Microsoft expands accounting software arena

Accountants warn of pitfalls to relying too heavily on products
By Shane Cleveland
VBJ Staff Reporter

Successful entrepreneurs may be very good business people, but that certainly doesn’t make them accountants, and a large number of small businesses utilize accounting software to help manage their bookkeeping. For a small investment, small business owners have their pick of software to perform a number of functions, from creating a general ledger to administering payroll.

Intuit’s QuickBooks accounting software controls the market. According to Intuit, its product accounts for more than 85 percent of U.S. retail sales for small-business accounting software and is used by 3 million businesses.

CPA Mai Winter with Battle Ground-based NW Accounting Professionals LLC said QuickBooks saturated the market by being the first to offer an entry-level product at a low price.

"It’s not a big investment," she said. "It’s geared towards those with no accounting knowledge and very user-friendly for the lay person."

QuickBooks is followed by Sage Software’s Peachtree program. Winter’s firm offers training and setup for both products. She said use of the respective programs is split evenly by the company’s clients.

With 40 million businesses worldwide with fewer than 50 employees, a large amount of market share remains to be captured. And Microsoft has joined the competition with its introduction of Small Business Accounting Software 2006 earlier this month.

Despite having an existing presence in many businesses through its other software packages, such as Microsoft Office, the software giant has yet to dominate small business accounting. Its product includes many of the same features as QuickBooks and Peachtree, but hopes to differentiate itself with the product’s compatibility with its Office programs.

Microsoft is hoping for success in a market where it has struggled. The company has introduced products such as Microsoft Profit and Microsoft Money Small Business Edition that failed to garner much support. And in 1994, Microsoft reached a deal to purchase Intuit for $1.5 billion, but the Justice Department objected to the deal on antitrust grounds. So Microsoft formed its Business Solutions division through a series of acquisitions, but it remains one of Microsoft’s unprofitable divisions.

Chuck Young, a self-employed CPA and consultant for the Vancouver chapter of SCORE said "QuickBooks has the market. It will be tough to take much market share."

Young said 70 to 80 percent of his clients use accounting software, with the majority using QuickBooks. He said strong advertising and the perception the software is easy to use has made it the market leader.

Microsoft Small Business Accounting 2006 begins at $150 after rebates or is available packaged with the Small Business Management edition of Office for an after-rebate price of $570. QuickBooks is available in several forms from about $200 to $300, and it expects to launch its 2006 version in the coming months. Peachtree offers several levels of its 2006 product line from basic to premium priced between $99 and $999.

While the availability of programs to assist entrepreneurs in running a business cheaply and seemingly easily is appealing, relying on the software with little or no knowledge of the accounting process can lead to trouble down the road, some say.

"Software Companies somehow convinced small business owners accounting software is easy to use," said Young. "Unless they have knowledge of accounting or a professional to refer to they have to be careful."

The low price tag of accounting software has its gains and pitfalls, said Winter. It provides small businesses with a powerful bookkeeping tool, but some may rely on it too heavily without making an investment in training or professional oversight.

And the software may not be for everybody. Winter said she works with clients with revenue between $3,000 and $10 million, all who utilize accounting software effectively. But for businesses with special needs, such as inventory management or medical billing, the popular accounting software programs may not fit.

So while programs such as QuickBooks made it more feasible for people to open a small business, there are a lot of uninformed business owners out there, said Winter.

"Just because you can input information does not make you a professional or mean you are doing it correctly," she said. "You are only going to get out of it what you put into it."

Young and Winter said they have had to redo companies’ books from scratch after an attempt to use accounting software without proper understanding.

While QuickBook’s intense focus on the market may give it an edge over Microsoft’s widespread product line, Microsoft is already teaming with software vendors to package its product with add-ons and working with PC manufacturers such as Dell to equip their computers with business-ready software. However, many accountants already specialize in providing training and consulting for QuickBooks- and Peachtree-based accounting systems.

Microsoft has failed at unseating QuickBooks before, but seems poised to make its fiercest run yet. But while a buy-out could have worked – save the feds – competition itself may not be enough to dislodge Intuit’s firm foundation in the industry.

Sidebar:

SEC extends Sarbanes deadline for small companies

Software technology businesses target those achieving compliance.

While for some small businesses the biggest accounting decision this year is whether to take the plunge from Quickbooks to Microsoft, public companies will continue to plod through the vast new Sarbanes-Oxley requirements. Smaller companies are expected to receive a one-year extension to comply with a Sarbanes-Oxley rule intended to improve controls over financial reporting. This would be the second extension granted by the Securities and Exchange Commission and would allow companies with market capitalization of up to $75 million to delay compliance with the internal-controls rule until July 2007. The first extension came in March of this year.

Vancouver-based Riverview Bancorp Inc., which would not qualify for the extension, said it spent $300,000 on Sarbanes-Oxley- and acquisition-related expenses in its first quarter of 2005. But the company anticipates these expenses to dramatically decrease going forward.

According to a survey conducted by Financial Executives International, small companies expect to spend an average of $824,000 to comply with the rule, and the average cost for all companies is estimated at $4.3 million.

While the Sarbanes-Oxley Act is costing public companies large sums to comply, many companies are profiting by offering technology and services to assist in the process. A number of these companies will display their wares at the Sarbanes-Oxley Conference and Exposition from Sept. 25 through Sept. 27 in Baltimore. The event is hosted by The Institute for Financial Excellence and is intended for executives to learn, share, interact and network with others facing Sarbanes-Oxley implementation and compliance. Dozens of exhibitors are scheduled to present their Sarbanes-Oxley related products and services to executives, including a number of software companies that have developed programs specifically for Sarbanes-Oxley compliance.

The Sarbanes-Oxley Act was passed by congress in July 2002 in response to recent accounting scandals at large public corporations. The goal was to increase corporate responsibility, enhance penalties for accounting and auditing offenses at publicly traded companies and to protect investors by improving the reliability of corporate disclosures. The rule in question requires companies to internally assess controls in place to oversee accounting mistakes and have their external auditor review those controls. An advisory committee was established by the SEC to assess the impact of the rule on smaller public companies and recommended that the extension be granted.

– Shane Cleveland

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