How much should a system cost? - buying a computer for a small business

Nation's Business, Oct, 1989

How Much Should A System Cost? A.M. Larimer, president of The Fire House, a Newark, Ohio, distributor of equipment for fire departments, asked us about small-business accounting systems on computers. The Fire House is typical of many small-business operations: about $700,000 in annual sales, an inventory of 6,000 items, 300 accounts receivable, 150 accounts payable, 25 cash transactions daily, and 15 to 20 telephone or mail orders a day. Larimer has received quotes of $5,000 to $15,000 to go from his manual system to a computerized one, and "that seems like too large a variation."

These days that really is too much for what The Fire House needs, says Charles Cline, owner of Universal Computer Systems, in Martinsburg, W.Va. Since The Fire House already is using a manual One Write accounting system, "they could go to the computerized version, One Write Plus--it's just a matter of learning about eight keystrokes," Cline says.

Working with a small dealer like UCS, The Fire House could pick up a decent basic computer with a 30-mega-byte hard drive, a printer, and a monitor for about $2,000.

Classes are usually available from the local dealer; Cline offers computerized accounting courses for $35 an hour, and he says five hours of training should be sufficient for employees as qualified as Larimer's.

One Write Plus is available by mail order. it recently underwent a price reduction to $299 retail for general ledger, accounts receivable with invoicing, and accounts payable.

More sophistication and more specific tasks can raise the cost. Russell Micheli of Thurston Manufacturing Co., a Providence, R.I., maker of specialty saws and knives, asked us what average cost-to-sales percentage a company should spend on a new manufacturing computer system.

"The cost of goods is not the measure," says Marsha Lewin, president of Marsha D. Lewin Associates, a Los Angeles computer-management consulting firm. A better way to think of a system, says Lewin, is "not necessarily to monitor costs, but to improve the process." The best things to computerize in manufacturing are inventory, job costing, and accounting. "If you have three people for inventory now, then you're going to have improvement because the labor cost may be $100,000 now, but will drop significantly. The system itself, up and running, will probably cost $100,000 to $175,000 for a minicomputer system; $75,000 for a micro."

Micheli also asks if there's a way to break down costs between hardware and software.

Lewin says: "Figure $1 to $2 per dollar of hardware cost for software and implementation. If it's a big job, you should probably multiply the hardware cost by four to get a realistic picture."

We'll Try To Help

If you are stumped by a small-business computing question, we might be able to help. We will answer questions in this column that we think will apply to a number of other business people.

Send your questions to: "Small-Business Computing," Nation's Business, 1615 H Street, N.W., Washington, D.C. 20062.