Business is changing. Technology, in particular, has driven disruptive change in any number of sectors – think retailing, for example, as digital and bricks and mortar duke it out. Yet some industries remain resistant. And the accounting industry may be at the top of that list.
It’s not just technology, or the failure to leverage it adequately, that has kept the field traditional. But that failing has fostered a variety of what some would term “old-school” practices. To stay competitive in the battle for client and talent, many argue that the accounting industry needs to modernize and to change to meet client’s new expectations.
Technology is, in fact, a good starting point. Cloud accounting is where the future lies, accompanied by other technological advances that have helped to simplify and expedite the processes behind the profession, making it more efficient.
Various considerations have slowed adoption, however. As Accounting Today points out, many accounting firms have already invested significantly in software to advance their practices. Loyalty to a particular solution or solutions, along with what can be a significant financial outlay, can be a major reason for slowing change.
In addition, cloud-based finance and accounting platforms are typically subscription based. For firms that are used to paying upfront and in total for their software, it gives them pause in evaluating return on investment. That’s especially true given the different cost basis for this particular investment.
Yet, accounting and business service firms that have made the change say it’s worth it. Security is one compelling reason, the Tacoma, Washington accounting firm DP&C says. It also has paid dividends in employee satisfaction, as the improved security enables more flexible work-from-home options.
DP&C also says it makes working with clients in the field a far more efficient endeavor.
Another dividend to cloud accounting is that clients apparently like it. Xero, a cloud accounting provider to small businesses, surveyed over 700 accountants and bookkeepers to find that cloud accounting firms add five times the clients of traditional firms. They also experience higher year-over-year revenue growth.
If technology is adding greater efficiencies to the accounting business, it makes the argument that perhaps the industry’s traditional fee structures should be changing accordingly. On the whole, however, that’s not happening. The standard practice is to set hourly rates for different functions, which means, technically, the more efficient the firm, the less money is made. What clients want, though, is their work done accurately and delivered on time. It’s slowly leading to some changes.
Some are moving to value-based billing, where jobs are priced based on the value to the client, not the hours put into the work. One Mississauga, Ontario full-service bookkeeping, accounting and advisory services firm, Phoenix Management, has successfully gone in a different direction by charging its clients flat monthly fees based on employee count and revenues.
“It’s been a winning approach,” according to director and founder of Phoenix Management, LaMar Van Dusen. His goal, he says, has been to simplify things for small business owners. They benefit from a single source of expertise and the ability to better anticipate what they’ll spend in fees with confidence in the quality of outcomes.
LaMar Van Dusen’s company has also capitalized on another trend that traditional accounting firms are just now beginning to respond to: The tremendous appetite of small and medium sized businesses (SMEs) for high-level advisory services beyond bookkeeping, taxes and compliance.
This is especially true among the large accounting firms that have been seeing their traditional, Fortune 500-type, larger clients get smarter about value-added services. They are putting pressure on their accountants’ price-value proposition in the process. SMEs are growing on a global basis, and accounting firms that can shift their advisory services to meet their needs will be in a good competitive position moving forward.