If asked to picture a hi-tech industry, it’s fair to say most people would list a number of other sectors before they reached accountancy. True, the largest firms have always been quick to start using new technologies, but smaller practices have generally been slower to do so – in large part because of cost and time constraints.
But with the way accountancy services are delivered being altered significantly by digital technologies, particularly cloud-based IT and automation, without investment they risk being left behind. So how well are smaller practices – and their clients – adapting to those changes?
Contrary to the industry’s conservative image, there is an appetite among accountants to use new technology. Almost half of those in practice (46%) see digitisation as an opportunity, according to research conducted by ICAEW among 500 members in 2018.
A similar picture is revealed in research commissioned by Sage, which shows that 49% of accountants in practice in the UK, Ireland, North America, Brazil, Spain, France and Australia want to automate processes such as data entry; and 55% plan to start using some form of machine learning or artificial intelligence (AI) within the next three years. More than half (53%) have already adopted cloud-based practice management.
“If it’s not happening it’s not a case of lack of will – it’s lack of time,” suggests Chris Downing, director of product management at Sage. But he also highlights how easy and inexpensive it can be to try out a new cloud-based technology. Vendors such as Sage, Xero, Intuit QuickBooks and FreeAgent have all created online services that can be used by any practice with a broadband connection. Cloud-based tools like ReceiptBank can be used to give accountants immediate access to client information they might previously only have seen at the end of the financial year, enabling the creation of a timely, accurate picture of the client’s financial position, offering multiple business benefits.
Other tools that can be integrated with accountancy software include Hubdoc, a cloud-based portal to which all a client’s financial documents can be uploaded. In the not-too-distant future, even smaller accountancy practices will be able to complement such tools with AI-based technologies; and tools to analyse big data: the unstructured data that flows through every business in multiple formats, turning it into business intelligence.
Blockchain-based technologies may be used to provide additional security, remove ambiguity from transaction histories and enable faster reconciliation. Some of these technologies may still be a long way off for smaller firms, but they can follow in the footsteps of medium to large practices that are already using cloud and data analytics solutions.
For example, Kingston Smith, which employs 560 people in six offices across England, has created its own cloud accounting platform, KS Connect, used for functions including VAT compliance, corporate, partnership and personal tax returns; and which also provides data analysis reporting functions.
Partner Becky Shields says the firm has grappled with the central challenge any practice would face when seeking to unify client services on a new IT platform: bringing together client data held in different systems and formats. But with the system in place, client information can be collected in real time, allowing staff to spend more of their time using their expertise to help clients.
Another practice, Brookson One, which employs 300 staff in four offices, specialises in working with contractors and other self-employed people. For the past decade its strategy has been to move away from dealing with financial accounts in arrears towards an ideal scenario of a fully reconciled, daily updated position for every client.
Today, Brookson One can give clients “a 360-degree view of their business’s financial performance and of their personal financial wealth position, updated daily”, according to managing director Andrew Fahey. The service is delivered through an online portal solution, created partly in-house and partly through technology supplied by technology vendors.
For smaller firms, access to a client’s financial data in real time “is a game changer for bookkeepers and accountants”, says Damon Anderson, director, partner and product, at Xero. One such accountant is Rowdens, a practice based in West Sussex and founded by Penny and Jonathan Rowden in 2007.
It started using Xero in 2011, when a client who works in the IT sector requested it. “Xero transformed the way we were looking at things,” says Penny Rowden. “We put that one client on it and then it just took off.” Most Rowdens clients now use Xero in combination with ReceiptBank.
At the end of each week, clients receive a statement showing any outstanding unreconciled transactions, which they then aim to resolve by the end of the following Monday afternoon. “So everyone’s working on a weekly basis,” says Rowden. “For some clients it’s working extremely well; for others it’s still a work in progress.”
One client, a small retailer, sends information through from its point of sale systems, meaning its accounts are up to date every day. Although the picture is mixed, data suggests accountants in the UK are adopting new technologies at a relatively fast rate compared to their peers elsewhere. Direct international comparisons may be slightly misleading, because of differing regulatory requirements and conventions around how accounts are presented, but research from payroll and accountancy software provider Accentra suggests that 45% of UK accountants are now using online solutions, compared to 60% of those in the Netherlands and only 35% in Germany.
In a growing number of countries, adoption of new technology is being encouraged by government-led digitisation projects. “Poland has had monthly digital reporting on VAT and all business transactions since January 2018 and real-time insights into operations has made compliance and error spotting easier for practices,” says Alex Davis, business development manager at Intuit Quickbooks.
“Over the next few years the UK government will embark on its Making Tax Digital programme to improve the functionality and ease with which businesses engage with HMRC. Embracing digitisation will increase growth prospects and create a new standard for record-keeping.”
Ultimately, these technologies will have profound effects on the nature of accountancy itself. Automation and access to real-time data will make some elements of accountancy services redundant, but create a market for others. In theory, these changes present an opportunity to focus on delivering high value advisory services.
“Automation of many processes will continue and as a consequence we are seeing many accountants taking on more of a business adviser role,” says Mark Taylor, technical manager in ICAEW’s IT Faculty. Benchmarking research from Xero suggests that UK accountancy practices offering advisory services generate almost double the amount of revenue per client than do practices that focus on compliance. Matthew Stroh, audit and assurance director at Grant Thornton UK, believes the key to creating and delivering these services is obtaining business data. “Once you’ve got the data there’s a huge number of advisory services you can provide,” he says.
Xero’s Damon Anderson thinks the biggest change will be accountants becoming involved in forecasting and strategy. “There will be a shift to helping customers do forward planning, looking at where they want to invest in future, helping them to manage cashflow and access capital,” he says.
The mix of skills needed within accountancy practices will change, suggests Anderson: accountancy firms will need to hire people who have technology skills and those who have people skills, because they will need to interact with clients more often. More use of technology will increase competition too, in part because it will release geographical constraints. Sage’s research suggests 67% of accountants across eight countries believe accountancy is now more competitive. Stroh says Grant Thornton’s partner firms in countries from India to China and the Americas all report increased activity in relation to the roll-out of technology-enabled services.
Clearly, improving both operational efficiency and service quality are the two best ways for accountants to respond to increased competition. They are also the two most important reasons to adopt new technology cited by respondents in the Sage research. “If you don’t have a very strong understanding of technology, of the capabilities it offers and the risks associated with it, you’re going to struggle when competing against accountancy practices that do,” says Taylor. Davis stresses the importance of providing a better experience for clients.
“Clients will expect a great experience when they interact with you, like the experience they get when they interact with other businesses online,” he says. “The firms that will win will be the ones who have understood the data and deliver a great client experience.” But for now, he agrees with Stroh that the foundation of an effective strategy is to invest in technology that will help to gather and analyse client data.
“The focus at the moment should be to get data into the system as efficiently as possible, to get insights and information to the client as effectively as possible.” Finally, it may even be the case that technology changes the image of accountancy. Jessica Pillow, founder of Pillow May, a small practice staffed mainly by working parents who use technology to work flexibly, believes the profession is becoming more attractive to potential employees. “It has become much more appealing as a career because you have that flexibility,” she says. “I think that means it’s going to become more global, even at the smaller end.”
Case study: Barnes & Scott
At first glance, the website for digital accountancy firm Barnes & Scott does not look particularly different from any other firm’s website, other than this claim on its home page: “If Google, Facebook or Twitter set up in London today, we would be their first choice of accountant.”
If this seems arrogant, there is some substance behind it, in that Barnes & Scott primarily serves technology-led small businesses like itself. The firm serves around 150 clients through the cloud and employs 10 people, although it has no office of its own.
Founder and director Tasnim Mustafa says he had planned to move into an office at some stage, but he now thinks the company will continue without one for the foreseeable future: it has access to high-quality shared work spaces across London – and most of its clients work the same way.
Along with Xero and ReceiptBank, the firm uses business tools including Trello to manage workflows, Google Drive, DropBox and Zapier, which moves information between different software tools to track client finances. The longer-term aim is to use completely personalised client portals through which clients could access all the services and technology they need and manage interactions with HMRC.
“We want to make everything more seamless for the client, joining all the cloud packages into one service,” says Mustafa.
Case study: Pillow May
Jessica Pillow created Pillow May in 2009 as a practice that would be flexible enough to employ parents of young children. Initially, the firm used a server-based IT infrastructure, but within two years Pillow was seeking to work in the cloud.
This was made difficult initially by flaky broadband coverage – the Pillow May office is in rural Wiltshire – but coverage has improved significantly in recent years. Today most of its clients interact with the company via either Xero or FreeAgent, the latter popular with clients who are contractors, as it is designed to suit their requirements.
“There is a limit to the number of software products you can support, because you’ve got to have a really good working knowledge of them,” says Pillow. “But using two is possible. ReceiptBank works with both solutions. It has also changed our service offering: we never used to offer bookkeeping, because it took too much time out of the office. But if you improve your bookkeeping then the accounts work is much smoother. That may now be the fastest growing area of our business.”