreed with most of the suggestions, but there was some difference of opinion on one item.

1. Decide on a standard for your computers and then keep all stations the same, so they are completely interchangeable. That way it doesn't matter who is using what computer for what reason.

2. Lauber advocates upgrading all equipment at once. "There is nothing worse than having a 386 here, a 486 there and a Pentium in the third room." All equipment should have the same capacity, she says. Brian Caswell does not go along with this advice, however, believing that it's best to buy only what's needed when it's needed to avoid overspending. John Gill agrees with Caswell. "It's easier on the budget to add a third of your equipment each year, instead of 100% in one year and nothing in another." This way, the firm always has something that's state of the art and no machines are ever too antiquated. Staff training can be handled slowly, too, instead of in one large leap to an all new system, Gill says.

3. Buy up to the latest standard or don't buy at all, says Lauber. You will significantly enhance the life of your purchase if you buy the most you can get at the time.

4. If your computer vendor keeps saying, "I think the problem is"--move on to a new vendor. If the vendor isn't certain of the problem, you are simply paying for the vendor's education and rarely will get solutions.

5. Firm members will get 98% of their computer knowledge from having a problem and then figuring out how to solve it, says Lauber. There are lots of computer courses for rank beginners and for true techies, but the best intermediate class is in the trenches. Thus, it's important to teach your employees how to solve problems.

RELATED ARTICLE: EXECUTIVE SUMMARY

* INSTALLING NETWORKS AND UPGRADING to Pentium processors were the main goals of the small accounting firms interviewed. The firms all said they spend between 2% and 9% of their gross fees on investments in technology.

* RECOUPING THE INVESTMENT was handled in several different ways. One firms relied on the efficiencies and savings gained from state-of-the-art equipment, although it also planned to add $15 per hours computer charges on hourly billing. Computer consulting--using the knowledge gained in-house--was the choice of another practice. One practitioner increased rates when firm software saved a particular client money.

* TRAINING WAS ACCOMPLISHED through a number of different avenues, including consultants, seminars, videos, CD-ROMs and only resources.

ANITA DENNIS is a Journal contributing editor.