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A COMPUTER IS ONLY AS GOOD AS ITS SOFTWARE
Computer software is similar to a car in some
respects. A car gets you where you want to go
- and is a great deal faster than walking.
Software performs much the same function. It
drives the computerization of your business,
getting you to your destination - accounting,
for example - in far less time.
And just as with a car, you shouldn't buy
software without thoroughly investigating the
wide variety of models or packages available.
Software is not inexpensive, and its selection
is perhaps the most critical decision to be made
when computerizing your business.
Experts agree that before choosing hard-
ware, you need to decide what software you will
use. A computer is only as good as its soft-
ware. However, very few computer buyers ap-
proach it that way. The result is that many
automation projects either fail or never live
up to their full potential.
"It's important to do a lot of research
before you go shopping," recommends David
Beaver of The Automation Group. "You should
have a good understanding of how your business
works: what information you have, what infor-
mation you want to see on paper, and how the
information flows through your operation.
While this takes considerable time, if you do
it right, it can change your life."
Sharon Knuth of Software Tutor agrees.
"Always begin your software search by knowing
what results you want to achieve. Are you
interested in word processing? Are numbers and
calculations important? Do you want to produce
a newsletter or do graphics? Also take into ac-
count the individuals in your company who will
access the information and their degree of com-
Once you've decided which functions you
want to computerize, the next step is to find
out what packages will meet your specific needs.
"Spend a few months shopping around," ad-
vises Maureen Burchert of Abacus Training. "Go
to trade shows and talk to vendors. Compare how
their products match up with your requirements.
Attend seminars. Seek out owners of similar
businesses to see what works for them. Read mag-
azines. You need to be as conversant as possible
with what's available in the marketplace before
making a purchase decision. Even if you hire a
consultant to help make your selection, you will
have to become involved with your software at
Many professionals also recommend visiting
as many computer stores as you can that special-
ize in software, specifically those oriented to
business users. Their staffs will generally
prove more knowledgeable than hardware dealers,
who understandably don't have time to become
familiar with all the thousands of software
Another phase of the buying process on
which all experts agree is to see your software
candidates demonstrated and personally try them
"You wouldn't buy a car without driving it
first," notes Knuth. "It's important to do the
same thing with software. While you won't learn
all the ins and outs, at least you'll see what
the screens look like and how the software func-
tions. Factors to consider include whether you
can switch from screen to screen easily, and if
the program moves logically."
A store should be willing to demonstrate at
least two brands of software for each job func-
tion and explain their relative advantages and
disadvantages. Also look through the manual for
each program to see if it is easy to understand.
Knuth says that most small companies initial-
ly need three major programs: word processing,
spread sheet, and low-end accounting if a consid-
erable amount of receivables and billings are in-
volved. Some integrated programs offer all three
in one package. For those businesses with very
specialized needs - veterinarians and dentists,
for example - programs exist that have been speci-
fically designed for them, and can usually be ob-
tained through trade journals.
The most important factors in reaching your
"computer potential," no matter what programs you
choose, are training and having realistic expec-
"You should invest as much money in training
as was spent on the software itself," believes
Burchert. "So much of the advertising stresses
how easy these programs are to use - just pop in
the disk and you're ready. But the people who
will be using the programs on a day-to-day basis
need time to learn and feel comfortable with them.
"Also, many computer buyers have unrealis-
tic expectations," she continues. "They expect
the system to be up and running immediately.
In actuality, it takes about six months after
installation, on such activities as transfer-
ring information and training, before the soft-
ware program is fully operational."
"Be prepared for the first three months
to require at least double your normal energy,"
counsels Burchert, "but the effort will be
well worth it. In order for your business to
grow, the information in your head has to be
transferred into the computer, and made easily
accessible and auditable."
Adds Knuth, "People don't attach enough
importance to the need for training. You must
plan for training and then ongoing support
after it is completed. For you and your em-
ployees will continue to have questions, many
of which can be answered over the phone.
You have to allow for a learning curve. But
once you master your software, you will save
an incredible amount of time in the long run."
The Most Important Thing
"The most important thing in choosing software
is to know exactly what information you want
from the computer, and to communicate that
clearly. Otherwise you can get lost in rhe-
toric, and end up with information you don't
need." Skeeter Gayou, owner and founder of
Lith-A-Tone in the San Fernando Valley, ad-
mits to having made "a ton of adjustments"
since first purchasing software for his pre-
press operation, but claims to have learned
an immense amount. "What we used to do by
hand is now done by dials and computers," he
explains, referring to the scanner that has
transformed his business. "In addition to
performing sophisticated technical functions,
the software enables us to keep track of
time and materials, and make the necessary ad-
justments so projects come in on budget.
Computerization has resulted in obtaining need-
ed information more quickly, and in increased
Renting Vs. Leasing
Year after year, leasing is the leading fin-
ancial alternative for capital equipment -
more popular than bank loans, corporate bonds
or equities. Eight out of ten U. S. firms
now use leases to finance vehicles, manufac-
turing equipment, office machines and furni-
ture, computers, and even real estate.
For many operations, leasing can offer
a number of important financial and techno-
logical advantages. Only a close examina-
tion of the pros and cons will determine if
it is the right choice for your business.
The Rewards of Leasing
This is traditionally leasing+s strongest suit,
and the feature that usually drives a company
toward this financing instrument. Leasing per-
* Effective timing of capital expenditures.
Instead of necessitating large outlays of cash
to purchase an asset, lease payments are spread
over time, typically three to eight years.
Payments can be straightline (equal amounts at
constant intervals), accelerated (starting high
and gradually decreasing), or set to meet sea-
sonal cash flow needs, depending on the vendor
and asset type. Lease payments can be planned
and budgeted for months or years in advance,
thereby simplifying cash flow planning.
* Preservation of working capital. This is
perhaps the most compelling reason to lease.
According to Michael K. Lee, managing general
partner of Dominion Ventures, Inc., an equip-
ment financing firm in San Francisco: "In
sheer economic terms, leasing is usually more
expensive than borrowing. Where leasing be-
comes more attractive is when you factor in
your cost of capital. For example, how much
of your company might you need to give up to
raise money for your asset purchase? Also,
what other productive things might you do
with the capital earmarked for that purchase?"
* Preservation of borrowing power. As an al-
ternative financing method, leasing allows
companies to acquire assets without depleting
existing sources of credit. Lines of credit
remain available for unexpected priorities,
short-term or seasonal needs. Some types of
leases are shown on financial statements as
a footnote entry, effectively providing "off-
balance sheet" financing that can improve key
* Availability of credit in tight markets.
The credit criteria of lease financing com-
panies may be less stringent than those of
bank credit committees. Leasing is avail-
able even in times of tight money when cash
loans may be hard to obtain.
* Favorable tax treatment. Generally, lease
payments are fully deductible as a business
expense, whereas depreciation deductions from
owned equipment may be subject to alternative
minimum tax under the 1986 tax code changes.
Consult your accountant or financial advisor
Leasing, particularly equipment leasing, also
offers some technological advantages:
* Quicker access to productive assets. Through
leasing, your company may be able to acquire
the needed asset sooner than if you purchased
it outright. Quicker access can directly and
positively impact the bottom line of your opera-
tions through increased output and revenue gen-
* Less risk of obsolescence. For companies that
purchase outright, an asset's depreciable life
can exceed its useful life. Rapidly changing
technologies, such as data processing and tele-
communications, can cause an asset to become ob-
solete long before it wears out or the lease ex-
pires. Many leases provide options to permit
exchanges for more advanced equipment as it be-
The Risks of Leasing
While leasing is a powerful financing tool, it
can be an expensive one as well, with quoted
interest rates ranging from three to twelve
points over the prime rate. Effective or im-
plicit rates (rates that factor in initial pay-
ments, deposits, buyouts, etc.) can range even
higher. Be sure to calculate the effective in-
terest rate before signing any lease agreement.
To calculate how much that asset is really
going to cost, add together the initial pay-
ment(s) or deposit (if any), all future pay-
ments, the buyout amount or balloon payment (if
any), and discount that total back to present
day dollars. Also look for unnecessary "bundled"
features or accessories added into your package.
Otherwise you may find you're paying interest on
an extended warranty or extra supplies or op-
tions you can do without.
Check lease terms and obligations carefully.
Lee recommends asking:
* Who retains title to the asset?
* Who's responsible for sales or use taxes and
* What kind of penalty fees, points, buyout
costs, and trade-in allowances are there?
Lee also stresses the importance of think-
ing carefully about the tradeoff between payment
levels and lease terms. He cautions, "Don't
ever lease an asset for longer than you'll need
it, just because the rate is lower. And don't
just look at the payment amount. Factor in what
it might cost you to be less productive in the
future after your equipment becomes obsolete."
For example, if you sign a five-year lease
for a computer that becomes technologically ob-
solete in three years, your productivity will
be held back during the last two years of the
agreement by not being able to take advantage
of product improvements.
Time is an important part of profit gene-
ration. The value of a dollar depends not only
on how it's disbursed, but when it's disbursed
as well. And, thoughtful analysis of your fi-
nancial alternatives is always time productive-