Return to 143 articles to start your own home based business opportunity directory 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- puter experience." 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 some point." 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 programs available. Another phase of the buying process on which all experts agree is to see your software candidates demonstrated and personally try them out. "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- tations. "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 efficiency." 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 Financial Benefits This is traditionally leasing+s strongest suit, and the feature that usually drives a company toward this financing instrument. Leasing per- mits: * 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 operating results. * 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 for details. Technological Benefits 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- eration. * 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- comes available. 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 maintenance? * 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- ly spent.

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