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Head in the Cloud?

Andrea Moulding explains how Cloud Accounting could impact on your client fees

Every wave of new technology creates winners and losers. What separates the field is the speed taken to adapt to, and accept, the changing environment.

While Cloud Accounting has obvious benefits, the dangers are clear too: we’ve all heard the doom merchants forecasting the end of compliance work!

In November, Jon Baron of Thompson Reuters predicted: “Roughly 30-35% of firms don’t want to change, and they’ll probably disappear. There there’s the 60-65% that use technology to enhance existing practice, but not much more. And the rest – less than 10% – are aggressively transforming their firm and diving into technology and they will thrive.”

Is this melodramatic or a fair indication of what to expect? Certainly research into the profession in Australia, where Cloud Accounting is a couple of years further down the line than the UK, warns of trouble ahead.

Australian firm Bstar has produced comprehensive annual research into the impact of Cloud Accounting on the Australian accountancy profession since 2014. Their research warns of the threats their UK counterparts are likely to face.

It shows that compliance fees have fallen in Australia, gradually but consistently. One element of Jon Baron’s prediction is already a reality: winners and losers are emerging.

Expect this impact on your fees:

  • Cloud Accounting delivers your clients excellent reporting and data analytics, at the touch of a button. If you generate fees from this service, they are likely to fall as clients learn how to get more out of the software.
  • It’s estimated that Cloud Accounting technology will reduce the time taken for accounts production by anything from 30% to a 60%. New firms, starting up in the cloud age are pricing accordingly.
  • Your clients are not immune to these benefits. They can see the time involved to complete their work is falling. The experience of practices in Australia and New Zealand shows they demand to see this reflected in their fees. Worse still, automation reduces the intimacy, and respect they have for you, weakening the quality and duration of client relationships.
  • In his book Remaining Relevant, Rob Nixon estimated that profit per partner In New Zealand, (where Xero was created) declined by 22% in the past eight years.

The Australian research further backs up Jon Baron’s presentation. Those embracing the Cloud have refocused their firms to increase advisory work, and thrived. They recognised the inevitability of falling compliance revenue and acted quickly.

While their competitors’ revenues declined, they have seen an increase as they have developed an advisory offer.

But those that left it too long, after compliance fees started to drop, faced strong resistance in trying to raise fees back again. There’s a window of opportunity to bring more value to your clients, so don’t miss out!

As in Australia, there seems to be high awareness of the problems, in the UK, but little action. There are several barriers to implementing advisory work that are often cited by accountants.

Partners complain that their practices do not have the capacity, as advisory work is so highly reliant on partner time. Partners are already working long hours, and their technical staff do not have the necessary skills or experience to take on this type of work.

Perhaps surprisingly, many clients aren’t aware of the advisory support accountants can bring. It can also be a difficult conversation, especially if firms are already price sensitive.

At Accounting for Growth, we talk to hundreds of business owners every week about their relationship with their accountant. It’s easy to cause offense by suggesting external help is available to improve profitability or cashflow. It’s a sensitive conversation to have, but, not an impossible one.

The good news is there’s plenty you can do to increase your advisory work. Many of our Australian colleagues have implemented strategies that have led to 60-80% of advisory services being delivered by the technical team. Through leveraging their team, the reliance on partners’ time has been significantly reduced.

Australia has been through the pain, so you can learn from them. Those that have thrived embraced the threat. Those that continue to struggle have done nothing.

Cloud Accounting is here to stay. If you would like to find out how to turn compliance clients into high margin advisory clients, please do get in touch.

  • Andrea Moulding is a consultant at practice growth agency Accounting for Growth. Contact at andrea@a4g.co.uk or call 01509 210067. See www.a4g.co.uk

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