March 2002

Finding the Value Proposition in the ASP Business Model

By K.C. Truby

The Internet economy promises to enable CPAs to provide businesses with the right financial information presented at the right time. Continuous reporting means online real-time records of cash, sales, accounts payable, accounts receivable, profits, even inventories. Clients have real-time access to their financial data anywhere, anytime. With a laptop and a Web browser, the small business owner or company officer can get daily “snapshot reports” of financial performance. These “five-minute numbers” enable smart, timely business decisions.

CPAs cannot be content to just provide the basics of business measurement and reporting, serving simply as information middlemen. There is intense competition among companies offering quasi-accounting and quasi-auditing services, especially in the developing technology sector. These growing businesses require more than just financial data turned into business information. They also need decision support services from their independent or internal CPA; they need a “virtualCFO” who can analyze the meaning behind the numbers and help with higher-level decision making.

Technology can open the door to this lucrative business opportunity. The Internet enables CPA firms of all sizes to maximize their client base without selling novel services. Instead, they can smoothly upgrade clients from basic services to training in computerized accounting and payroll services; tax return preparation, planning, and compliance; litigation support; corporate structuring; and controllership. CPAs in industry can spearhead these same initiatives and expand their role in business strategy and planning.

It is important to remember that implementing new forms of technology is not enough. Before venturing into the world of outsourced bookkeeping and online accounting services, CPAs must be able to answer the inevitable questions of pricing and perceived value.

The Small-Business Dilemma

To facilitate growth, small companies (10-19 employees, $5-15 million in annual sales) must efficiently automate their business processes and effectively measure their financial performance. Business owners experiencing rapid growth have little time to spend on day-to-day business operations. Most are typically troubled by three brakes on growth: lack of sales, poor cash management, or problems in the work processes. Building relationships with employees, customers, and vendors and adding value to products or services should be the focus of all business owners.

Business owners who spend time outside of core competency work could be falling short of their potential. They need a way to streamline day-to-day business processes and obtain timely mission-critical information. In addition, business owners need the flexibility to grow their information systems along with their businesses.

Small to medium-sized companies require the power of a mid-range accounting system, but many have been stuck using a combination of paperwork and entry-level accounting software because they can’t afford expensive, overly sophisticated information technology. Application service providers (ASP) can be a cost-effective solution to this software problem.

The ASP Model

An ASP offers or “rents” business application software over a network as an outsourced service. The fixed monthly fees (ranging anywhere from $9.95 to $10,000, based on the package and functions) include the application software, hardware, service and support, maintenance, and upgrades. Every time the user logs on, the software is up to date.

Virtually any software application can be delivered through an ASP. The most common outsourced applications are those that require a high level of availability or functionality, such as e-mail, e-commerce, enterprise resource planning (ERP), communications, customer relationship management, and back-office solutions.

Businesses have been outsourcing the payroll function for the past 40 years, but now the Internet and the World Wide Web enable the entire accounting function to be outsourced. For CPAs, the road begins with cost-effective outsourced online bookkeeping and accounting services.

Outsourced Bookkeeping

Business owners who outsource the bookkeeping function can garner significant savings. It can lead to lower in-house employee costs, eliminate training costs, reduce absenteeism, and minimize costs for fringe benefits. Data-entry clerks moderately skilled in the use of popular small business accounting software can keypunch daily transactions working part-time—or even remotely, because all business data is hosted on a server accessible to the business owner and accountant. Outsourced bookkeeping fees can range from $250 to $1,000 per week, depending on transactions and workload. A realistic estimate is the payroll cost of a full-time bookkeeper.

Online Accounting

A web-based accounting system provides ubiquitous access and user-friendliness at a low monthly price point. Data files do not need to be transferred from one location to another—the information is available from the business’s own Internet site through a password-protected log-in that can be extended to whomever the owner wishes.

QuickBooks, NetLedger

Intuit Inc. markets QuickBooks and QuickBooks Pro to companies with under $20 million in annual sales. QuickBooks accounting and financial management software delivers timely reports, allows users to customize their reports, drag-and-drop and sort columns on the fly, and save and print reports in batches.

NetLedger, QuickBooks’ principal competitor, contains a suite of online accounting and e-business tools for small and medium-sized businesses. Providing access to client financial data anywhere, anytime, NetLedger requires only an Internet connection and a web browser.

Benefits

CPAs working online via the ASP model will be able to—

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