Technology- Investment or Expense?

I regularly hear one of my small business owner clients saying something like this. “Dammit! I have to buy another computer. I just spent (fill in) on this one just (fill in) years ago.”

Why are we so offended at the need to regularly buy new technology? Big corporations rotate hardware on a scheduled basis, but most small business owners see corporate America as terribly wasteful anyway. The need to buy or upgrade our computers has been with us for at least 25 years. We change cell phones every couple of years, and many of those cost about the same as a PC. No one would imagine trying to function with a cell phone that was the size of a brick. Why do we still act as if replacing computers is a “new” problem?

There are a couple of reasons. We still think of computers as a capital investment. Twenty-five years ago a Macintosh Plus cost $2,600. IBM released the PC-AT with a 286 chip (8 Mhtz). WordPerfect was released, for a cool $500 list price. Microsoft released DOS 3.2, which could support the new 3.5 inch “hard” floppy drives, holding a full 720KB of data. (A 4 GB flash drive has the capacity of 1,400 of those floppies.)

I owned an auto parts wholesaler then, and computers (green screens) were on each sales and admin desk. Warehouse guys could come in and check inventory on a terminal. But we were really advanced. Most of our small business customers invested in one computer for bookkeeping and billing. That was it.

Since then, most of us have bought at least 5 generations of new computers, and many of us more than 10. They cost a fraction as much in real terms (that basic word processing software alone would be about $1000 in today’s dollars.) Computers have become faster, better, more dependable, cheap, and ubiquitous. So why do they tick us off?

I think there are two problems in our perception. The first is “Out of sight, out of mind.”  Our computers work almost flawlessly 98% of the time we throw the switch. They require little maintenance, or at least let’s say they continue working for a long time when under-maintained. They do not show physical signs of wear and tear.

Compare your PC to a truck. We know the truck requires regular service, or it won’t last as long. It has an odometer that tells us how far it’s gone in it’s productive life. It gets dinged, dented and scratched- unmistakable signs that it is doing the job. We’re usually happy if it lasts a “free” year past it’s original financing. The monthly payments (each the cost of a new computer) keep us aware of it’s value.

But which one produces more for your business? The computer’s contribution is tougher to calculate. Without the truck, you can’t do the work. Without the computer, you can’t bill for it. The truck gets your employee to the job. The computer makes sure he’s going to the right job, at the right time, and tells you if he’s getting the work done on schedule.

You need both, and it’s obvious that the computer pays back far in excess of the truck in relation to its cost. Sure, you did the work before you had a computer, but you didn’t do as much, as fast, or manage it nearly as well.

The second problem is a realistic understanding of the costs. Let’s say the salary of an employee is $35,000 a year. Add taxes, benefits, overhead and regulatory burden (currently estimated annually at $7,000 a head for small businesses) and it’s at least $50,000. That’s roughly $250 per working day. So a new computer costs about as much as 2 days of lost productivity.

It would make sense, then, to have a new computer loaded and ready at all times. But if you had a new, “spare” computer, how many employees would want to replace theirs immediately? That alone is a message.

Over a three year period, a computer is a $2 or $3 daily investment in keeping your employee productive. That’s less than providing them with free soft  drinks. If you are still thinking of technology as capital investment that needs to be squeezed to the last possible moment, you are probably wasting more in salary than the cost of replacement. The big corporations have figured that out. It’s time small business owners did as well.

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