How accountants are reprogramming their roles to meet the challenges of the brave new virtual world.
These days the impact of cloud computing is impossible to ignore. Supermarkets are mining multiple, enormous databases to fine-tune their pricing and stock levels. Retailers are building e-commerce sites in the same warehouse-sized data centres that run the gigantic Amazon.com website. And businesses of all sizes are turning to cloud software which they never need to update, can use from their iPads and smartphones, and costs just a few dollars a month.
Accountants are no less immune from the change sweeping the business world. The bedrock of many practices – steady revenue from tax returns – is looking decidedly shaky as cloud accounting software automates the uploading and coding of bank transactions. Accounting fees for compliance are falling as a result.
The practice of keeping two ledgers, one for the accountant and one for the client, has come under assault from software companies promoting a single ledger approach. Accountant and business owner can now view, manipulate and generate reports from the same set of financial data, at the same time, from different locations.
Accounting software companies are pushing a new message to accompany the technological change. From Xero
, the game plan is the same: accountants must do more than crunch the numbers, they need to coach businesses to greater success.
Accountants have always played the role of financial adviser, but a better description of the future of the profession might be business adviser. Firms that have moved early to cloud accounting are already staking out an evolutionary path.
Four years ago Troy Marchant of Robson Partners realised the expectations of his clients were changing dramatically. The Xero partner on the New South Wales’ Central Coast joined a business coaching franchise to develop more business-focused solutions for clients.
“We realised that compliance is becoming more and more streamlined,” Marchant says.
“There is a need for accountants to refashion themselves into more than a number factory because technology is certainly going to be doing a lot of that work in the future.”
But taking a more proactive position felt a little unnatural at first to some of the firm’s members. As Marchant notes: “Most accountants want to be reactive.”
He and his colleagues began meeting clients more regularly, as often as once a month, and found their relationships became much deeper – and more lucrative.
“You’re in the boat with them on their journey, in everything they’re trying to achieve,” Marchant says.
“From a fees point of view you’re getting a really good return on your time because coaching is a value-based proposition, not time and cost.”
Robson Partners is helping its clients win more sales and refine their marketing strategies. It also offers web hosting and is even certified in the cloud app, Salesforce.com, an enterprise-grade sales management program.
The firm has effectively reinvented itself. These days it holds fortnightly workshops in its boardroom for the Central Coast business community on self-managed superannuation, tax and property. More than 1000 people from 600 businesses have attended nearly 80 events in the past four years.
The events funnel new customers into the business and help educate prospective clients on the value of quality financial advice. Although cloud software may mean compliance revenue is under threat, the opportunity and rewards in consulting more than make up for it.
A client who went to one event three years ago recently left his accountant to take advantage of Robson’s virtual CFO service.
“He was paying his accountant A$5000 a year and now he’s at A$25,000 a year. His fee has gone up but he’s getting five times the service,” Marchant says.
An interest in technology is a common thread among accountants engaging in business coaching.
Brisbane-based Karen McDonald CPA spent 10 years in tax and several years in software support and development before setting up her own advisory practice.
Cascade Consulting has a strong contingent of clients from the legal profession. McDonald supports practice management software for law firms as well as handling their compliance.
The tech consulting includes setting up document templates and answering queries about accounting software, including trust accounting.
McDonald’s advice for accountants wanting to work as coaches: listen hard to what your clients want.
“There are a lot of accountants who are so caught up with their lodgement programs and what the ATO wants,” McDonald says.
“If I don’t feel I’m adding value then I don’t want to get out of bed in the morning.”
She takes a reading of a new client in the first or second appointment by always holding them at the client’s premises.
“I think that always helps because you can picture who you are talking to. It enables you to walk in their shoes and give them a bit better service,” McDonald says.
McDonald has to exercise care that she doesn’t share too many trade secrets, given that more than 60 per cent of her clients are law firms.
“I’ve got to be very careful because they will all ask how their mates are going down the road. They will often want to know how they stack up and what they can learn. We’ll talk about productivity, billable hours, size of the wages,” she says.
“It’s just a case of learning how to draw similarities without giving too much information about who you’re talking about.”
The solo practitioner challenge
If there are casualties in this business software revolution, then single practitioners are first in line.
“The sole trader guys are really in strife. They do most of the work themselves on the basis that they’re quick and they can get through it,” says Phil Marendaz FCPA of Marendaz Accountants and Business Consultants
, in Melbourne’s north-east.
Marendaz says he believes pricing will become so keen on compliance that within three years an accountant would need to do two and a half times the volume to maintain the same revenue.
“That’s what the efficiency of the cloud is going to do to compliance work,” he asserts.
“Of course [cloud software] is going to be a threat. There are going to be young accountants tumbling out of this profession.”
Marendaz has worked as an accountant for 40 years, starting out as an assistant cost accountant producing standard variable cost journals for the Comalco aluminium smelter in Bell Bay in northern Tasmania. Last year was his fifth year as a sole practitioner, but when he returned from leave in February 2013 he knew he had to refocus the business.
“I have a skill set that’s really good at advising growing businesses, so I wrote two letters on my board, ‘IT’. The future of our practice is predicated on anything to do with the technology side,” he says.
This sole practitioner has automated tax returns by outsourcing bookkeepers to the point where he no longer touches them. Marendaz hasn’t filed a return in over a year.
Marendaz says future practices will be based on the service supply model. He is turning his business into a help desk for clients, 50 per cent of whom are in the cloud. He expects that will grow to 80 per cent within the next nine months.
The business coaching focuses on Marendaz’s personal mission to educate small businesses about the importance of understanding financial concepts such as margins. He believes margin squeeze and not cost control is the biggest challenge facing Australian businesses.
“Small businesses don’t understand the relationship of cost, volume and profit enough and they don’t forecast cash flow,” he says.
Marendaz produces three-monthly forecasts; major clients receive a 30-page board report which he bills at a rate that “a partner should be billing at”.
How much? “I don’t want to say, but I’m targeting mid-tier rates,” Marendaz says.
Alycia Edgar of Business Performance HQ
(formerly Coastal Accounting) works with clients around Geelong and on Victoria’s Surf Coast. She notices that business owners switching to cloud software have a different relationship with their accountant.
“Clients loved that they could ring me and no matter where I was I had access to (their accounts] too,” Edgar says.
She began using Saasu
in the mid-2000s and now only deals with clients through the cloud. One of the great advantages of cloud software is that version issues are non-existent – everyone is working from the latest (and the same) set of accounts.
Improvements in the user interface in cloud accounting software and the ease of its use encourage clients to ask more questions about the accounting process, Edgar adds. She often pulls up reports and talks through the details by clicking through to specific transactions over the phone. Clients message Edgar through Skype asking how to look up different reports and she sends a link to the help file for that program.
While accounting is always looking rearwards, the time needed to access data has shrunk dramatically and the quality of advice has grown as a result.
“Yes, you’re looking at the last month but you’re doing it on the third day of the next month not three months later,” Edgar explains.
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“Rather than saying, you had a bad month, let’s move on, you can say, why has this occurred? Perhaps it’s just a timing issue – they haven’t done their invoicing. Or perhaps they have stopped marketing or someone is ill. But the sooner you can get onto that and fix it, the more likely you aren’t going to repeat that the next month.”
The business software revolution has not only changed relationships between accountants and clients, it has also renovated the internal dynamics of firms.
Tony Hoffman FCPA, director of Hoffman Kelly
in Brisbane, employs a bank of 15 bookkeepers to process 2800 tax returns a year. Of more than 1200 clients, 170 are using cloud software such as MYOB AccountRight Live, MYOB Essentials and Xero.
The company employs a dedicated “cloud controller” who talks to clients about the benefits of each program and makes recommendations. Hoffman Kelly has been holding dinner seminars to invite them onto cloud software in part because of the greater efficiency rewards for the practice. The 15 bookkeepers were working at capacity until the firm began moving clients to MYOB. Instead of spending four hours on a client they now spend just one hour, opening up room to add more clients to the service.
Hoffman is looking at a third-party cloud program to give a snapshot of the performance of each client and trigger alerts as problems occur. The firm hopes to offer a proactive monitoring service within the next six months.
Hoffman Kelly has signed up several Sydney-based property developers to MYOB’s cloud software so it can monitor and control transactions from its offices in Brisbane. By using MYOB’s bank feeds, “we can control the accuracy of the Business Activity Statements and the timing of the refunds,” Hoffman says.
The digital revolution will continue apace, ripping holes in the established order in nearly every industry. But these trailblazers have shown that the cloud’s silver lining is real and that lucrative opportunities are waiting for those brave enough to seize them.
Automatic tax machine
The Australian Taxation Office (ATO) has announced plans to eliminate 1.4 million individual tax returns from July 1 this year and replace them with a personalised note from Treasurer Joe Hockey showing taxpayers where their taxes have been spent. The trial would be extended to 4.5 million Australian taxpayers by 2016. It’s just one example of how technology, globalisation and changing social values are impacting Australia’s tax administration systems.
In June 2014, CPA Australia
and other professional bodies spent two days with the taxation commissioner at the Drivers of Change Conference, discussing how changing technology will impact the future of the tax profession. The conference provided an opportunity to explore the relationship between the tax profession, clients and ATO.
The ATO planned on closer integration with businesses’ cloud accounting programs and was working on a standard chart of accounts, developed in consultation with the industry.
Last December, the ATO explained it would use this chart of accounts to determine a business’s tax obligations, and accounting software would seamlessly provide data to the ATO on request.
“In essence, through the use of business software, the records needed to run the business will automatically generate the data needed to meet business tax obligations,” explains Geoff Leeper, second commissioner for the ATO’s people, systems and services group.
To track taxpayers’ capital gains, Treasury was also considering drawing information from other sources such as real estate agents and stockbrokers.These reforms aim to improve the quality of service to businesses by the ATO and to reduce compliance costs of meeting tax obligations to the point where it was “a by-product of good record-keeping”, Leeper says.
Individuals with work-related expenses would still likely need the services of an accountant. However, the ATO wants to move employees to “tick and flick” returns used in parts of Europe. Denmark and Norway send nearly three-quarters of tax returns to the taxpayer, and in Norway an individual who doesn’t respond is deemed to have accepted the return.
This article is from the July 2014 issue of INTHEBLACK.