Technology has altered the world in recent years, achieving a spectacular level of efficiency and effectiveness in performance, as well as a huge improvement in the accuracy and trustworthiness of information. We have all observed this transformation firsthand. Modern decision-makers have quick access to high-quality information that is linked to corporate operations as a result of technological advancements in information systems. This provides them with virtually limitless possibilities for making critical decisions in a timely manner!
In a few months, I was approached by an investor who requested my assistance with the information systems for his firm, which included two restaurants and a catering service. According to the business plan, the budget for information technology equipment and infrastructure accounted for about ten percent of total CAPEX, or approximately one and a half million dollars; there was an overemphasis on information systems. Information systems, which are a critical component of modern business, comprise crucial investment decisions, and it is equally vital, as with any other investment decision, to perform a thorough evaluation of all options in order to avoid under- or over-investment in information systems. Is a significant investment in information technology essential to the success of small businesses in attaining their objectives? No, it does not work like that!
In the situation described above, ten percent of capital expenditure allocated to information technology is considered a sunk cost as soon as it is incurred. Take, for example, the way it was planned to be spent as an illustration. In addition to a Point of Sale and Materials Control software (whose names have been withheld), which are two independent applications that each use their own Oracle databases and can be interfaced together, it should require a highly sophisticated IT infrastructure in order to function as advertised by a well-known vendor claiming to be the market leader, to be effective. Because of the popularity of these two apps, the Licensor only appoints one authorized distributor of the product in the region, owing to the popularity of these two apps
Continuing with the preceding example, analyze what is most important in a restaurant information system, or any similar retail hospitality business, in terms of functionality. Reservations and tables are managed, as is the point of sale function; inventory and purchase management; employee time management; accounting and reporting; and, most importantly, a system with controls is in place to ensure the smooth operation of the business Any company, regardless of its size, requires access to accurate and trustworthy information in a timely and efficient manner in order to make better decisions. There was no question about it: the applications selected by the customer were market leaders in the hotel industry and were well-suited for large companies. It is not necessary to overinvest in a small company!
When it comes to IT spending, the balance between the Opex approach and the Capex method has gone more towards the Opex side in recent years, which is to be expected given the rapidly changing nature of the digital world we live in today. IT capital expenditures are considered buried expenses since they are associated with high-risk, long-term initiatives. When it comes to the restaurant industry, this is significantly riskier, and the chances of recouping IT investment expenses are virtually non-existent. In the preceding example, the customer finally decided on the Opex model for a variety of reasons, which are detailed below.
It is more efficient to direct precious capital into assets that will result in value-adding activities when it comes to the restaurant industry. A nice restaurant may be built by anyone with the necessary means; what is important is that it is run as a lucrative business, which is not always easy to achieve. Customers’ experiences are immediately improved by value-added activities, whereas all other activities, no matter how vital or important, do not directly improve them. A good example of a non-value-added activity in the restaurant industry is accounting. Accounting is unquestionably one of the most important functions, but it is a non-value-added activity because it does not contribute to improving the customer experience; an accountant posting journal vouchers or writing checks will not improve the taste of a cup of coffee, for example.
A subscription-based cloud-based tool that was easily integrated with accounting modules and could give all of the “proper” reports required to manage a restaurant business was used in our example to replace POS and Materials Control. While doing so, we were able to cut the initial CAPEX investment to a fraction of what it had previously been. It even assisted in the reduction of operating expenses. Upon the commencement of operations, the expenses of accounting and software application were only a few thousand dollars per year, which was significantly less than the depreciation and amortization charges that would have resulted from adopting the CAPEX approach. In addition, value-added processes were prioritized over managing expensive non-value added activities such as information technology systems and the skilled human resources that go along with them. Some controls were missing, to be sure, but don’t forget that the cost-benefit relationship of controls must also be taken into consideration? It is always possible to add a new set of controls! Therefore, small businesses should quit their fascination with high-tech, expensive processes and information automation in favor of more traditional methods. Have faith that cost savings in both CAPEX and ongoing heavy operational expenses will aid in the fulfillment of long-term goals.
It is wise for any small-scale business, including those in the food and beverage industry, to outsource accounting duties and purchase cloud-based subscription software at the starting stages of operations. Managing information provided by a reporting system is up to the managers, and the key to doing so is effective design of any accounting and reporting system, whether it is a costly piece of software running on a local IT infrastructure or a web-based application. It all comes down to the human resources who were involved in the development and execution of the projects.
Because of the scale of the organization, a good Management Information system is essential in the case of medium-sized to large organizations in order to make both strategic and tactical business decisions. Comparatively to a tiny corporation, the same CAPEX will amount to a fraction of the overall investment in this situation. Because technological advancements are developing at an alarming rate, these CAPEX decisions should still take subscription-based services into consideration rather than acquiring one-time expensive licenses or software. Always prioritize great resources over other resources if you want to get the most out of your consulting spend.
Choosing an Enterprise Resource Planning level solution over a slew of fancy programs is always a better choice when it comes to software selection because it is less expensive to receive maintenance packages from a single provider than from a number of different vendors. Furthermore, avoid any program (such as the two major food and beverage applications I mentioned above) that is controlled by only one or a few regional vendors because they will take advantage of you with upselling and cross-selling of critical associated products, as well as with the sale of expensive service agreements.
If you make a decision, make sure that the plan for capital expenditures or operating expenditures takes that decision into serious consideration; otherwise, erroneous decisions will haunt you in the future and the cost of corrective actions will be substantially higher.
If you require advice in determining which accounting or information system is best for your company, please do not hesitate to contact us!
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