As far back as October 1998, software developers were signalling their intention to keep ahead of GST-driven market demand. Before the Federal Senate battle had even begun, accounting software developer Sybiz Software was taking moves to make its offerings compliant with the new taxation system.
At the time, Peter Lucas, managing director of Sybiz, pointed out that the cost of GST implementation would represent a major concern for the SME sector.
"While big business has the resources and strategies to throw at the issue, most small businesses are more concerned with day-to-day operations and survival to learn about it," Lucas said.
Now that the July 1 changeover has come and gone, there is no doubt the introduction of the GST, and the subsequent changes to business reporting, has dragged a large part of the SME sector into the IT age, albeit kicking and screaming.
Gone are the days when a yearly trip to the accountant with a shoebox full of receipts was sufficient to appease the ATO, as increasingly stringent reporting procedures force SMEs to update their accounting systems.
All reports seem to indicate that the big end of town was ready well in advance of the changes. Mid-level corporations followed close behind.
Gene Clewett, general manager at accounting systems and e-commerce integration company Hands-On Systems, found the company's mid-level focus saw them particularly busy this time last year.
"We've seen a lot of activity over the last 12 months," Clewett said. "Most of our clients wanted to be prepared well in advance, so we have seen a strong steady demand rather than peaks."
However, a pre-deadline last-minute rush on retail suppliers to the SME sector saw channel players running to keep up with demand.
Greg Wilkinson, CEO of accounting software developer Quicken, told ARN in late June that the month leading up to the implementation of the GST saw an unprecedented increase in sales. In one month Quicken moved four times the product it moved in the previous year.
Major retailer Harvey Norman reported a similar spike in sales, affecting both compliance software and hardware upgrades.
However, according to some market analysts, a large part of the SME sector has yet to settle on a GST accounting solution. Indications are that much of this sector still needs to purchase accounting software, or has reacted to the July deadline by panic purchasing of inappropriate software.
Bernie Esner, senior analyst with research company International Data Corp (IDC), opined that: "SME demand will continue to be strong throughout the year as this sector comes to terms with the changes to the overall tax package, especially the changes to the reporting requirements."
Kevin Leif, managing director of Pastel Australia, pointed out that the new requirements will force small businesses to pay a lot more attention to their accounts on an ongoing basis.
"Some of these smaller companies still have no idea what they are going to do with the new tax system," Leif said.
Leif predicts the demand for entry-level accounting software will not peter out, but continue to be strong throughout the next two quarters.
"Some went out to buy software, but don't know how to use it yet, others will quickly find that the software they bought is not appropriate and will want to upgrade."
Leif's comments are echoed by pundits throughout the channel. Merdad Shetab, managing director of Sydney-based retail chain Computer Interchange, said he believes the demand for entry-level accounting software will continue to be strong.
"People are still making up their minds, especially in the SME sector. They might buy something and find that it is not for them. Some of them will try to do things without a computer for a time, until they see their accountant's bill," Shetab said.
Dealing with BAS
While the implementation of the GST has been the focus of mainstream media attention, the real focus for SMEs is not whether or not prices will rise or fall by 10 per cent.
At this stage many businesses in this sector are concerned with how they will go about fulfilling the requirements of quarterly Business Activity Statements (BAS).
Shetab and Leif both believe BAS compliance costs will be a key factor in the continuing development of the SME accounting software market.
While on the one hand, small business managers will want to keep BAS processing in-house to minimise accountant fees, dealing with a new tax system coupled with new reporting system, and a new computer may make this too difficult.
Leif suggests that resellers would do well to clearly identify their SME markets, pointing out that there is an important difference between small and very small.
"There's small enterprise, and then there's the whole SOHO market," Leif said. "There is no way that really small business can cope with everything in-house. Resellers have to look for products that have high levels of support for this sector - telephone help lines, online support, an easy way to submit the BASs. These kinds of extras will close the sale."
Leif predicts sales of accounting software will see another spike in September when SME managers are faced with their first BAS.
Kim Redstall, director of online SME information service provider ezyCorp, agrees. He believes that a lot of businesses will depend on their accountant for the first BAS, but will soon be in the market for a more cost-effective solution.
"Resellers would do well to build up working relationships with accountants. Accountants are not IT experts, but a lot of people will be asking them about software. Business managers will be looking for answers, not products," Redstall advises.
Making the switch
Resellers are faced with an interesting question: will SMEs opt to take a more important role in the completion of their BASes or will they be in the market for simple solutions they can e-mail to their accountant once a quarter?
Industry pundits are divided as to whether SMEs that have bought software packages already will return with whetted appetites to seek more complex and more functional alternatives.
According to Dean Van Es, managing director of business software developer Humanic Software, training may not be the only solution to SOHO accounting software requirements. "There has been a big rush on accounting software, but as time wears on, the SOHO guys are just going to give up. They still have the disks sitting at home in their boxes," Van Es claims. "They don't have the time to learn new software as well as everything else."
Working from this principle, Humanic has developed products that take the emphasis off functionality by focusing on ease of use.
"Our offerings are designed so that even people who have been bookkeeping manually can fire it up and use it straight away," Van Es said.
"There is no point in loading up software with countless functionalities if you need to spend weeks learning them. Small business operators don't have weeks - they need something that works now."
Networking business software developer Attaché's managing director, Michael Rich, disagrees. Rich concedes that some small business operators will opt for the easiest option. He also firmly believes that forced GST compliance will lead to the SME sector becoming more IT-savvy and therefore interested in increasingly functional business process solutions.
In addition, an increased interest in software functionality, coupled with the ever-growing prevalence of LANs, will lead to end users seeking accounting software specifically designed for a network environment, Rich added.
For this reason, Attaché is particularly excited about the prospect of an increased interest in network-ready accounting software.
The mid market however, is a different story. Unlike the SOHO sector, mid-level players are already familiar with business-related technology. Many channel players focussed on this segment of the market are concentrating their efforts on appropriate support and functionality.
Derrick Rippingale, director of business systems provider Professional Advantage, has focussed heavily on providing software training to its clients in the run-up to the changes to the taxation system.
Rippingale believes that while this sector has traditionally relied fairly heavily on accountants, the increase in reporting requirements will see them wanting to develop appropriate skills in-house.
In an attempt to get its clients off to a flying start with the new tax system, Professional Advantage offered software training in the lead-up to the July 1 changeover.
"We ran day-long training seminars that took our clients through all the basic modules. It is important that our clients know what they are doing and feel comfortable with the extra burden they are being forced to take on," Rippingale said.
Rippingale also pointed out that many of the company's clients are services focussed and as a result did not have to pay sales tax.
"The GST has forced them to deal on a regular basis with the ATO for the first time, and they are worried about getting everything right."
Similarly, Hands-On's Clewett points out that the mid-market has required a special educational focus.
"This sector is already dealing with technology, now we have the opportunity to show them some of the benefits well managed IT can offer," Clewett said.
Rather than offering simpler solutions, Clewett is in favour of a focus on highly functional solutions that showcase the possibilities of using software to streamline business processes.
"The packages that we are working with produce a comprehensive business statement and allow end users to perform electronic lodgement," Clewett said.
"Our customers are still testing the water, but once they are reassured that all the internal validation procedures work, I think they will begin to be interested in the other possibilities IT solutions can offer."
There seems little doubt that the SME sector generally will emerge from the difficulties associated with the changes to the tax system more conscious of the benefits of business software.
However, industry pundits are keeping an eye on how the market will react to another bout of forced purchasing.
Attaché's Rich observed that Y2K and the GST had forced many SME businesses into purchases that they may not have made otherwise.
Professional Advantage's Ripp-ingale perceives a certain air of resentment in the SME community. However, he also points out that having been forced to update their computer systems may also result in many SME businesses seeing the potential benefits in terms of productivity.
"Once the SME sector begins to see these benefits they will start to look for different applications to make their businesses run more smoothly," Rippingale predicted.
To this extent Rippingale and Rich are not alone in predicting increased levels of penetration of CRM and e-commerce related hardware and software being sold off the back of GST- and Y2K-related purchasing.
Whatever the outcome, it is still early days. Demand for SME focussed accounting software is set to continue throughout the next two financial quarters, and channel players will do well to use it as an entry into new levels of involvement with their customers.