By David Knoble, CPA Member since 2010
This article originally appeared in the Fall 2022 issue of The South Carolina CPA Report

Today, there is an increase in a practitioner’s need for cloud-based software and services, as well as the breadth of offerings available. The range of licensing agreements is equally diverse (and not always with favorable terms). Small CPA firms are potentially in the most precarious position when licensing firm software simply because the IT job is one of many hats that a partner might wear. The old saying “the devil is in the details” is not far from the truth.

No longer is the decision based solely on how the software works and what the software is advertised to cost. There are several different ways that a software company can entice you to sign up for their services and, conversely, make leaving incredibly difficult. I hope that by reading this, you will at least be knowledgeable about the traps and able to protect yourself should the software company try and enforce terms that do not apply to your firm.

One of the simplest ways to entice a firm to use services is a pricing offer that appears very competitive. For example, you may be told that the annual cost is substantially less than the competition, which can quickly become your deciding factor. However, several terms might change your mind. First, the price you are quoted may only be for the first year and contain a substantial discount. The second and subsequent years may be much more expensive and potentially higher than other equivalent vendors.

One software company offered our firm a bundled discount that provided a key service at no cost for the first year. Yet, the second year added that service’s full cost, making the firm cost a different metric.

Data Conversion

More importantly, a software provider can make leaving incredibly difficult. If you convert all your data to a new software platform, leaving your provider means you must find a way to export your now-changed data and then convert it to another platform. This is a time-consuming process. Each time I have personally experienced it, I have been willing to incur some level of cost and poor service to avoid on-boarding with a new company. The software vendors know this, and they price your pain-point into the discounted costs. Given this, I recommend asking how to leave the vendor before signing a license agreement. More importantly, have the sales representative send you the license agreement and point out the terms relevant to canceling the service.

Price Increases

Another way software vendors may lure you into their space and adjust your cost is to have minimum price increases each year. You may agree to a 5% or 10% price increase annually. After a few years, the cost of your services may be much higher than you anticipated. This has been especially true over the past few years with low inflation. Be sure you avoid sticker shock at your first renewal by being informed.

Support

Other items that impact your overall cost include support. Some software companies provide free support for tax software but may charge for other aspects of the software you use. Client management and project management software or document storage software may have support costs to fix things or find out why it stops working on your platform. Be aware of the minimum cost for each call, as it may include a half-hour charge even if the call is five minutes long. The same with anything else related to your services. Ensure you have the answer in writing.

Limits

Limitations on processing may be another way software vendors raise your total cost. You will need to understand what happens when you add one more employee. Some vendors provide user logins in a block of five or 10 users at full cost per user and for each piece of software. Suddenly adding one more employee has a tremendous cost. Asking for a few more logins when you sign up might be a much less expensive alternative, and vendors may provide a discount. In addition to user count, processing quantities may be limited, and the limitations might differ between products from the same vendor. For example, you may have unlimited individual income tax returns but must pay for business returns, or you may be limited in the number of client portals you have initially purchased. Imagine trying to deliver a tax return near a deadline and instead must find the right contact to increase your available portals.

Agreement Disputes

Some software vendors will tell you that failure to pay for a service will result in disabling your login for all your products. This could include the software you have fully paid and licensed and rely on. This may sound like something that would not happen to you. However, if you ever cancel one of your services, you may find you have a dispute with the software provider.

For example, our firm recently left a large national provider of a cloud service that also provided us with tax software, document storage, depreciation, and firm management software. We followed all the instructions to close the cloud portion of our services, but the software company continued to charge our credit card each month for three months. The company insisted I still had active storage space. I had saved an email from customer service agreeing that I would not be charged going forward and that I had properly deleted everything in our space. Ultimately, I prevailed, but not before I lost some login ability for a few days.

Once you really understand the true cost of a software or service choice, the most important step is to ensure you have a copy of your license agreement stored outside of the software provider. Why would this step be so important? Most software vendors today do not provide a paper, printed license agreement. Instead, they are online, posted to a webpage, and adjusted constantly. Your copy may be the only evidence that you purchased software under a specific guideline that is no longer in the web-only license agreement.

For the same software vendor as above, I also stopped using a piece of audit software that, in our opinion, made our work less efficient and cost us more. I was told that we had an auto-renewal of that software, and we must cancel that agreement 90 days before the renewal. After finding no communication related to a renewal of that software (among the various emails related to renewals of all my other products), I asked a company representative to point to the section in my license agreement that specified the renewal policies. Of course, there were none, and I had a copy of the original agreement. After providing emails regarding our termination at the end of a billing period, I sent a certified letter that we were ceasing use and would not pay any more bills. Two bills and six months later, we finally were released by the software vendor (but not until we threatened litigation).

These types of costs may be hidden or not well explained by sales representatives. It is not until your first renewal period or the need to add user accounts that you begin to find some unanticipated costs. Documenting your communication with the software company and asking for specific references to agreements (including verbiage, page number, and document) may be the only way to prove that you are correct. Of course, it may also prove that you are wrong!

So, my best advice? Read the fine print!