Cash On the Line

by Doug Gatenbein

FINANCIAL REVOLUTIONS DON’T COME along very often — or do they? After a 15th century Venetian named Luca Bartolomes Pacioli popularized the method of double-entry bookkeeping, the world waited almost 500 years for the next great advance. That was Visicalc, an accounting spreadsheet program that became the first “killer app” and overnight turned the PC from hobbyist’s toy to executive’s best friend. Now some believe the Internet may be bringing another quantum leap.

Traditional accounting programs are migrating to the Web, payroll services are adding Internet interfaces, and banks both old and new are scrambling to update their offerings for the 21st century. All these are essentially versions of what the software industry — which these companies are now part of, like it or not — call Application Service Providers. ASPs try to solve some of business biggest headaches by taking software applications that previously ran on mainframes or desktops and putting them on the Web. The ASP is responsible for network maintenance, software upgrades, backups, and all the other technical details that can suck up a business owner’s time, attention, and cash.

“There’s a lot of activity in this area,” says Amy Levy, an analyst with Boston-based Summit Strategies, who has been studying ASPs’ pursuit of the small-business market. “These types of services can alleviate many of the pain points that small businesses have. And they aren’t expensive, so there isn’t a big price hurdle to leap.” Indeed, many cost as little as $5 per month for a single user.

Only one question remains: Now that businesses can manage their finances online, should they? Though predictions about the future adoption of these services are impressive, the response so far has not been overwhelming. Many business owners view putting finances on the Internet as just another form of online gambling. They are concerned about transmitting sensitive data, entrusting it to people with whom they have never worked before, and losing it should anything go wrong. Then there’s the worry of whether — in a period when companies with “.com” in their names are disappearing faster than cookies at Christmas — the site they sign up with today will even exist in a year.

Still, a few brave souls are moving into the online vanguard and giving these services a try. More will certainly join them. Below, we take a hard look at four main types of Web-based financial-service providers: What they are, why to try them, and why you might want to think twice.


Managing company books is a task that few business owners relish. It’s also an area that’s getting special attention from ASP-type services. In addition to online versions of big-name packaged software products (see “Accounting Comes Unwrapped” sidebar), a slew of other sites provide the same basic accounting functions. Hosting these services lets them add other features, often for an extra fee. For instance,, a California-based company, also automates expense reporting, inventory tracking, invoicing, and payroll.

Why to Do It: As with any other ASP, a business is essentially outsourcing its IT for a specific function. A company like Netledger takes a powerful Oracle database — a platform far too expensive and complicated for most small businesses to tackle — and mates it with a Web-friendly interface that makes it easy and convenient for a business to switch key accounting tasks.

Moving accounting and bookkeeping has several potential advantages. One is convenience. The Internet is a round-the-clock operation, so a business can take care of the books at any time and from anywhere. Another advantage is a dramatic drop in paperwork. Take invoicing: Rather than generating an invoice on a PC then mailing it and perhaps losing track of it, users of some services can view invoice histories and open invoices online. They enter the amount to be paid, and payment is transferred to the supplier’s account.

Why Not to Do It: Well, let’s start with those invoices. Electronic payment only works if a company’s vendors are set up to receive it. With big companies this is likely, but not so with smaller ones. To be able to pay paper invoices on line, you have to sign up with yet another service.

If a business isn’t ready or willing to take advantage of these added services, they probably won’t see any need to switch from a packaged software program to an online one. After all, the main idea behind ASPs is to provide a fairly simple interface for software that a small business normally would never touch due to the maintenance headaches and the operational learning curve. But almost every business already has accounting software of some kind, and most are doing just fine.

The final reason a business might be wary of taking its fiscal records on the Web is security. If you put essential company information on the Web, can you be sure it will be there when it’s needed? Who else might sneak a peek at it? And what are the ASP providers’ own safeguards against crashed servers and lost data? Ask an ASP and they’ll say they can keep that information safer than you can.

“There’s a perception that if you can see your PC, the data is safe,” says Andrew Daniels, Netledger’s director of security. “But that’s just not the case. Today, PCs are inherently insecure.” In most cases, you’ll find that the ASP has taken ample steps to ensure that problems don’t occur. Netledger’s security regimen includes off-site data storage, two-week fuel reserve for a diesel generator, the latest encryption and intrusion-detection technology, twice-daily backups, and constant monitoring of the system to make sure it’s still working right.

Look for an ASP that has strong ties to other vendors or software makers; that will give you some idea of the ASP’s business infrastructure. Ask hard questions of any ASP vendor about their security levels and downtime percentages. Get references and talk to ASP customers about their own experiences. Get in writing what the ASP offers. It should have a service-level agreement that spells out such issues as reliability — seriously, what happens to your data if a meteorite hits the server? — as well as good customer support.


In today’s wild job market, small businesses are constantly juggling departing employees, new employees, and employees getting promotions and raises. Then there are the wide range of deductions an employee may take: Federal income tax, state income tax, city or county taxes, health care, and 401k. Some businesses deal with this in-house when they’re starting up or still small, but most outsource it.

Why to Do It: Phones were made for having conversations, not so we could read long strings of numbers into them. Keying in the necessary information shortens the process and can also eliminate mistakes, according to Gary Craven, who owns an accounting firm in North Carolina and uses the Allectis service to do both his own company’s payroll and those of several clients. When it doesn’t eliminate mistakes, it makes them easier to fix. This is one case where the impersonal way is better: Moving payroll to the Web is essentially exchanging one form of outsourcing for another.

“From my perspective as a business owner, it gives me back three or four hours a week I’d otherwise have to spend on payroll,” Craven says. “That’s the biggest savings — the time.” Payroll services can also be a benefit for a small business employees. Craven says his service makes it easier for a small business to tailor payroll deductions for 401k and other items. “You might have been reluctant to do those sorts of things before, because of the paperwork,” he says. “This really simplifies it.”

ADP has long been the primary provider of payroll services, followed distantly by PayChex, and the company has recently rolled out an online version. Other sites, including accounting services like NetLedger and some online banks (which we’ll come to later) throw in payroll services as an added feature.

Why Not to Do It: Everybody and their uncle offers one, but not all run it themselves. ADP, for instance, offers its service “co-branded” with a company called eBenefits, which provides the systems and does all the grunt work. This certainly doesn’t mean the service will be worse — after all, ADP has a vested interest in picking a company that knows what it’s doing — but before signing up with a service, it’s important to know who’s actually running
the system.

Also, as with accounting, security is a concern. Only in this case it’s your hard-earned money flying around. The payroll service should have strict control systems in place and should provide a pile of documents that establish how payroll will be handled. Again, get references. Ask about goofs with employee checks, timely delivery of checks, and the level of customer service offered. (For a closer look at how one business handles this important area, see this month’s “Infostructures.”)


For small businesses seeking funds, the Web has done something a little like what e-Bay has done for auctions: It has created a global market that gives buyers the leverage they long have lacked. For instance, a site called specializes in arranging loans in the $250,000 to $100 million range for small- and mid-size businesses. It’s not a bank, as such; instead, it runs a virtual bazaar where small businesses and banks can get together to talk business.

Why to Do It: “We’re offering a level of service to small- and mid-size companies that they usually don’t get from banking and finance firms,” says Mark Opel,’s chief operating officer. The site can also help an owner place a value on a business and can help with buying or selling a business. What’s more, in the case of, clients don’t have to pay a thing — the money comes from fees paid by lending institutions.

Such sites also streamline the application process. “Applying for a small-business loan is a big challenge,” says Jim Fox, CEO of, a business-to-business site that sells construction equipment and industrial supplies and hosts an online loan center. “Typically a small business loan takes twice as long to get as a home mortgage. It requires three-year financials, tax returns, present projects–all sorts of things.” At many sites visitors can fill out a single application, then use that to apply for a range of loan types. has loan criteria from lenders who are associated with its site on file, so applications for financing can be pre-qualified in seconds.

Why Not to Do It: These sites only automate part of the process. Loans can be applied for and sometimes approved online, but often the Web simply acts as a different way of transmitting the information to potential lenders. Other arrangements, probably offline ones, have to be made to formalize the agreement and transfer the funds.

Businesses should also be concerned about who gets a look at their financial vitals. Read sites’ privacy policies, and make sure they give some indication of the sorts of lenders with which they deal. Getting information into the hands of as many people as possible is obviously a good thing — provided those people are trustworthy.


A business’ decision about whether to bank on line will depend on — and in many ways determine — its attitude toward moving other functions to the Web. The Internet is creating some unusual permutations of banking services for small businesses, which come in two basic flavors: Traditional, full-service banks that have migrated to the Web and online “financial services” centers that more closely resemble a securities brokerage than a bank.

Why to Do It: Money is just a bunch of numbers anyway, just another form of information, and it’s already managed electronically by big businesses all over the world — why not get in on the action? Robin Grebel, the accounting manager for a Southern California janitorial business, used to keep the company’s books on a desktop-based accounting system. She had to dial into to the bank’s telephone account line and juggle deposits and transfers with a telephone keypad. Now her bank, Pacific Mercantile, uses an Internet-based cash-management interface.

“It’s great being able to handle our account without calling someone at a bank,” she says. “I check our balances, look for checks that have cleared, transfer funds between accounts, and pay down our credit line. Having constantly updated information is a plus, especially for a small business that has to keep a close eye on its cash flow.”

Better cash management is the biggest potential benefit of online banks. Big companies “manage” money, moving it between accounts for maximum return or maximum liquidity. Pacific Mercantile’s system was tailored specifically to let small businesses do the same.

“A small business can manage accounts to, say, a $10,000 floor and a $100,000 ceiling,” says Hank Seale, chairman and CEO of Texas-based Q Up, which developed Pacific Mercantile’s system. “If it gets over $100,000 you can move money into an interest-bearing account, if below $10,000 you pull money out of the interest-bearing account. The bank e-mails you automatically when you hit those limits.” The system also allows customers bill-pay systems, wire-transfer capability, electronic tax payments, payroll, direct deposit, and balance reporting.

The ability to make payments will become more useful as payees begin to accept them. Earlier this year, Bedford Farms Ice Cream, a family-run ice cream shop in Bedford, Mass., started using, which describes itself not as a bank but as an Internet-based “financial services” company designed to work with small businesses.

“We have about 30 vendors programmed into our account,” says ice cream guy Dave Venuti. “We just go to the bill payment screen, get into the vendor folder, click on the vendor we’d like to pay, and enter an amount.” Like Q Up’s system, Onecore lets a small business manage cash and pay bills and payroll. It also has a brokerage function that allows a user to create an interest-bearing account against which checks can be written and bills paid.

Why Not to Do It: One of the biggest problems with online banking is that most people still have to walk into a branch, if only to make deposits. To solve that problem, some ASP banks have struck alliances with brick-and-mortar establishments. At Bedford Farms, for instance, checks are deposited directly with Onecore, which has offices not far away. Companies without the benefit of a Massachusetts address must find a local bank that can transfer money to the company’s Onecore account.

There’s also the question of whether a bank will be any more technically savvy than you are. Most businesses that take their banking online will go through their traditional banks, which in turn will more than likely get their systems from someone else. A fully online service probably has more technical expertise than an average bank and also offers a single neck to choke when things go wrong. But businesses may be concerned about putting money into an online brokerage that’s relatively new on the scene. They’re worried that the bank itself won’t be in business in a few years, and of course, if no one puts money in them, they certainly won’t.

The other potential risk is that a brokerage-type provider may handle most money matters fine, but won’t have the same understanding of small-business lending that a bank might. Think about what you need from a provider: cash management and interest-yielding accounts? More traditional lending services to get your small business running or secure cash for your next step up?

Money matters will never cease to be a headache for small businesses. But every once in a while new ways of doing business come along that can make things easier. In the process, they eliminate certain problems and create a whole set of new ones. Web-based financial services may not make managing finances any easier, but they just might let business owners spend less time on the balance sheets and more time running the business.


THE ASP concept has been scrambling a lot of shrink-wrapped software makers’ business models — witness Microsoft’s big push into ASP-type services, announced in June. For years, in fact, small businesses largely relied on programs such as Peachtree and QuickBooks, accounting programs developed by Peachtree Software and Intuit, to handle their bookkeeping needs. Now these same companies are working hard to keep up with the wide array of ASP-based competition.

In April, for instance, Peachtree launched its new ePeachtree service, an ASP-based version of Peachtree that provides accounting and business management services for small- to mid-size businesses. It’s an attractive option for many current Peachtree users since they retain the familiar Peachtree interface and accounting system with the reliability
and maintenance-free benefits of an ASP. The cost is $10 for basic reports, with additional users billed at $5 a month. Peachtree has also made payroll functions an optional add-on to ePeachtree.

Intuit, while it has not yet moved its popular QuickBooks Pro small-business package to the Web, has opened a small-business financial center. It includes a credit card offered through Citibank that is designed to link with a PC-based version of QuickBooks. The user can download charge history, import the information to QuickBooks, and have it automatically categorized by charge type. The QuickBooks site also offers a “lending marketplace” similar to’s (see main story), matching lenders and borrowers for small-business purchases.

Bill Rocker, an accountant in the Atlanta area, has set up a client’s business on ePeachtree. Aside from a few minor shortcomings, such as the lack of an asset-management module, he praises the software and its use-anywhere flexibility. “My clients who are 25 miles away can get into their system, and I can get into the system, and we can both be on the same program at the same time,” he says. “I can walk them through something, or they can point to an entry and ask if that’s right.

“I think it’s a great asset for a small business,” he says.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.

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