The Future of Accounting

Last week I spent an hour with the amazing Chris Hooper from Accodex,Kenji Kuramoto from Acuity, and Stuart McLeod from Karbon sharing our thoughts on the Future of Accounting. Our conversation stemmed from Stuart’s article Beyond the Cloud : The Future of Accounting. I would have been super happy to have spent the entire day deep in discussion, as for me the future is so exciting!

Why? I believe we, accountants, hold the cards, the knowledge and the ability to make an enormous difference in our clients’ lives. The less time we have to spend in data-entry and collation of information, the more time we have to really make an impact, i.e. helping business owners make more profit, grow, employ more people, create the lifestyle they want, buy more assets, etc.

Who wouldn’t be excited about that!

Our industry has changed a lot in the last 10 years in terms of information. Conversely though, so many other parts remain the same: we still deliver compliance services, we still work with our clients on cashflow projections and we still offer advisory services. The way we prepare and deliver these has changed dramatically over the last 10 years. So what will change in the next 10 and what will the industry look like?

The future of staff ratios

I started my journey in accounting 17 years ago. My job was to open the huge green ledger books and summarise all the data. I used an adding machine. All the working papers were, well, in paper. We had one computer in the office connected to the Internet with an email address! And we gave clients information on how they were going once a year.

Fast forward to today, and the 19 year old we have in the office would die if I asked him to add up hand-written accounting records! Instead now all information is sent to Xero automatically via a bank feed or Shoeboxed / Receipt Bank. For the most part all you need to do is click the OK button or tick some boxes to create an ABA File. The data entry time is reduced, we have the information constantly rather the end of the year and we have the underlying data we can analyse easily to see where improvements can be made.

The 19 year old who was once a glorified human calculator and data entry person is now providing value to the client. They are analysing numbers, coming up with ideas on how a business can improve and learning things accountants didn’t learn until they were 10 years into their career. These 19 year old’s are eager to learn and think differently about solving problems. This is amazing for accounting firms as the value add starts from the 19 year old.

The future of compliance

Compliance is not dead. It never will be. Most people I know want to ensure they are paying the least amount of tax possible! And we all know that our government’s ideas around Simplified Tax Systems just make things way more complex!

In saying that, compliance has seen a change and will likely keep evolving.

I like to split compliance into 2 sections. The physical job of completing returns, and the knowledge part of reducing tax, setting up correct structures etc.

The physical job of completing returns is becoming more and more automated. No longer do you have to type information from one system to the other just to lodge a return. What used to take 10 hours can be reduced to 5 from a data entry point of view. People are outsourcing and reducing margins and costs for this work all the time. This will continue.

On the other hand, the knowledge part is going to grow. More businesses are selling internationally which means more complexity from a compliance point of view is in the horizon. Businesses are changing, which means our compliance rules need to change. Governments make money from taxation and our rules are rather complex.

In other words, one way or another, compliance is far from dead. If anything, it will be more complex and will require an accountant’s knowledge to be able to maneuver through it. It’s just not going to be so cumbersome to prepare the actual returns.

The future of data entry

I love shopping so I love to think about what will change in the future for us shoppers. I see us walking into a store (yes we will still have stores, we like to be tactile at times), being recognised automatically by the camera when we walk in and being shown exactly what suits our style. The checkout won’t exist, I’ll just hold out my arm to approve the purchase (my credit card chip will be in my arm), and I’ll be asked by my robot (more on this later) if this is a business or personal expense. If business the transaction will automagically appear with the correct GST and account code reconciled in my ledger.

If my purchase isn’t in store, but it’s for services my robot will let me know Bob has sent me an invoice to pay. It will ask me if I accept the invoice and whether I want to pay it now. A simple yes will pay the invoice, enter it into my ledger and automagically reconcile it.

The future has no data entry. Zero. Stuart, Kenji and Chris talked about the implications of triple-entry accounting, distributed ledgers and blockchain. There is, I agree, a lot of complexity in this area, but eventually it will not be us humans doing the data entry.

The future of the industry’s business model

The model of the traditional accounting firm is already changing. Accountants are moving up the value chain, as Chris puts it, into more advisory-based services. They are taking on other divisions such as technology and marketing. Firms are amalgamating and others are ‘breaking up’ and going back to much smaller sized firms.

Accounting won’t be based on billable hours and one-off fees. We will see a lot more moving to value-based and fixed fee monthly billing.

Because of the move towards more specialised services, I believe we will see a lot more collaboration between smaller firms, whether it’s firms in different countries working together, or those with specialists in different areas helping each other out (tax dedicated firms bridging gaps for business advisory firms, and viceversa.) This collaboration will see the smaller firms easily competing with the big guys. Likewise, bigger players will start to target the SME market. It will be interesting to see this play out, since usually smaller businesses prefer smaller firms for their dedication and specialisation.

We will see a lot more firms being run like true businesses. Focused on certain types of clients, types of work, building culture, learning platforms and actual marketing plans.

The future of culture (the human impact)

This is something I’m quite passionate about. As much as I love technology and what it can do for a business I also understand the psychological impact. With more and more distributed teams working alone it’s important we have a focus on building an inclusive culture. Accountants are predominantly introverts. Without a business focusing on social skills and inclusion we run the risk of creating serious isolation problems for people.

Sure it’s true that technology from a social standpoint connects us; however, we need to ensure it’s connecting everyone in the team, not just the louder players. Culture will be everything for the accounting firm of the future. Competition for the best team members will be tough with geographical locations not being an issue. Training, collaboration and systems that deal with this new workforce will need to change. It will need to be focused and a crucial part of the business.

The future of performance tracking

No longer will accounting firms measure performance on hours billed, write ups/off and revenue per partner. These metrics will be a thing of the past. As the majority of firms move to value based and fixed fee arrangements, these metrics no longer make sense.

We will define success by looking at SaaS metrics or, as Stuart puts it, AaaS (Accountants as a Service) metrics. MRR, CAC, LTV, NPS will be standard measurements of success. These metrics will define how fast you grow, where to invest, and/or the multiple you sell for, not the traditional ones we are used to seeing. Take a look at Key Metrics to run a successful cloud practice with Spotlight Reporting and Practice Ignition

With less and less effort going into producing compliance work, we will look to results we are achieving for clients as a standard metric.

Someone is going to build me a robot! (or The future of Steph)

This one has been on my hit list for quite a few years now and I’m constantly sharing my wish list with all the software suppliers. I want a robot. One that I program with parameters to tell me how clients are going every day. Think AI meets Personal Assistant meets automated accountant.

I’ll wake up each morning to my robot (nicknamed Bruce). Bruce will wake me up, welcome me to the day and turn on the coffee machine. He will then report to me the results of our clients based on what I’ve asked. It might be did any of our clients have a record day in terms of sales yesterday. Did any of our clients wages % for the day for our retail and hospitality clients go over our target. Is anyone likely to run into cashflow dramas this week. Do any of our clients have debtors overdue. Who is way behind budget target. All of this while I’m doing my morning exercise. I’ll be able to instruct Bruce to send an email, tweet, message etc to any of the clients that I want to action something offering to be able to assist along the way. Bruce can automatically prepare some cashflow projections that can be sent with what-if scenarios to show when issues will pop up. And I’ll be annotating what the clients need to do in order to improve.

This may be a little way off, but it’s certainly the future. Bruce will save hundreds of hours per year in manual calculations and collation of data. He will allow me to provide so much more value to our clients and really sit as a true advisor.

Summary

Accounting at its core hasn’t changed and isn’t likely to change anytime soon. We still need to help our clients meet compliance requirements and, of course, pay as little tax as possible. We still need to provide our clients with advice on cashflow, growth, strategy, employees etc etc.

How we deliver and how we process these services has changed in the last 20 years. And this change will speed up continuously over the next 10. I personally can’t wait to see the impact myself and the team at Growthwise can have with smarter, more efficient, more timely data on our clients.

For those who missed our debate on the Future of Accounting you can catch the video recording below