Accounting Software Selection by Small Business Organizations
Raghunathan, Bhaun, Wobser, Suzanne L., The National Public Accountant
A computer-based information system for accounting can help an organization manage its finances and operations efficiently, and provide management with timely and accurate information about the company, its customers, creditors and competitors. While large organizations have become increasingly dependent on computers to meet their information needs, today's fast-paced and competitive business environment has made it necessary for smaller firms to move into the computer era.
In the past, cost was a major disincentive for small firms to use computers, but the advent of affordable microcomputers and user-friendly software has made it possible for many small businesses to make the transition from manual to computer systems. More and more "small business owners are taking advantage of the productivity that can be realized by automating their accounting operations. Many small businesses already use microcomputers for word processing and other applications. In fact, it is hard to imagine a business today without at least one personal computer.(1)"
The selection of appropriate hardware and accounting software represents a major challenge to many small businesses. Large organizations typically have the resources to set up a special task force or hire a consultant to provide advice on hardware and software acquisition. Small business owners, however, generally have to make do with easily available and low cost sources of information. Advice from friends and business associates, computer magazines and computer salespersons are some of the more common sources of such information to the small business owner.
The decision sometimes seems overwhelming because the prices, features and capabilities of these products provide an immense variety of options from which to choose. Additional decisions include:
* How should conversion from a manual accounting system to a computerized accounting system be achieved?
* When should conversion occur?
* Should a stand-alone system be installed or a local area network (LAN)?
* What new accounting and operating procedures will be required and how will they be implemented?
* What new security features will be required?
These issues need to be addressed during the preliminary stages of the process of selecting the computer hardware and accounting software that best meet the needs of the firm.
The authors conducted a study that focused on the accounting software selection practices of a sample of small business organizations with computerized accounting systems. The purpose was to gain an understanding of the accounting software selection processes in these organizations and to see if there is any link between satisfaction with the software in use and the process by which the software is selected.
In-depth interviews were conducted with 20 small businesses that had automated their accounting systems. The detailed nature of the interviews allowed the interviewer to collect information on several aspects of computerization and software acquisition and usage and provided opportunities for follow-up questions and responses. The information given by the participating businesses yielded some interesting insights into the practices of these firms.
Each organization was asked to provide information on number of employees and sales revenues. This provided a measure of the size of the organizations being interviewed. Except for one business with 160 employees, the organizations inter viewed had an average of 32 employees. Sales figures were not available for six of the 20 organizations: three were not-for-profit organizations, while the other three declined to disclose sales information. The sales for the remaining organizations averaged $4.5 million, except for one with sales of $60 million.
The organizations interviewed included manufacturing, health services, engineering, consulting, broadcasting, general contractors and insurance companies. The diversity in the types of organizations interviewed made it possible-to gather information on practices common to the computerization processes of all types of small businesses. No attempt was made to seek specialized information about specific industry types.
The interviews were built around 16 questions covering a variety of aspects of computerization of the accounting system. Respondents were asked to indicate:
* how long their accounting records had been computerized; the type of hardware currently used, how long used and whether this was their first hardware
* acquisition; the name of the software package currently in use and why it was chosen;
* the training received in the new software;
* the research done prior to purchasing software;
* aspects of the software package they liked;
* aspects of the package they disliked; the modules that were computerized; the reasons for choice of modules for computerization;
* the benefits from computerization;
* the difficulties, if any, associated with computerization;
* level of computer experience of individuals involved;
* Level of accounting-related experience of these individuals;
* rating of current software package on a one-to-five scale (five was excellent);
* inclination to purchase the same software, given another chance to decide; and
* future expansion plans.
The types of computer hardware used were micros and minis (except for one firm that used a mainframe). The majority of the firms used micros. Most of these were IBM or IBM compatibles. Five of the computer systems were networks. The hardware currently used by the firms ranged in age from six months to 10 years. Twelve firms stated that the hardware currently in use was their first, while the others stated that the current hardware was a replacement for older computer models used. Accounting records were computerized for periods of from one to 13 years, with an average of six and one half years.
Table 1 provides a listing of the software modules most commonly used. General ledger, accounts payable and receivable, and payroll applications emerge as the most popular applications. The data indicate that the majority of the firms interviewed are using the computer to handle only routine accounting applications. More sophisticated usage of the computer, such as using report writer software to prepare reports combining data from different sources, was not evident. However, such usage is likely to follow soon in these firms since many of them indicated that they had expansion plans and commented that, but for time constraints, they would already be experimenting with expanded usage of their computer.
Software Modules Used by the Sample Firms (*) General Ledger 18 Accounts Payable 18 Payroll 17 Accounts Receivable 13 Order Entry 8 Job Cost 7 Inventory 5 Cash Management 4 Purchase Order 3 Financial Analysis 3 Invoicing 1 Executive Advisor 1 Report Maker 1
(*) Numbers in the table refer to number of firms using each module.
Table 2 lists the benefits of computerization identified by the respondents. The speed of computers emerges as the most valued benefit from computerization. It is evident that the benefits identified in this list are the typical first-stage benefits of computerization, and there are few references to more sophisticated uses of computers such as scheduling, forecasting, data transfer, etc. The firms interviewed indicated that they were either moving in these directions or had decided that their level of operations did not warrant a higher level of sophistication.
Table 2: Benefits of Computerization(*)
Speed/time saving 17 Better/more detailed information available 10 Better traceability/audit trail 7 More overall efficiency 7 More timely/frequent statements 7 More accuracy/less error 6 Reduction of cost/personnel 5 Quick response to the need for information 5 Different kinds of analysis possible 4 Know where information is 3 Better paper and work flow/less paper work 3 Nice report formats/representation 3 Record-keeping easier 1 Better integration 1 Ability to expand 1 Better internal control 1
(*) Numbers in the table refer to the frequency of reference to these benefits.
When asked to identify the difficulties associated with computerization, respondents generally had very few to report. The difficulties they alluded to dealt mostly with procedural matters rather than with hardware or software per se. References were made to operator errors; lack of adequate training of employees; lack of good vendor support; conflicting user requests; processes that were too complex to computerize; fear of hard disk failures; problems with parallel manual and computer runs during early stages of computerization; and the need to follow rigid procedures when, at times, shortcuts would have been more efficient. Overall, it was obvious that the businesses in the sample were very comfortable with their use of computers. They considered the difficulties encountered to be minor compared to the benefits derived from computerizing their accounting systems.
The survey data were analyzed to examine if any meaningful relationships existed among the factors that had a part in the software selection process. When asked to indicate what kind of research they did before purchasing their current software, only seven firms (35%) indicated that they had done any systematic study of options available. Research included reading computer magazines and other publications, seeing demos of various packages, talking with local dealers and users, and visiting several dealer stores--in short, understanding the available options and making a comparative analysis of these options before making the final choice. Of the 13 who had not done any study, six simply heeded the recommendation firm and four the recommendation of other users of the software. One firm purchased from the first vendor who approached it and two did not have a choice because it was a decision made by their main office.
Table 3 presents information gathered from the interviewees, grouped on the basis of research done prior to selection. This grouping helps to identify whether such research was in any way related to factors such as reason for choice of software, training in the use of the software, and evaluation of performance of software. The information presented in Table 3 indicates that the software recommended by accounting firms had the highest overall rating among the software currently in use. Interestingly, this rating is even higher than the average rating for software purchased after the firm had done its own study of available options. In contrast, software that was required to be used (mandate from main office) and software purchased without any research or recommendation received low scores. These numbers suggest that accounting firms are sought by small businesses as valuable guides to help them in the difficult job of choosing accounting software that is appropriate to their needs.
Table 3: Grouping of Responses based on Extent of Research
Firm did Firm took advice of: Research A U M O No. of firms 7 6 4 2 1 (Total=20) Average rating)(1) 4.5 4.9 4.4 3 1 of software Training:(2) By accounting firm - 3 - - - By seller 4 - 2 1 - No training 3 3 2 1 1 Software chosen for:(3) Features 5 2 - - - Cost 2 - - - - Vendor support 3 - 1 - - Any aspects disliked?(2) Yes 5 1 2 1 1 No 2 5 2 1 -
(1) Rating on 1-5 scale where 5 = excellent.
(2) Numbers refer to the number of firms.
(3) Numbers refer to the nUmber of times the reason was given; some firms gave more than one reason, while others did not give any reason.
A: Accounting firm
U: Other users
M: Main office
The numbers presented in Table 3 also focus on the training provided to personnel in these firms in the use of software. The data indicate that accounting firms provided this service only to clients who purchased software recommended by them. Fifty percent of the firms in the sample did not obtain any training of any type. The respondents, in these cases, indicated that manuals that came with the software were the only learning resources available to them. The majority indicated that hands-on training sessions would have been beneficial.
To check the extent to which training influenced attitudes toward using the software, responses (to questions on rating of software, motivation to purchase the same software again, and user-related problematic aspects of the software) were grouped under different training categories (see Table 4). The average ratings were the lowest when no training was available; responses to whether they would purchase the same software again were somewhat mixed when no training was available; and responses were relatively more negative in the "no training" category when respondents listed what they disliked about the software. To sum up, systematic training of personnel appears to promote more positive attitudes toward the software. As one interviewee pointed out, training tends to reduce much of the frustration that is often a part of such do-it-yourself assignments.
Table 4: Grouping of Responses based on Training Given
Trained by: Accounting Firm Vendor No Training No. of firms 3 7 10 (Total = 20) Average rating(*) 5 4.4 4 of software Purchase the software again?# Yes 2 4 5 Very likely 1 2 3 No - 1 2 Any aspects disliked?# Yes - 4 5 No 3 3 5
(*) Rating on 1-5 scale where 5 = excellent.
(#) Numbers refer to the number of firms.
When asked why they chose a particular software package, some respondents were able to discuss specific factors that influenced their purchase decision. These factors fell into the three broad categories of comparative cost of software, features and vendor support. The information presented in Table 3 highlights the fact that only respondents who did their own research on available options discussed these factors at all. Very rarely did any of the respondents in the other groups refer to specific aspects of the software as influencing their purchase decision. During the course of the interviews, it was obvious that these others were mostly unfamiliar with various aspects of software acquisition and, rather than spend time and effort in learning, they opted to heed the advice of someone they considered to be knowledgeable.
When asked if there was anything about their software they particularly liked or disliked, almost every respondent referred to something they liked about the software. The most commonly quoted aspect of the software they liked was ease of use, followed by flexibility. Interestingly, the most common complaint against any software was also the lack of flexibility, particularly the inability to print certain information on reports (or avoid printing information they did not need). Flexibility and ease of use emerge as aspects of accounting software that are apparently very important to users.
Another perspective on the evaluation of the software is provided by the information presented in the last section of Table 3. The software recommended by accounting firms scored the best, with a relatively high proportion of respondents indicating that they found little to complain about the software recommended to them; these proportions are even higher than those for respondents who did their own research. This is another indication of the usefulness of accounting firms' advice to their clients.
Overall, the survey results suggest that small businesses are moving comfortably into an expanded computer base. Many value the recommendations of their accounting firms in choosing accounting software and indicate very high levels of satisfaction with the software thus chosen. Such recommendations appear to be an efficient and effective way for small businesses to select accounting software, as well as a good alternative to the time-consuming research of software.
The only word of caution for small businesses is that their dependence on such recommendations, although well-placed, should not be a substitute for familiarizing themselves with the software, as they would have if they had done their own research. Given the rapid advances in computer technology and the decreasing costs of both hardware and software, small firms would find it beneficial to keep track of relevant developments in the field, and make the best use of the improvements that technology can offer to make their systems both effective and cost efficient.
The survey data also suggest that small businesses would appreciate more hands-on training in the use of accounting software. Given the increasing trend toward computerization by small businesses, software selection advice and training are areas in which accounting firms might find it worthwhile to initiate or expand their services to small business clients. Computerized client accounting systems and better-trained client personnel would mean better accounting records and would help facilitate the accounting firm's work, whether it be accounting or auditing-related.
(1) From "Microcomputer Consulting for Accountants," The, Ohio CPA Journal, (Spring 1990) pp.34-36. This article is based on an interview by Mitch Paioff with the national director of entrepreneurial consulting for Ernst & Young.
Bhanu Raghunathan is a professor of accounting in the College of Business Administration at the University of Toledo, Ohio.
Suzanne L. Wobser operates her own business, Progressive Accounting Services, Inc., in Sylvania, Ohio. She received a master of science in accounting from the University of Toledo.…
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Publication information: Article title: Accounting Software Selection by Small Business Organizations. Contributors: Raghunathan, Bhaun - Author, Wobser, Suzanne L. - Author. Magazine title: The National Public Accountant. Volume: 40. Issue: 9 Publication date: September 1995. Page number: 20+. © 1999 National Society of Public Accountants. COPYRIGHT 1995 Gale Group.
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