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Millennium Meltdown

Think the Y2K bug won't bite you? This is your wake-up call.

Endlessly discussed, relentlessly hyped and moving ever closer, Y2K is nearly upon us. While no one can be sure how the much-anticipated Y2K computer malfunctions will affect individuals, businesses or society as a whole, two things are certain: The Y2K problem is real, and it will impact your small business to some degree.

If you're looking for a reason to take this problem seriously, consider this: With less than a year to go before the day of reckoning, Y2K-related malfunctions have already begun to occur. Aside from the expected problems caused by credit cards with "00" expiration dates, last year the com-puterized material management system of the U.S. De-fense Lo-gistics Agency dropped 90,000 items from its inventory because of a date calculation error. Per-ishable items that were supposed to expire in two years (2000) were seen by the computer as having expired 98 years ago because it assumed that "00" meant 1900. This seemingly simple miscalcu-lation took nearly 400 hours to correct. What's worse, according to a Cap Gemini Millennium Index survey, the percentage of com-panies experiencing Y2K-related business problems, such as processing disruptions and financial miscalculations, is increasing every month, from 7 percent in De-cember 1997 to 44 percent in Octo-ber 1998.

Although the typical small business doesn't have as much inventory or as many computers as the U.S. military, Y2K consultant Larry Goldfarb contends small businesses will suffer from Y2K-related mal-functions to a greater extent than larger organizations will. "Not only do small businesses lack the budget to make the necessary changes to their computer systems, but small-business owners are also in a hype-induced state of denial about the problem," says Goldfarb. "They truly don't believe this is a [real] problem."

A recent study on small-business attitudes toward Y2K-related problems sponsored by Wells Fargo Bank and performed by the Gallup Organization supports Goldfarb's views. While more than 80 percent of small businesses are at risk for Y2K-related problems caused by malfunctioning computers, cash registers and other equipment, only 6 percent of the respondents considered the Y2K problem to be "very serious."

This lackadaisical response is disturbing when you consider the tremendous effort that has already been expended by government agencies and big business to battle the Y2K bug. The Securities and Exchange Commission, for example, has ordered all publicly traded corporations to disclose Y2K readiness and project information in their annual reports, including a "worst-case scenario." And both the House and Senate have introduced a wide range of Y2K-related measures, including the Small Business Year 2000 Readiness Act, which partially guarantees bank loans of up to $50,000 for small businesses seeking to replace or repair Y2K-vulnerable equipment, and an amendment to the IRS Code, which allows businesses to write off up to $20,000 in Y2K-related expenses on their tax returns.

Big business is also scrambling to make its computers Y2K-com-pliant. According to Cap Gem-ini Millennium Index estimates, U.S. businesses will have spent more than $500 billion by 2000 to solve Y2K-related problems, including inadequate software and hardware, lost produc-tivity and the resulting litiga-tion. For many of these companies, achieving Y2K compliance also means in-vesting in additional IT staff or authorizing the thousands of overtime hours required to audit every line of software used by the business. Big companies like General Motors and Amoco Corp. have each already spent more than $100 million on their Y2K compliance projects.

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This article was originally published in the January 1999 print edition of Entrepreneur with the headline: Millennium Meltdown.

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