SMALL BUSINESS COMPUTER APPLICATIONS William Larry Gordon, University of Alaska Henry Wichmann, Jr., University of Alaska Roger Eichmann, (Student), University of Alaska ABSTRACT The purpose of this paper is to report on the mini/micro-computer involvement of accounting firms in Alaska that serve small business clients. A conclusion was drawn from the study indicating mini/micro-computer development along with better software should make better accounting services available to more small businesses. INTRODUCTION The mini/micro-computer business might be compared to the developing automobile business 50 years ago. Many ideas and manufacturers exist with a range of quality and prices. In Alaska the top three mini/micro-computer vendors were found to be IBM, Apple Computer, Inc., and Osborne Computer Corporation . These vendors have been considered leaders in the mini/micro-computer industry nationwide  . The purpose of this paper is to report on the mini/micro-computer involvement of 73 CPA firms and 247 other accounting firms surveyed in Alaska by the authors , and to offer suggestions on how small accounting firms serving small businesses might use mini/micro-computers. In addition, a comparison will be made with similar studies conducted in Wyoming   and another study conducted in Alaska . The Need for Accounting Services Provided to Small Business The Small Business Administration (SBA) estimates that 9 out of 10 businesses fail due to lack of management ability . Management ability is broadly defined by the SBA to include accounting problem-solving, marketing problem-solving, and other problem-solving areas. In a recent study of 176 Alaska and Wyoming Small Business Institute (SBI) cases, accounting was revealed as the key problem area in management ability . The need for accounting services provided to small businesses is indicated by the following quote, "... a number of studies have shown that bankrupt small businesses typically failed to maintain adequate records." These textbook authors listed the reasons for failure of small businesses to be 67.3 percent due to inadequate information concerning sales, operating expenses, receivable, payables, etc., which are accounting related data necessary for good management decision making . In another recent study, further evidence indicated the need for adequate record keeping and financial reporting for small businesses. This study of 1,000 Colorado borrowers revealed small business borrowers lacked accounting understanding and knowledge. Personal interviews with SBA personnel in the same study revealed it is common knowledge that a need exists for adequate records kept by small business owner-managers . Small CPA firms and other accounting service firms mainly serve small business clients. These accounting firms can provide their small business clients with computerized management information systems by obtaining a mini/micro-computer system with supportable software. If accounting information is a key to small business success, then a computerized accounting system should help save many small businesses from failure. Definitions In order to focus on the questions the authors are attempting to answer in this paper, it seems appropriate to define "minicomputers" and "microcomputers." Minicomputer - The typical minicomputer is about the size of an office desk, self-contained with approximately 512,000 bytes of memory, uses a 16 or 32 bit word length, and usually has 6 input/output peripheral devices attached. The cost averages about $42,000 for the basic hardware unit, while software packages average $1,000 each with word processing available . Microcomputer - The typical microcomputer is just a little bit larger than the average office typewriter, self-contained with approximately 64,000 bytes of memory, uses an 8 bit word length, and usually has 1 or 2 input/output peripheral devices attached. The cost averages about $4,100 for the basic hardware unit, while software packages average about $400 each with word processing available . Alaska Survey The minicomputer is smaller than the expensive mainframe computers, but larger than the inexpensive microcomputers. Many microcomputers are more efficient and effective than earlier minicomputers and some older low-end mainframes. The Alaska survey of computer usage by accounting firms revealed 56 percent used microcomputers, 18 percent used minicomputers, and 26 percent used no computer. The accounting firms had owned their computers an average of 2 years and 8 months. The Alaska accounting firms were found to be small with 75 percent having no more than 2 partners and 80 percent having no more than 3 professional staff members. Since 74 percent of accounting firms owned mini/micro-computer systems, many of these small firms must have been realizing the benefits of the inexpensive computers now on the market. One respondent said, "I would not have begun my practice without the microcomputer first." Another respondent said in answer to the impact of the computer on his accounting firm's practice, "... increased potential for number of clients and increased quality of information provided to all clients." A second study of small non-accounting businesses by the authors in the Anchorage, Alaska, area during 1984, showed 46 percent computerized accounting systems, 46 percent conventional accounting systems, 6 percent pegboard systems, and 2 percent unknown accounting systems. The responses indicate that even if a mini/micro computer and the accounting software are available, businesses will still continue to utilize the services of accounting firms because they don't understand how to fully utilize their systems or because they prefer to concentrate their efforts towards producing a product or service while learning the record keeping and reporting responsibilities with the accounting firms. Hardware Minicomputers were manufactured mainly by IBM with the System 34 dominant in Alaska sales. Microcomputers were purchased by accounting firms from Apple Computer, Inc. (13); Osborne Computer Corporation (9); and IBM (7). Exhibit 1 shows the hardware costs of the IBM Personal Computer and the IBM System 34 minicomputer. Software Most software was found to be purchased from software vendors (70 percent) and purchased from manufacturers of computers (15 percent), while only 15 percent were written by someone on the accounting firm's staff. Exhibit 1 includes a list, with typical costs, of commonly used software packages. Questionnaire responses indicated a large number of different software vendors and a variety of comments concerning the hardware/software acquisition decision. One accountant indicated the decision on software should be explored before purchasing the hardware with the following statement: "I definitely was mislead when I purchased the ...(microcomputer). I was told all program packages would work--not true. Only one store handled... (software) packages--and they were too expensive." The Computer Language The programming language BASIC was used by mini/micro-computers 72 percent of the time in Alaska, with RPG II second (7%), COBOL third (5%), and FORTRAN fourth (4%). EXHIBIT I Hardware Costs of IBM Mini/Micro-Computers Along With Software Costs.* Costs: Microcomputer Minicomputer (IBM PC) (IBM System 36) Hardware Costs: * 64K memory with CRT video $4,000 Display and matrix printer, two diskette drives * Letter quality printer 500 * 256K Memory with at least 5 peripherals for specific tasks $30,000 * Letter quality printer 5,000 Subtotal ............ $4,500 $35,000 Software Package Costs: * Operating system $ 60 $ 2,000 * Word processing 150 1,000 * Tax return preparation 200 1,500 * Financial modeling 800 1,500 * General ledger 750 1,200 * Payroll 500 2,000 * Accounts payable 200 1,200 * Accounts receivable 200 1,000 * Customer billing 500 1,200 * Fixed assets and depreciation 500 1,200 Exibit 1 Cont. * Inventory control 500 1,200 Subtotal ........... $4,360 $15,000 Annual support costs for supplies and maintenance** $1,000 $ 7,000 Grand Total .................. $9,860 $57,000 * Source of Data: Computerworld, August 15, 1983, and August 22,1983  ; telephone interview with IBM representative, January 1984. Note: All cost amounts are approximate figures averaged for the nationwide market. Higher and lower hardware, software, and support prices may be found, depending upon vendor source. ** Annual costs for maintenance typically range from 12 percent to 18 percent of hardware costs while supplies costs vary with the volume of transactions. Another 6 computer languages were listed by Alaska's small accounting firms, representing 12 percent of the respondents. This data cannot be interpreted as indicating the level of knowledge of there languages, but does indicate the availability and popularity of packaged software written in three languages for use on micro/mini-computers. Computer Applications Financial statement preparation was found to be the most common mini/micro-computer application with 80 percent providing computer write-up services (monthly or quarterly financial statements). Exhibit 1 shows the software package costs for mini/micro-computer applications, while Exhibit 2 shows applications found common in the Alaska and Wyoming studies. Fixed asset and depreciation scheduling were the second most popular application (65%) of the computer, while accounts receivable records was third (62%) in popularity as a mini/ micro-computer application. Tax return preparation was done by half (53%) the accounting firms on the computer for their clients. About 58% of the accounting firms performed payroll work for clients. Fifty-eight percent is low for payroll. Another study conducted 5 years ago by the author indicated that payroll was provided 73 percent of the time as a computer service to small business clients . Comparing Alaska and Wyoming Accounting Needs for Small Business In a recent study of 176 Small Business Institute (SBI) cases conducted at the University of Alaska (three campuses) and University of Wyoming (one campus) for the 1974-1981 period, 37 percent of SBI cases revealed accounting as a problem area, 35 percent revealed marketing as a problem area, and 28 percent indicated some other area of management as a problem. Alaska and Wyoming are states dominated by small businesses and rapid economic development due to energy related development and are two of the least populated states in the United States with populations between 400,000 and 500,000. Small businesses and small accounting firms serving these businesses are typical in these frontier states. The accounting applications shown in Exhibit 2 were found to be similar for both Alaska and Wyoming. Mini/micro-computers are being used extensively by small accounting firms to provide computerized write-up services (bookkeeping tasks) to small business clients. The need for accounting services in Alaska and Wyoming is demonstrated by looking at two separate surveys in Alaska and Wyoming  . The accounting firms were asked in each survey to estimate the number of write-up (bookkeeping) clients not now receiving such service and the estimated monthly revenue that might be received from each. The Wyoming responses were from 5 potential clients to 150 potential clients in 1979, while the Alaska responses were from 20 potential clients to 500 potential clients in 1983. Wyoming revenue for each potential client was estimated to be $1,356 per year, while Alaska accounting firms anticipated $3,259 per client of added revenue each year. Consequently, the untapped potential in Wyoming for computerized bookkeeping services was found to be a maximum of $203,400 (150 x $1,356) annually per accounting firm, while the untapped potential in Alaska was found to be from $65,180 (20 x $3,259) to $1,629,500 (500 x $3,259) annually per accounting firm. Even allowing for Alaska's inflated prices (approximately 25%) and inflation from 1979 to 1983, the need for accounting services is dramatic in these developing states which are represented mostly by small business firms. SUMMARY AND CONCLUSION Accounting may be the key to small business success as shown by the Alaska and Wyoming Small Business Institute (SBI) cases studied. The importance of accounting services, such as, bookkeeping tasks, financial statement write-ups, and tax return preparation cannot be over emphasized. Rapid economic growth in Alaska has led to the creation of using small businesses who rely for their survival upon the availability of accounting information that increases their management abilities. EXHIBIT 2 Mini/Micro-Computer Accounting Applications Rendered by Alaska and Wyoming Accounting Firms.* Percent of Respondents Providing Service** Types of Service Wyoming Alaska Other All Small Small Alaska Alaska CPA Firms CPA Firms Small Acct. Acct. Firms Firms Monthly Financial Statements 43% 83% 76% 80% Depreciation Schedules 20 63 67 65 Accounts Receivable 40 50 73 62 Payroll 73 53 63 58 Tax Return Preparation 33 53 53 53 Billings 13 47 50 48 Inventory Control 13 27 40 33 * Source of Data: Alaska survey of 347 licensed accounting firms; 73 CPA firms and 274 other accounting firms . Wyoming survey of 53 CPA firms . The Wyoming survey was conducted in 1978, while the Alaska survey was done in 1983. ** Note: "CPA Firms" are defined as those accounting firms providing auditing services in addition to write-up, tax, and management advisory services. "Other Small Acct. Firms" are defined as those accounting firms not providing audits. The mini/micro-computer development along with better software packages should make the routine technical accounting tasks easier and less expensive. Consequently, more and better accounting services should be provided to small businesses by small accounting firms. Better information makes for better decisions; thus, business failures due to lack of information may be reduced in the future if mini/micro-computer usage improves accounting services. The accountant and small business owner-manager should, however, not forget that the computer is but a tool like a pencil and not a substitute for good accounting knowledge and understanding. The owner-manager of a small business should in the future have, by use of mini/micro-computers, better information to interpret the firm's results of operation and financial position in order to make the final decisions regarding the success or failure of the enterprise. REFERENCES  A questionnaire was sent to 347 Alaska licensed accounting firms, 85 usable questionnaires were returned, representing a 25 percent response.  A questionnaire was sent to a statistical sample of 500 SBA borrowers in Colorado: An overall response of 45 percent was achieved. The population consisted of 1,000 SBA borrowers listed in SBA Annual Reports.  A questionnaire was sent to all 1,000 members of the Chamber of Commerce in Anchorage, Alaska who were considered to be small businesses. Thirty percent (300 responses) were returned and usable.  Brown, H.W. , and Justin G. Longeneckor, Small Business Management, (South-Western Publishing Company, 1971), p. 310.  Henkel, Tom, "Minicomputers: A Survey of 59 Machines from the Top 20 Mini Makers," Computerworld (CW Communications, Inc., August 15, 1983), pp. 43-48.  Henkel, Tom, "Microcomputers: A Survey of 43 Systems from the 20 Vendors," Computerworld, (CW Communications, Inc., August 22, 1983), pp. 29-32.  McDaniel, Lloyd W., and Henry Wichmann, Jr., "Minicomputers: A Boon to Small Public Accounting Firms and Write-up Work," National Public Accountant, (February 1979), pp. 22-26. A questionnaire was sent to 53 CPA firms in Wyoming, 32 usable questionnaires were returned, representing a 60 percent response. A second survey was sent to 23 Wyoming CPA firms that owned or leased a mini/micro-computer system, 65 percent were returned.  Pratt, Charles M., "Small Business: Washington Begins to Take it More Seriously," U.S News & World Report, (August 8, 1977), p. 78.  Wichmann, Henry Jr., "Accounting - The Key to Small Business Success," National Public Accountant, (June 1983), pp. 26-31.
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