Did you know that 69 percent of accounting firms are already using online accounting software – even though it makes up just 8 percent of the Australian market?
Or that, despite the lack of fast internet connections, regional accounting firms are using online accounting almost as much as their city counterparts?
In fact, the biggest determinant in the takeup of online accounting software among accountants is whether they are a baby boomer or a millennial, says research analysts CapioIT. Three quarters of accountants under the age of 50 use online accounting software compared to 45 percent of those over 50.
CCH Australia released a survey of 300 accounting firms and 200 SME businesses on online accounting software a short while ago. I have been waiting for a rainy day to sit down and write up the best bits of the report from the media launch. And today it’s raining (in Sydney, Australia, that is).
First, let’s take a look at how accountants are feeling about online software these days.
That last statistic about age is the most powerful for me. I can imagine the personal stories within accounting firms as partners struggle to understand the new reality brought about by online accounting.
“There’s a generational shift that I hadn’t seen in cloud until I did this research. It’s really huge and reinforces to me how you sell cloud to a 60 year old trying to embrace technology compared to a 25 year old CPA is very different,” Phil Hassey, CEO of CapioIT, says.
Accountants are saying, “Don’t sell us the cloud, tell us why to use it,” Hassey says.
The problem for many partners is that they are readying themselves for retirement at a time when their practices are needing investment and re-tooling. This year’s the Good, the Bad and the Ugly report (also by CCH) found that over a third of New Zealand Institute of Chartered Accountants members are aged over 50 and nearly 30 percent of New Zealand firms identifying themselves as “in decline” had no succession plan.
“The vast majority of accountants in Australia are over 40. If they don’t get on board the impact is going to be quite phenomenal,” Daniel Weiner, CCH’s head of strategy, mergers and acquisitions, says.
Saasu’s Marc Lehmann has spoken about the difficulties of valuing practices which haven’t adopted the efficiencies of online accounting. While the number of clients will hopefully remain the same, the number of billable hours will decrease thanks to bank feeds and automated invoice and receipts processing.
Accountants who want to retire might find themselves having to hand over more power to younger staff who can update internal processes, add services or change billing models to avoid a drop in revenue.
“If you’re in a small firm and the bulk of what you do is tax returns, then your work is going to shift and some of your people will have to find something else to do,” Russell Evans, CCH Australia’s CEO, says.
Viva La Revolution
While older accountants are less likely to use cloud accounting, it isn’t necessarily because they don’t believe in it. When I first started Digital First (then BoxFreeIT) in 2011 the only players in Australia were Xero and Saasu. The majority of accountants I met were heavily sceptical of typing financial information into a browser. How that has changed.
Just under half of the accountants surveyed who didn’t use cloud accounting software thought it would have a slight or significant positive impact. (About two-thirds of accountants using cloud software felt the same way.)
“What is clear from the research is that regardless of whether the respondent was a cloud user or not, the overwhelming net attitude towards cloud is positive,” Hassey says. “The fact that even non-users consider the cloud positive is a very clear indication and endorsement that the adoption of Cloud Computing is seen as a revolution that cannot be avoided.”
Only 10 percent of firms surveyed saw cloud as a negative.
Another powerful signal; 96 percent of accounting firms using cloud computing were quite likely or very likely to increase their expenditure.
“This is a massive validation of cloud, and highlights that the benefits of cloud computing for the accounting profession are significant,” Hassey says.
Security is Not a Dealbreaker
This was also astonishing. After all the talk about accountants as guardians of their clients’ affairs, only 17 percent were concerned about security. Online software has clearly crossed over the credibility chasm as a legitimate location to store accounting data. In fact, the issue of location (remember data sovereignty?) was even less (11 percent) of an issue.
Security was still the biggest concern but only marginally more than client concern about using online software and the likelihood of downtime (both at 15 percent).
In fact, a whopping 55 percent of accountants thought the cloud was more secure than their office for storing accounting data. About half the 300 businesses interviewed for the survey agreed.
Another point to note is that the cost of online accounting software was not a factor (under 10 percent) – for accounting firms or for SMEs.
CapioIT found a much higher penetration (27 percent) of cloud accounting among SMEs than Intuit and Xero’s reported figures of 8 percent.
The most fascinating stats here were the reasons for moving to the cloud. Sitting at number one (with 44 percent), the key driver for cloud investment was better security! “It’s more safe than Excel and it’s more safe than emailing my data file to my business partner,” Hassey says.
The second reason was for functionality (43 percent). This could indicate that the types of features accounting software companies are adding to online programs (bank feeds, automated receipts processing, document storage, better data integration with other programs) are more important to more businesses than the strengths in desktop accounting software (complex inventory, quoting, etc.).
Future of Compliance
A big part of the discussion at the launch was the shift in the transactional work of the accountant.
“Retrospectively looking at data, that mode of working is going to change,” Evans says. Accounting firms either have to increase the number of clients for compliance or move into advisory and other value-added work.
But CCH maintains that the efficiencies in online accounting won’t force accountants out of compliance. “Some industry coaches have said compliance work is going to be commoditised. The research isn’t showing that. They know that they will get margin squeeze but they can run firms more efficiently and work in a model where there’s pricing pressure,” Evans says.
“The people who say, ‘If I bet the future of my firm on compliance work then I’m going to disappear,’ well it’s not true.”
Before the GFC the Big Four accounting firms said they didn’t want to to do compliance because there was no money in it. Now they are moving back in there, says Tony Katsigarakis, commercial director of corporate reporting solutions, CCH.
“There’s suddenly this mad rush back into compliance and active interest to rekindle the business.”
How much money? Accounting fees grew 3.3 percent last year to $17 billion in Australia. Countering that, the Australian Taxation Office is on a mission to slash accounting fees – at a recent accounting conference a tax commissioner expects to wipe out half a billion dollars in fees.
Good food for thought. The takeaway is that cloud accounting is quickly becoming the new reality, and that accountants need to reshape their business models around it.