How to future-proof your accounting firm
The accounting industry is changing fast. In this guide we’ll look at how you can future-proof your accounting firm.
The path to change
Firms of all sizes are being affected by changing technology. Accountants can accomplish basic tasks quickly and easily using new internet-based tools. Unfortunately, this means a decrease in revenue for firms that bill by the hour. However, these tools also mean that firms can offer new services to clients and generate more revenue.
This change presents both opportunity and risk. Firms that fail to adapt will experience declining revenues from traditional services. Those that do adapt will be able to:
- work more efficiently
- take on more clients
- bill more for higher-value services
All of this equates to greater revenue. But it’s one thing to say your firm needs to change. It’s quite another to work out how best to do it.
In this guide we’ll look at the transition process from traditional to modern accounting firm. This will help you identify where your firm is now – and where it needs to be.
From the past to the present
Not so long ago, accounting services had a fixed and simple structure:
- Primary roles involved handling clients’ ledgers and occasional reporting
- Clients assumed that this was all accountants could, or would, do
- Accountants were stereotyped as number-crunchers by their clients
- Services were based on hourly rates
Today, accounting services are moving online – that's what cloud-based means. Basic tasks such as payroll and reconciliation are being automated.
This is great news for firms that can adapt, because the market is moving towards an on-going advising model. Put simply, that means you can charge more because you’re providing more value to your clients.
If your firm hasn’t yet fully adapted to the new accounting reality, don't panic. It’s probably in one of the following three stages – and with a bit of effort it can make the full transition.
Stage 1: Static and traditional
Firms that have been in business for a long time can be strongly resistant to change. They have:
- fixed workflows that haven't changed for years
- desktop computers running older legacy software
- a billing system based on hourly rates
- a cultural resistance to change
Firms like this may stay with old software and practices for far too long. That’s a problem when an upgrade becomes unavoidable. It can cause serious disruption to the business.
If this sounds like your accounting firm, there are some steps you can take:
- Talk to influential people within the company and explain the benefits of new technology
- Provide reports and articles about the changing nature of accountancy
- Supply estimates of potential cost savings and revenue increases through change
In some cases there may be no way forward until partners stuck in the old ways retire. But most firms, even at this stage, are aware that change is unavoidable – if they are to survive.
Stage 2: Making the transition
There are plenty of firms at this stage, in fact perhaps most of them. They’ve done their research into the market and discovered which way the wind is blowing. As a result they have:
- started to move to specific cloud-based software, though some legacy systems remain in place
- begun adapting to new technology as it becomes more common – and as their clients demand it
- made changes where necessary, but not everywhere and not strategically
- a mixed rate structure, depending on which services they provide
If your accounting firm falls into this category, it’s going in the right direction. You can help things along by:
- increasing the use of cloud software, which makes it easy to access and exchange data from anywhere
- looking for new ways to improve productivity, such as new workflow ideas
- making better use of collaborative office tools such as Google Apps
- moving towards a fixed or value-based billing service
It’s an exciting time to be in this stage. But there’s one more step to take.
Stage 3: Advanced accounting firms
Firms in this stage have fully embraced cloud-based accounting. They understand modern practices and make use of them every day. For example, they:
- have a named partner in charge of technology, with staff involvement too
- run fully cloud-based systems – for client services and for managing the firm
- have clients who also use fully cloud-based systems
- are platform-independent – they and their clients can use PCs, Macs, tablets or smartphones
- actively monitor productivity and make strategic changes where necessary.
- use fixed fee or value-based billing
This type of firm is responsive and actively engaged with clients. Now let’s take a look at why that’s so important.
The wider state of business
Although we’ve concentrated on the changes in the accounting world so far, that’s just part of the picture. New computing technology is changing almost every field of business. From retail to consulting, from services to manufacturing, no organisation will go unaffected.
Business owners and employees spend much of their time using new technology at work and at home. They expect the same level of automation and simplification in every part of their lives. That includes accounting.
So the pressure to adapt isn’t just coming from within the accounting world. It's affecting everyone, including your clients. Standing still is not an option.
Aiming for the top
Different firms will have different requirements depending on their markets and clients. But some rules apply across the board if you want to compete successfully in the modern accounting world:
- Fully cloud-based systems: It makes sense to move all your computing work into the cloud. That includes data storage, software and communications. There are many advantages to doing this. With everything securely online your IT costs are reduced, and backups and upgrades are handled for you. And, most importantly, you and your staff can access vital data from anywhere, at any time.
- Strong collaboration with clients – and within the firm: Communication is the basis of effective business. The more you communicate with your clients, the better you are able to understand their requirements. And this helps you identify areas where you can up-sell your services. Good communications within the business will also help you find new opportunities for growth.
- Agile client management: Unlike traditional firms, modern accounting businesses can keep up with their clients' requirements – and even stay one step ahead. This increases your value to your client, which in turn allows you to charge more for your services.
- A consultative model: Modern firms are focused on providing knowledge, not just services like taxes and bookkeeping. New software is automating basic accounting functions. So selling knowledge is where the market is heading.
- Active marketing: Instead of deals made over lunch at the local Chamber of Commerce, modern firms actively market their services. Marketing is now based on social media and dynamic, content-rich websites. You need to be where your clients are.
The view from the top – three main benefits to your firm
Once you've completed the transition to a modern accounting firm, the benefits are significant. These are the big three:
1. Increased productivity
Cloud-based firms can accomplish tasks in less time than traditional firms. With much of the work being automated, what used to take days or weeks can now be done in a few hours.
2. More clients
Spending less time on basic work means you have more time to work with new clients. You also have the marketing tools to reach new clients more easily than before.
3. More valuable services
Instead of selling basic services, you can give you clients more value by offering business solutions. This gives you ongoing revenue streams. It's also much more interesting and varied work.
In short, modern accounting lets you increase the efficiency of your firm, making you more agile. It gives you better communication and closer collaboration with clients. It lets you use your assets to their full potential.
Practical steps to becoming a modern accounting firm
We've explained the stages of becoming an innovative accounting firm, and defined the goals. How do you reach those goals? Nobody can tell you how to run your business, but here are some practical ideas that might be useful.
- Do your research: Find out about the state of accountancy. Read websites and publications such as Acuity and In the Black. Look at national and international resources – sometimes it can help to see what firms in other countries are doing. Attend conferences, watch webcasts and learn everything you can about accounting innovation.
- Involve your staff and clients: Change is much easier to achieve once you have buy-in from your employees – and your clients. Start by asking your tech-savvy clients about your current services and technology, and what they'd like from you. Create a 'technology team' of staff from various departments within your firm, but make sure it has a clear leader. Identify inefficiencies in your workflows (you can ask your clients here too). Get expert advice on the possible solutions.
- Move some processes to cloud software: A lot of basic accounting work can now be automated – so do it. There's nothing magical about cloud-based software. It just means software that stores data on remote servers. This simplifies workflows and means your data can be more secure than it would be on-site. Look into the popular cloud accounting tools and see which ones would work for you.
- Choose some initial clients to transition: Start with clients who already understand new technology. That generally means they are younger, usually with fewer than 10 employees. Choose companies such as professional services, creative agencies and online companies. Steer clear of clients with heavy inventory, high transaction volume, or lots of software integrations required – at least to start with.
- Drop unprofitable clients if necessary: If clients refuse to move to a more streamlined workflow system, you may have to make a tough decision. These clients can take more time to serve and are therefore less profitable. But before dropping them, try to bring them round to the new way of doing business. Sometimes it only takes an explanation of the benefits for a client to see the light.
- Attract innovative new clients: Once you become an innovative accounting firm, you'll want innovative clients. That makes it easier to do business. You can find such clients by having a good social media presence. It also helps to focus on specific channels and industries that work well for your business. Don't forget to market your firm through existing relationships with clients. The easiest way to get a referral is simply to ask for it. You can engage with suppliers and partner companies too.
Be part of the modern accounting revolution
Nobody's saying change is easy, but for accounting firms today it's unavoidable. The market is changing so quickly that you either adapt and survive – or you don't.
But this is about more than just running to stand still. Once you've made the transition to becoming an innovative accounting firm, you can:
- win more clients
- do more interesting work
- become more efficient
- charge more
- become more profitable
So make a start today. The faster you move to cloud-based accounting, the sooner your firm will reap the rewards.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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