Xero UK managing director Gary Turner looks at the impact of current and future advances in online accounting for business owners and chartered accountants
There’s no turning back the clock. Rather than charging by the hour, tomorrow’s accountants must become small business advisors who charge based on the value they deliver. In many countries, this unstoppable trend is already underway – and cloud accounting is the catalyst.
Today, clients not only want more but they also want to try new ways of working – using Skype, virtual CFOs, monthly reports, rolling forecasts and more. On top of that, accountants’ costs are creeping up and in many cases, profit per partner is down. For these reasons, practices that rely on compliance work and paying significant amounts of money for desktop software are particularly vulnerable.
For businesses and their advisors, fundamental changes to accounting technology are changing the way we all do business. In looking at their current and future strategies, accountants need to make sure they keep the bigger picture in mind – especially where technology is concerned – as that bigger picture is where the competitive battles of the future will be played out.
Choice and flexibility for small businesses
Nowhere is the boom in function-rich cloud-based software being embraced more keenly than in the UK’s vast small business community. In the critical area of finance, easy-to-use online accounting software is empowering even the smallest micro-business to exercise greater financial control and stay up-to-date with their accounts.
Key to the success of leading online accounting platforms is the fact that the software is much simpler than traditional accounts software. As such, it doesn’t require extensive training to use or carry a hefty upfront cost.
In addition, the business-driven tools and financial connectivity inherent in the technology can also help them to bring down debtor days, stay on top of cash flow and make better business decisions.
Meanwhile, the option to automatically download bank statement data via automatic bank feeds means users no longer need to spend hours adding transaction data manually to benefit from a real-time view of their accounts.
Over the last year, the emergence and growing popularity of online accounting software has fundamentally changed the toolkit available to small businesses and reduced the size that a business needs to be to use such sophisticated technologies. For example, the Xero ecosystem now contains over 250 pre-integrated add-on applications, including CRM, eCommerce and Point of Sale, creating a seamless business operating platform for small business owners.
Changing service delivery for practices
A key driver in the rapid adoption of online accounting has been the support it has received from accountants. In particular, those representing small and micro businesses have seen it as an opportunity to transform the service and value the practice is able to offer to clients as well as extend their range of services, helping them to become more competitive.
From a technology perspective, the battleground has essentially shifted beyond the client software to the accountant’s software requirements.
Rather than spending time transferring client data into desktop software systems, adopting a single ledger model, accountants and their clients benefit from shared access to up-to-date finance data in the cloud. Already, this shared platform approach, or ‘single ledger’ has already proven itself, especially in terms of efficiency gains, successfully challenging the desktop business model.
In future, integrated practice work-flow and reporting systems will make it even harder for incumbents to monetise the accountant, causing greater stress around the industry as long-term relationships are further challenged.
The backdrop to this shift is bigger changes globally across small business and the technology industry. We’re all familiar with the consumer-visible cloud services from Facebook to Google Docs to Expedia. Now all sorts of services are moving to or heavily using the cloud.
New services and features are being invented that truly unlock the power of the Internet for the small business user, benefiting from the commodity solutions of cloud accounting and business workflow. As such, businesses based on or using the cloud are avoiding major IT integration costs and proving nimble, disruptive and highly scalable.
The future of cloud accounting
The future of cloud accounting will be all about going beyond accounting software and what could be achieved under the old desktop paradigm. As an example of where this is heading, this year Xero is fully document-enabling its platform so that users can attach documents and images anywhere within the application.
This essentially means getting beyond the single ledger to storing and sharing the single source of truth behind the numbers. Already, the ability to integrate with document storage solutions such as Box, Google Drive and Dropbox is available for accountants in WorkflowMax Practice manager software.
Banks are also finally starting to get excited about accounting software and are an increasingly important part of the ecosystem. Bank feeds are a standard expectation, although globally many banks are still catching up and the ability to electronically sign-up for feeds has been slow to arrive.
The next impending development will be to enable businesses to make direct payments to bank accounts from within the accounting software. And there’s a whole lot more that the techies are working on behind the scenes.
The impact of the momentous shift to smart phones or tablets should also not be underestimated. As the Android platform matures and its users take advantage of the power on offer, the stage is set for a dramatic shift in the way cloud software is accessed.
For example, the ability to reconcile bank accounts on smart phones, invoice customers on the run using online invoicing and input expenses using smart phone cameras is already here. Put this ‘pocket office’ functionality together and it’s clear to see how the reliance on the physical office can decline sharply for small business users.
Overall, what these changes illustrate is that it’s not just about adding accounting features: there are fundamental changes that are being made to how we use accounting and other software that is changing the way we all do business.
At Xero, we plan to keep adding features at a rapid rate, but will always make sure we keep the bigger picture in mind. That bigger picture is where the competitive battles of the future will be played out.
For accounting firms, decisions need to be made. It’s becoming imperative to stop relying on desktop software and back room servers. This is because of the flexibility, the huge benefits the cloud offers and the cost savings that can be realised.
Conversely, failure to keep pace with change could result in up and coming firms radically overtaking average firms. For this reason, we’re seeing more and more full practice conversions and many bigger accounting firms embarking on major cloud activity.