Automation 101

by Mark E. Battersby

Automation for an ice cream business? There’s a common misconception that automation means robotics. But automation can be as simple as those common business software programs. At its core, automation is about implementing a system to complete repetitive and easily replicated tasks without the need for human labor.

For many small businesses the expensive servers and teams of experts required to maintain computerized systems are out of reach. Today’s cloudbased programs have, however, made automation accessible and affordable for even the smallest ice cream or frozen dessert business. And, best of all, Uncle Sam, in the form of our tax laws, stands ready to help foot the bill for every level of automating every business.

Automation Reasoning

While automation can take many forms, for small businesses, the most important thing is repetition. With something done more than once that adds to its value, automation might be beneficial. Consider some reasons for using automation including: • Increased labor productivity • Reduced labor costs • Mitigation of the effects of labor shortages • Reduces or eliminates routine manual tasks • Improves service quality • Reduces costs, and • Eliminates tedious tasks.

Automation Software

Business automation software is a set of tools that can help an ice cream retailer automate recurring business activities, streamline its workforce and improve efficiency. Business automation software can either be an all-in-one platform that allows for the automation of different business operations, while standalone automation solutions are dedicated to automating a specific business operation.

Automating repetitive business processes free employees to perform tasks that are more valuable than those that can be completed by machines. Among the ways that workplace automation might benefit a frozen dessert operation include:

Marketing: Many businesses already use one form of automation, email marketing. Software is available that allows users to tailor the parameters of their email marketing campaign and use it to run automatically. An introductory email can be uploaded into the software and sent as soon as a contact is added.

What’s more, many of these software programs are configured to automatically send a follow-up email a few days later -- but only to those that opened the original email. In fact, many of the companies that sell this type of software offer free or low-cost introductions to their programs to create an effective and inexpensive introduction to automation.

Customer Service: In addition to finding new customers, automating customer service is increasingly automated. The more sophisticated systems that automate typical customer service interactions by answering common enquiries immediately may be out of reach for most ice cream retailers. However, studies in a variety of fields have shown that up to 80% of customer interactions could be handled by a computer program designed to simulate conversation with human users, a so-called “chatbot.” Or, an automated phone answering system that directs -– and forwards -– calls without human interaction could be within reach.

Operations: No algorithm can take a prospective customer out for coffee or negotiate a deal with a supplier as effectively as the operation’s owner or salesperson. Yet automation can free up time for these human-centric interactions. Searching for sales leads might fall under marketing but imagine other potential automated tasks such as: • Processing orders might entail stock management for some businesses or scheduling for those providing services • Tracking orders and jobs, dispatching and scheduling equipment availability is eased with automation • Customer or client management involves regular follow-ups, satisfaction surveys and upselling.

The Workforce: When it comes to finding candidates for job openings there are, of course, online recruiting sites. Automating the entire personnel process can both eliminate the cost of online recruiting; it can also track and schedule past and current workers. Automating processes such as tracking down potential job candidates and scheduling interviews frees up time for workers to determine who is the best fit for their operation.

Help With HR: Given the predictable and repetitive nature of today’s HR (human resource) duties such as payroll and timesheets, digitization can transform the operation by making the whole process more efficient. Reducing mistakes caused by human error it’s possible to automate performance management, paid holidays and absenteeism record keeping.

Software can raise red flags if quotas are reached or missed, while maintaining accurate records updated in real time. There are even utilities that automate onboarding using Google forms, including prewritten emails, event scheduling and the distribution of training materials.

Accounting: Software specifically developed to automate the accounting process is widely available and affordable. In addition to general ledger, double-entry bookkeeping and the operation’s invoicing/billing software, accounting software manages payroll and helps with enterprise resource planning. Most importantly, software subscriptions and licensing are legitimate deductible business expenses.

Booting Up Automation Write-Offs

The prospect of investing in automated equipment or even the basic software necessary to implement automated processes can appear daunting. Those costs might be more manageable when the tax breaks currently available to offset the initial costs are considered. After all, the IRS considers much new equipment, computers and software to be tax deductible business expenses.

The cost of purchased software, for example, can be deducted in the year that it is placed in service. If the ice cream or frozen yogurt operation opts out of the 100% bonus depreciation write-off or the Section 179 first-year expensing election, costs are amortized over the three-year period beginning with the month in which the software is placed in service.

Of course, if the software is purchased as part of a hardware purchase in which the price of the software wasn’t separately stated, the software cost is treated as part of the hardware cost. Amounts paid to rent leased software must be deducted in the year paid although deductions aren’t generally permitted before the years to which the rentals are allocable.

It’s a similar story for an ice cream business that requires specific software. Software costs or subscription charges are tax deductible. Monthly fees for accounting software, for instance, can be tax deductible.

Software subscriptions, like software licenses, count as legitimate business expenses. Software subscriptions, office supplies, phone bills and advertising can be categorized as business expenses.

Some software is considered to be “developed,” that is designed in-house or by a contractor who isn’t at risk if the software doesn’t perform. Unfortunately, today, the only allowable treatment requires the frozen dessert business to amortize the cost of developed software over a five-year period beginning with the midpoint of the tax year in which the expenditures are paid or incurred.

Taxes for Automated Equipment

If feasible, investing in automated equipment can become more affordable thanks to our tax laws. With the help of tax credits and deductions, every business can reduce the out-of-pocket capital needed to invest in automated equipment.

Section 179 of the tax code, for instance, permits a business to write off the full cost of equipment -– or software -– in the year purchased. This accelerates depreciation in a single year instead of writing it off a little at a time.

Although there is a cap of $1,050,000 on the deduction limit and a spending cap of $2,262,000, both new and used equipment qualify for the Section 179 tax deduction -– as long as the used equipment is “new to the business.”

So-called “bonus” depreciation allows taxpayers to deduct additional depreciation for the cost of qualifying business property, beyond normal depreciation allowances. Intended to spur capital purchases by business, bonus depreciation permits a deduction of 100% of the purchase price rather than a partial write-off over the “useful life” of the property.

Best of all, the full 100% write-off will remain in effect until the end of 2022. For property placed in service after December 31, 2022 and before January 1, 2024, the first-year bonus depreciation amount is set at 80%.

Of course, in order to qualify for bonus depreciation, the original use of the property must begin with the ice cream or frozen dessert business and the property must be depreciable with a recovery period of 20 years or less. Depreciable computer software and improvements made to leased property also qualify.

Although automation can help rid any operation of repetitive tasks, the automation efforts of most are misaligned with what employees and customers need and expect, making it difficult to deliver concrete results. To increase profits, improve employee productivity or deliver better customer experiences, it is necessary to go beyond basic automation and, perhaps, allocate more funds for business automation software.

By automating repetitive business processes, the retailer, managers and employees are freed up for tasks that are more valuable than those that can be completed by computers. Although more advanced forms of automation -– such as machine learning -– are available to complete higher-order tasks requiring more adaptability, their cost along with the massive amounts of time required for these programs to learn over time may make them out of reach for most ice cream businesses.

Fortunately, guidance is available from both the operation’s accounting professionals as well as from a number of computer and automation specialists. v

About the Author

Mark Battersby’s columns, currently serving readers in a variety of fields, provide a wealth of topical information on a regular basis. Mr. Battersby writes and sells more than 200 features for trade magazines and journals every year in addition to writing and syndicating a column of general business tax information to over 45 business journals each week, newspapers and periodicals. Mr. Battersby also writes three topical columns every week and 13 trade magazine columns.