Savvy accounting firms are using their relationships with start-up tech entrepreneurs to deliver internal efficiencies and create exciting new lines of business.
When the founders of Camplify first mooted the idea of setting up an online business to hire out private motorhomes and caravans, many naysayers dismissed the idea as a joke. After all, who would want to rent another person’s van?
Four years on, nobody is laughing. With the benefit of financial modelling from advisory firm Growthwise, the Newcastle-based sharing economy business is reporting strong sales in Australia, a rising presence in the UK and expansion into Europe. This service is so popular that Camplify has been dubbed the Airbnb of motorhomes.
“Now, the biggest problem is getting enough caravans to fill the orders,” says Steph Hinds CPA, founder of Growthwise. “It’s a great news story and it’s been fun for us in expanding what we can do for them.”
Hinds is one of an ever-growing band of accountants who is advising and/or investing in start-up or early-stage businesses that may have a great business idea, but little or no financial smarts. Growthwise and Camplify first connected through Slingshot, a tech accelerator program that helps innovative companies get up and running.
Hinds runs financial modelling workshops for the program, which has given her exposure to, and a chance to invest in, a range of start-ups. A number of them have gone on to use Growthwise for their accounting requirements, underlining the value of forging connections with different market segments.
How to connect with start-ups
Jason Bertalli FCPA is no stranger to technology firms either. A director at BNR Business Accountants in Melbourne, he is also involved with tech businesses such as Spawnit Direct, a soon-to-be-launched cloud-based digital printing and direct mail enterprise, and the Australian Customer Satisfaction Index, which uses software to benchmark organisations based on customer satisfaction.
Bertalli, who chairs the CPA Australia Victorian public practice committee, also believes accounting firms can benefit from smart alliances, such as investing in their IT providers. In this “dual-skill environment”, the tech company can benefit from the accounting firm’s business nous, while the firm stays up to date with IT advances.
According to Bertalli, traditional accounting firms need to do more to build relationships with rising tech enterprises. “They definitely need to step up and embrace this space, otherwise it will step up and embrace them.”
At financial advisory firm Morrows, Murray Wyatt FCPA has for decades been helping start-ups, including BikeExchange, Marketplacer and Centorrino Technologies. He says the logical way to connect with technology businesses initially is to “trip over them” through extended client relationships and networks. Morrows also has a business technology department at its firm and has strengthened client relationships through that arm.
“You get a reputation in the market for being in that biztech world,” Wyatt says.
Through Market Gap Investments and angel investment company Melbourne Angels, Mike Sewell FCPA has invested in and advised entrepreneurs in sectors such as medical technology, pharmaceuticals and cleantech. Using his people development and financial management skills, Sewell has built what he calls a “fortuitous” connection with tech companies, creating value for enterprises while potentially benefiting from investment opportunities.
"To give quality advice, you've got to understand a lot about a lot of things. If you're phobic in the space you're going to go straight to struggletown." Murray Wyatt, Morrows
Given that he puts his money where his mouth is and holds investments in innovative businesses, Sewell has become adept at doing his due diligence on such firms. He says a raft of government programs to encourage start-ups has in some cases led to over-confident entrepreneurs and skewed business valuations.
“People are really good at giving slideshow presentations,” Sewell says. “They are really bad at having any substance behind it.”
Many nascent firms also rush to put A$2 million-odd valuations on their businesses despite having a limited track record.
“My objective is to work with an entrepreneur, so we can both make a good chunk of money,” Sewell says. “Neither of us needs to get touched up at the start by a false valuation.”
New business niches
While Growthwise still does compliance work such as taxation and business activity statement reporting, Hinds says there is no doubt that teaming up with exciting tech companies adds a new element to the firm’s work. For those eager to make the transition into the tech space, she advises adopting a different business mindset.
“The biggest thing that we did right is to understand that it’s not the traditional time-based relationship,” Hinds says.
Forget about six-minute billing periods. Genuine engagement with start-ups often takes a lot of time and effort that may pay off handsomely down the track, or it could fall flat if the business concept does not gain traction. Hinds says she has had to learn to match the pace of enterprises with the way she works and go with the flow.
“That’s quite difficult for accountants because we are generally creatures of habit, who don’t like to change.”
Hinds’ advice for accounting firms wanting to tap into new markets is to follow their passion. It may not be start-ups, but rather a specialisation in tradies’ businesses or a segment of the retail sector, for example.
“The relationship should stem from being interested in something, then pursuing it,” she says.
The added advantage, according to Hinds, is that a firm’s embrace of interesting projects is likely to woo younger, talented accountants, who may not want to do traditional accounting work.
On a day-to-day practice front, Bertalli says BRN has adopted a suite of tech tools such as Practice Protect (cloud security), Receipt Bank (automated bookkeeping), Zoom (video conferencing) and Trello (project management). Not only do they deliver internal efficiencies, they also keep the firm tech literate, which sends a message to IT companies that the firm is up to speed in their world.
“If you’re running a tech business and you’re talking to an accountant and they say they’ll send you a fax, you’ll probably get a bit of a shudder.”
Bertalli says opportunities come to firms that are aware; adding that the education and knowledge he has gained from being involved with start-ups has enhanced his work with mainstream clients. Even if the start-up is not ultimately successful, the engagement is “like doing a mini MBA”.
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Showcasing CPA skills
In weighing up prospects in the technology space, Wyatt urges traditional accounting firms to make the leap from being number crunchers to strategists. While they do not have to be tech specialists to align with tech companies, a working knowledge of the industry will help them deliver relevant advice in areas such as modelling, margins, marketing, patents and intellectual property.
“To give quality advice, you’ve got to understand a lot about a lot of things,” Wyatt says. “If you’re a phobic in the space, you’re going to go to Struggletown.”
Bertalli contends that many entrepreneurs “have no idea about numbers”, and that CPAs can play a crucial role in overcoming this weakness. Speaking to accountants at seminars, they often ask him how their firm can learn about new industries.
Bertalli’s view is that business success typically relates to what the company does (representing 5 per cent of the equation) and actually running the business (which accounts for the other 95 per cent). “CPAs need to be good at that 95 per cent.”
Hinds agrees that CPAs can bring expertise and value to technology entrepreneurs, commenting that “the whole finance piece is sometimes quite scary for a lot of these start-ups”. She suggests building long-term relationships with such entrepreneurs because they will need an evolving level of assistance as they grow.
For Sewell, adding value to technology companies is the key.
“They may be technically qualified, but what they’re usually not so good at is the people side of management, the marketing side, understanding how to turn that idea into consistent revenue, then creating an asset from what they’ve got. They’re the things CPAs are trained to do.”
Do your due diligence
Of course, accounting firms are well advised not to just to jump on the bandwagon with any technology start-up. As Wyatt explains: “If they fall over and owe you a lot of money, you’re in strife. You’ve got to have balance and go on a journey with them, and have the ability to know that you’re backing something that’s going to work.”
For that reason, he says an accounting firm’s risk-management antennae have to be finely tuned.
At the same time, Hinds says her firm wants to be at the forefront of accounting – and one of the best ways of doing that is to be involved in progressive industries. The success of Camplify is a case in point.
“Getting first-hand glances at what other people are building and what disruptions are happening in other industries makes us better advisers for all of our clients.”
Tips in the tech space
Market Gap’s Mike Sewell FCPA offers his advice for engaging with new technology companies.
- Build a relationship. Accountants should work alongside an entrepreneur and add value, assisting them with the financials, helping them structure the business and advising them on how to recruit the right people, “not just their mates”.
- Help them grow. Once a business starts earning revenue, it will need to build a support team and bring in new management talent to take the enterprise to the next level, rather than duplicating skills.
- Understand where you can add value. Ensure that the early-stage company can pay for it.
- Get their valuations right. Sewell notes that early-stage businesses typically require two or three rounds of cash injections, with many angel investors wanting to put about A$500,000 to A$1 million into a company that is valued at A$1 million to A$1.5 million. “You don’t want the valuation too high too early because if the business is valued at A$5 million before it gets to the angels, they won’t touch it.”
- Rethink your training of graduates. Instead of simply pushing young accountants into auditing and compliance roles, there may be merit in developing them as specialist business advisers to tech companies and other start-ups. “There’s an opportunity to use them differently because they are more likely to relate to entrepreneurs from a generational perspective,” Sewell says.
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