Get into E-Commerce without Betting the Store

Abstract

How CPAs can contribute to the financial analysis supporting their company's decision to invest in e-commerce EXECUTIVE SUMMARY * THE COST OF AN INVESTMENT IN E-COMMERCE can be hard to evaluate. CPAs, always cost conscious, should be aware that e-commerce costs can escalate as the technology is implemented. * CPAs SHOULD WEIGH THE BENEFITS of an e-commerce investment and the risks associated with making the wrong e-commerce investment, or none at all. * COMPANIES CAN ENTER E-COMMERCE at several different levels, with enormous variations in cost and risk. Nonetheless, it is still possible for a company to fully embrace e-commerce at all levels for less than $100,000. * CPAs AND OTHER FINANCIAL EXECUTIVES SHOULD coordinate their company's e-commerce planning closely with information technology and operating staff--especially marketing people, who should have significant influence over Web presentation to customers. * IMPORTANT COSTS TO CONSIDER INCLUDE Web page design, software purchases and consultants for all phases. * SMALLER BUSINESSES MAY DO BEST BY PARTNERING with outside suppliers. Existing suppliers may have readymade software suitable to their needs. Some are also willing to share the financial risks and rewards. E-commerce, as Amazon.com's shareholders Know, is an investment in the future, not a way to make a quick buck. But prudent companies need to be able to see how they will be able to earn a return on their investment before committing to any large capital expenditure. CPAs who try to analyze their company's investment in e-commerce capabilities should not allow themselves to be paralyzed by the seemingly limitless costs of the investment without weighing that against the equally boundless potential return. Here are some examples of how companies have succeeded in their initial investments in e-commerce, and some advice for CPAs at companies that are preparing to make that leap of faith. In 1998 Amazon.com lost $125 million--twenty cents for every dollar of revenue it generated. Yet Amazon.com is often cited as an e-commerce success story. It has made a fortune for its shareholders, but the company itself has never earned a nickel. The optimists purchasing stock at $125 a share are investing in Amazon.com's potential, not today's money loser. CPAs in business and industry need to be able to look at an investment in e-commerce from the same perspective as Amazon.com's investors if they are to understand the future and help their companies get there. CPAs and other financial managers working on teams that must make e-commerce decisions can feel very uncomfortable with the degree of uncertainty they must work with. Whether a company is hoping to open an on-line store or something more simple, it can start with a relatively small investment. David A. Newman, CPA and CFO of Gr8, a Web site designer/provider based in Baltimore, notes that E-commerce can be intimidating to CPAs. Why? He says that CPAs sometimes exhibit sticker shock over high costs. However, forward-looking CPAs should step up to the challenge, using their skills to optimize the use of financial resources. The rewards of such an investment can be surprising, though. Darius Vaskelis, Intranet Manager at Inforte, an IT consultancy in Chicago says: We've had clients who thought a decrease from $100 to $20 per purchase order was great, but e-commerce actually drove [the cost of processing a customer's order] down to five dollars a P.O. Other consequences of an entry-level e-commerce investment can put an entire business at risk, however. CPAs can't abandon all caution when that happens. Accordingly, CPAs and other financial executives that help manage the costs associated with a new e-commerce installation should examine its overall effect on business strategy. A large risk may pay off, but executives must take it with eyes wide open. …