Accounting industry stands on the edge of a precipice
The accounting industry stands on the edge of a precipice. Are you ready to jump?
"The magic of getting software and accounting working together is super important," Xero CEO Rod Drury explains on the company blog. "A big part of why I love doing Xero is solving some of these accounting problems. We are moving the arc of accounting."
This year, Xero hit the 1-million customer mark, solidifying the New Zealand success story as one of the most powerful small business disruptors in the world. When asked what’s next for the tech disruptor, Drury pointed to the potential of AI and machine learning to help small business owners get what they want out of their data while taking away all the technical aspects that slow them down.
Competitor Intuit has already entered this space with its Quickbooks Assistant, an AI bot that can currently answer around 50 questions for self-employed individuals and small businesses, including: "how much money have I made?", "How much will I owe in taxes?" and "Which kinds of sales are most profitable?"
For accountants, products like Xero and Quickbooks are a mixed blessing. On the one hand, Xero provides an amazing suite of tools to help accountants systemise their practice and offer value to their clients.
The result is a global network of accountants-turned-advisors who are absolutely evangelical about the product and its potential. At Xerocon - the company’s annual accounting conference held in key locations across the globe - Drury is stalked by a gaggle of supporters as though he’s a rock star, and not the Founder of an accounting software company.
On the other hand, this increasing automation in the accounting space takes on more and more of the traditional role of an accountant. While a human is still needed to interpret the data and help business owners apply it, there are now huge chunks of an accountant’s job description that are basically obsolete. If we can do it all in Xero, business owners think, then what am I paying an accountant so much for?
IRD announces programme to improve automation
Accounting software is not the only automation that threatens the traditional role of an accountant. Recently, the IRD reported that as part of their new $1.9 billion-dollar Business Transformation programme, they would be cutting thousands of staff members as they moved toward more automated systems.
In a recent Stuff.co.nz article, Commissioner Naomi Ferguson reported that the IRD were expected to cut at least 1500 jobs between 2018-2021. She stated this programme was "about upskilling our staff for the future; it was about changing our organisation so we can better meet the needs of our customers."
The main goals of the programme are to replace the IRD’s aging computer systems and introduce more automation, with the goal of ensuring individuals and businesses are taxed more accurately through the year. This reduces the need for additional tax payments and annual tax refunds.
All that sounds sensible and prudent, but as well as being harsh on the staff members losing jobs, it’s tough for accountants who relied on this type of work. In addition to the squeeze on accounting services brought on by cloud accounting products like Xero, compliance work may also be halved.
How can firms continue to offer compliance services, and still remain profitable?
Accountants … more than just number crunchers
With powerful machines and automation performing increasingly complex tasks, you could be mistaken in thinking that accountants might soon be out of a job.
But it’s not all doom and gloom. The key to success for accounting firms is to understand where to focus your efforts - shifting from purely compliance-based work to the advisor model promoted by Xero.
According to Chartered Accountants Australia and New Zealand, an accounting firm's success is increasingly due to their people skills, rather than their ability to crunch the numbers. Even in the modern digital age, business is all about people.
Young, "digital-native" accountants are entering the industry, attracted by the idea of becoming trusted advisors. As business owners try to navigate the increasingly-complex world of technology and automation, they turn to their accountant to steer them toward the right solutions.
Instead of fiddling with spreadsheets, accountants are helping to solve real-world problems and providing business owners with the expert advice they need to grow in a digitally-savvy world.
As well as providing business owners with what they actually need, this is a more fulfilling model for accountants. Instead of the drudgery of compliance work, you can focus on what inspired you to become an accountant in the first place - solving problems, making sense of tricky numbers, and helping people figure out their next steps.
The accounting firm of the future
Chris Mercer, of Mercer Business Partners in Taupo, launched his firm after technology had already disrupted the accounting industry. "We set up with more focus on the advice side of things than legal compliance stuff."
While other firms scramble for compliance work and compete over low fees, Chris decided to take a different approach. Instead of viewing technology as a threat, Chris welcomes the opportunity to engage with clients about important business decisions.
With changes in government, technology, and regulations, there’s lots of work to do staying informed and helping clients to make the best choices. "We're selling ourselves as their small business CFO, someone with their hand on the tiller the whole time that can guide them through."
Mercer Business Partners provide management reports, and updates on how a client’s business is tracking throughout the year. "That’s how we position ourselves as a high-value partner, rather than the end-of-year tax man," Chris explains. "We’re future-proofing ourselves and keeping ourselves employed."
Outsourcing provides an answer
"Outsourcing my compliance means I can drop my prices a little, while delivering more value to my clients," explains Paul Martin from Paul Martin CA, an Auckland-based accounting firm who are also embracing the advisor model. "I can do more regular reporting for clients and have more conversations with them about what they’re doing in "real-time" as opposed to once their tax year is over."
Paul adds that his staff are also happy not to be saddled with all the compliance work. "They want more client time and more advisory time, as that’s the work they’re really passionate about."
After outsourcing direct to the Philippines for three years and experiencing all sorts of headaches, Paul now uses a company called Connect Outsourcing, who provide qualified offshore support to complete compliance work at around 25% of the usual cost to a firm. The staff work exclusively with kiwi firms and are already trained with a thorough working knowledge of NZ tax law.
"With a remote staffing model we had inefficiencies on the job, so if a team member took 2 hours longer I had to wear it. With the Connect model I don’t pay for any inefficiencies, so it is not a cost for my business." Paul also appreciates the fact that Connect have already trained their team to the New Zealand standard, and that he isn’t actively responsible for managing the remote team.
"I really believe outsourcing is the future of accounting."
The accounting firm of the future
"As a practice, we can’t just change easily," Paul explains. "There are processes and systems that need to be created. I believe the transition was really a business transformation process."
Of course, change never comes easily, but many firms transitioning to new models are already seeing huge success. Companies like Xero and Intuit (who own the MYOB suite of software tools) are acknowledging how firms are changing. Every year, Intuit hosts the Firm of the Future conference, where they award one firm who exemplifies the changing role of accountants in business today.
This year’s winner, Juliet Aurora from AIS Services, states that what makes her firm different is their ability to embrace technology in every aspect of their business. "We’re fully in the cloud, we’re tech friendly and savvy."
The judges noticed this too, with Rich Preece - Global Accountant Segment Leader at Intuit - noting that one of the deciding factors was how the firm had embraced digital marketing. "87% of their new leads come through digital marketing - that is second to none."
When a recent Bizink survey demonstrated that 68% of accounting firms didn’t even have a marketing plan, firms embracing technology not just for client-facing work but also to grow their business will come out ahead.
Compliance is still an essential service, but, as Viv Browning - a business coach for accountants with Gap Portal - explains, "compliance is a grudge-purchase, and it doesn’t supply long-term value. The only antidote to a ‘less compliance’ future is to remain relevant beyond compliance."
Viv adds, "Compliance work will always exist and isn’t disappearing any time soon. However, data automation, machine learning, cloud accounting, and tax simplification will impact the role of the accountant. As part of this rethink and reinvention, we need to decide what value-add services we will offer to clients."
Where your firm goes in the future is up to you. How you get there will depend on your ability to pivot as new technology disrupts and transforms the industry. Are you ready?