Accounting Consulting (Market Analysis)

Executive Summary

Company Description

Products and Services

Market Analysis

Industry Description and Outlook

Description of Primary Industry

Most statistics available for the computer consulting industry are based on a broad category of computer services, including rental/leasing of computer systems, time sharing systems, programmers, support and help desk providers, as well as consultants for everything from large networks to publishing of CD-ROMs.

Consultants dealing specifically with accounting software are a small subset of this group. Many computer dealers or resellers are drawn to the market, but few have or acquire any specific accounting skills or an understanding of accounting and management systems.

Public accountants are more likely to offer competent skills in selecting and implementing this type of computer system. Whether they do or not typically depends on their size and management style.

Independent consultants who concentrate on the accounting software market are still rare.

Size of the Industry

Currently

According to Statistics Canada the number of computer service providers in Canada, as defined above, grew from 9,380 in 1988 to 9,694 in 1989. The number of such firms with employees decreased from 6,560 in 1989 to 5,682 in 1991.

This does not likely indicate that the industry is shrinking or consolidating, but more likely reflects the trend towards self employment in Canada.

The number of such businesses in Calgary is approximately 3 to 4% of the total, or 300 to 400 businesses. Perhaps half of this number are involved in financial systems. However, the number that concentrate specifically on accounting systems is likely on 2 1/2 to 5% of this number, or between 8 and 20 firms.

In Five Years

A growth rate of 2.5% from 1988 to 1989 would translate into an additional SO to 100 computer service firms in Calgary in five years.

Industry Characteristics and Trends

Historically

Computerized accounting and management systems consulting among smaller and medium-sized businesses is a new market that has existed only for the past 10 to 12 years, since the personal computer has allowed smaller companies to computerize.

It is becoming an established industry, but it is constantly evolving. The nature of any computer service business is that change is constant.

Currently

The industry is in growth phase as a result of the recent drop in price of 80/486 PC's and the move towards graphic user interfaces such as Microsoft's Windows.

In the Future

The move towards graphic user interfaces in accounting software is just starting. Other future considerations include Electronic Banking (i.e. Direct Debit) and fully integrated business sstems between trading partners (EDI).

Target Markets

Distinguishing Characteristics of Primary Target Markets

Small businesses, under $5 million annual sales, fewer than 100 employees.

• Local or regional in scope.
• Involved in the service, retail, wholesale or light manufacturing sectors.
• Located in the Calgary or southern Alberta geographic area.
• Considering a new or upgraded computer accounting system.
• Lack the skills needed to properly implement a computer accounting system.

Primary Target Overall Market Size

6,700 such businesses exist in Calgary, a total of 13,500 in southern Alberta. Computer Services, as defined by Revenue Canada generated $299 million in revenue in Alberta during 1989. Anticipated market growth for service sector and light manufacturing is 5% annually.

Market Penetration

An average of 1 major engagement per week would represent approximately 40 new clients each year, with perhaps 50% of those as ongoing support clients. This would be a 100% maximum client load a single person could carry. 40 clients represents 0.3% of the total market annually.

Pricing Levels

Anticipated sales price for consulting services is between $40 and $70 per hour. A typical implementation engagement would generate about 25 hours of chargeable time. This represents $25,000 to $35,000 in annual revenue. A support client would average 8 hours annually. Projecting an initial number of support clients at 20 represents $8,000 to $11,000 additional revenue. Sales of software and hardware are projected at less than $8,000 annually, representing software for two typical implementations and the hardware for one implementation.

Methods By Which Specific Members of Target Market Were Identified

• Directories of businesses in Calgary and area are available through the
• Calgary Economic Development Authority and several private providers.
• The Calgary Herald newspaper publishes a list of new business start-ups each Monday.
• Some accounting software vendors make referrals from inquiries to therrown marketing efforts.

Media Through Which I Communicate With Specific Members of My Target Market

• Publication of advertisements for consulting services is not expected to be a primary source of new clients. Neither is advertising on radio or television. Space in the yellow pages will be considered, but not in the first year of operation.
• Direct mail to lists of new businesses obtained from sources above could result in significant new client leads.
• Participation in product and industry forums or trade shows has been effective for many consultants in this and in many other fields.
• Networking is expected to be the largest source of new client leads. This includes referrals from other consultants, computer resellers, business acquaintances and existing clients.
• Referrals are anticipated from accounting software companies, as discussed in the Legal Agreements section.

Trends and Anticipated Changes Within Primary Target Market

Many clients are looking for smaller, less expensive accounting software. Most clients do not understand initially that the cost of software is usually the smallest component of a computer system, and that hardware requirements, consulting fees and training costs each represent larger costs. The trend towards graphic user interfaces and computer programs integrated with each other are now strong factors even among smaller businesses. Many software firms are no longer offering free technical support. Technical support by telephone has certain limitations by nature. Consulting services at reasonable prices have been scarce in the accounting systems market.

Secondary Target Markets

Some specialized accounting software and computer hardware is not readily available or not available at all through traditional resale markets. Such products are sold exclusively through implementors, or Value Added Integrators. Such products include voice mail systems, integrated workgroup systems, EDI or Electronic Data Interchange systems. Each of these can overlap with accounting or management systems and represent potential sources of revenue. Computer training services by themselves represent a very large market, although generally not profitable for small providers. It can represent a source of additional cash flow, especially on a contract basis where consulting work could be scheduled flexibly. Ongoing support of accounting systems clients will likely grow into a considerable time commitment if past clients are retained for periods of a year or more. This would represent a need to either hire additional staff or scale back other secondary markets.

Market Test Results/Preliminary Contacts in Target Market

Market Test Procedures

During the months of December 1993 to March 1994, twelve potential customers were contacted regarding accounting systems consulting work. Visits were made to 10 of these potential customers for the purpose of an initial needs analysis.

Reaction of Potential Customers

Work was actually performed for 5 of these potential customers. Four of these engagements were for support work only, one was an implementation engagement that has generated 12 hours to date.

Two other potential customers have appreciated the initial meeting and expressed an interest in pursuing the recommended changes at a future date. The remaining three were appreciative but did not feel a need for any services at this time.

Test Group's Willingness to Purchase Services At Various Price Levels

None of the potential customers were concerned about the rates charged for the services, all between $40 and $50 per hour. This indicates that the rate is reasonable and could be increased, especially for larger implementation engagements.

Competition

Identification

A number of direct competitors exist, as well as a wide array of indirect competitors. A partial list of competition and its market share is available upon request.

Strengths of Competitors

Larger competitors have a broader base of skill to draw on internally. Many of these competitors have as much or more experience than AMS. In addition, larger firms have larger capital bases to obtain new skills, arrange licensing agreements, work with advanced technology.

Weaknesses of Competitors

Many of these competitors are larger organizations that must charge between $70 and $120 per hour for their services. Also, these larger organizations (speaking as an ex-employee of one of the above) are less flexible in meeting client needs and slower in adapting to changes in their markets. In fact, most of the indirect competition is more concerned with actual sales of software or hardware than with understanding and meeting client needs. Furthermore, almost all of the competitors have office space and salary costs resulting in higher overhead that must be met through higher volume (client needs vs. cash flow) or higher rates.

What Is the Competitor's Target Market?

Most of the larger firms pursue larger and medium-sized businesses than can justify high charge rates and require more specialized software and systems.

Barriers to Entry Into Market

Capital costs do not represent a significant barrier to entry in this market, but time requirements to maintain skills and pursue potential clients are high, as with most professional consulting work. Technology is a key component and represents most of the capital costs. Without very current hardware a computer consultant is working at a disadvantage because he or she cannot be as efficient as the competition and is not familiar with what most of his/her clients will be using. Additionally, there are no regulatory restrictions to providing computer consulting services, which is in my favor.

Marketing and Sales Activities

Operations

Management and Ownership

Funds Required and Their Uses

Financial Data: Historical