Will your firms computer

How firms are allocating their technology budgets.

Technology:
Are You Keeping Pace?

I s 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. Piers firm usually spends about 2% of gross fees on its technology investment.

At Christine Laubers 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 gaining 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 firms billing—for individual tax engagements, for example—is billed by the hour, but the hours and rates arent shown. The client sees only a total and thus may not ever know of the computer charge.

Caswells 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. Laubers 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 dont 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: Youve got to have them, Pier says. Theyre a tool that makes us more efficient. She does vary her rates when she believes its 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, Im so much more efficient. And at that point, I dont reduce my rates to clients.

MAKING IT WORK
Technology is not useful if staff cant understand how to use it. The members of Piers 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 dont 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.