From twelve hours to three

End of financial year compliance in the cloud

Erin Smith

Kerry Mickan is partner at SGK & Associates, a Xero gold partner firm that works to empower clients with a forward-thinking approach to business.

SGK was stunned when they managed to reduce one client’s annual compliance work from twelve hours to three. Now Kerry shares how cloud accounting has given time back to his practice, and changed much more than its end of financial year workload.

I’m fortunate enough to have been a partner with SGK & Associates for three years. I say fortunate because I love what I do. I come from a small business background – from generations of business owners – and I always wanted to help people in the micro-business space.

The business owners I work with might turn over $1million a month but their challenge is understanding what part of their business actually makes them money, whether it’s knowing their best-performing products and services, or comparing complex business units and divisions.

I’d pose questions to make them think about their profitability in new ways, like, “If you increase your sales price by 1 percent, what does that do to the bottom line? If you reduce your debtors days by 20 days, and increase creditor days by 10, what does that mean for your cash flow?”

Then I’d show them the real-time results… or that was the theory. But with the old desktop software options it used to take forever to get the information to show the impact and help my clients make decisions. It was one of my greatest frustrations.

Graduating from data entry to data flow to turn EOFY around

Moving our clients to Xero turned that around for me entirely.

Where traditional desktop accounting software is about data entry, with Xero we are able to take advantage of data flow – drastically reducing time and increasing accuracy for our clients and our practice.

For example, we brought Xero Tax into the practice for the first time this year. It allows us to use one data file to complete the BAS, financial statements, and income tax returns. Once you set up mapping from the client Xero subscription to the Xero Tax return in the first year, only minor changes – if any – are needed in subsequent years. This process alone was, and still is, a massive time saving.

As a three-partner firm looking after more than 1,600 clients, we were on track with our EOFY lodgements by early April – well ahead of our original schedule. And as anyone who has changed tax software before can understand, this is not usually the outcome. It’s often much more difficult than first anticipated.

“How did you finish that 12.3-hour job in 3.4 hours?”

The time saving we experience on compliance alone is incredible. Let me give you one example.

Every year we work with a farming client in primary production. They are a husband-and-wife team in their 50s who engage us for compliance-only work and prefer to prepare the books themselves. But because they’re not qualified bookkeepers, the data often comes with numerous errors.  

Last financial year, their compliance work took us 12.3 hours using a desktop accounting software package. We would wait for them to forward the data file along to us, which meant the work never got lodged until after Christmas – well into the next financial year.  

This year, I helped them convert to Xero and the same job took just 3.4 hours. We didn’t need to wait for a file as we had the majority of the information we needed through the Xero subscription. Then we were able to use the find and recode function to tidy their data fast. The speed was phenomenal.

It is not uncommon for us to reduce the billing time by 50 percent from the previous year using Xero, even when mapping accounts and completing financial statements for the first time. We use the extra time to help business owners understand their business. Within the first BAS period, the wife couldn’t stop praising the software and our firm. (I think the whole district now knows about us!) Our firm has grown dramatically over the last two years and almost all of it is through word of mouth.  

From compliance-only clients to engaged owners

When you work with a large number of micro-business clients like we do, this kind of compliance experience can be a common story. Which means the efficiency gains scale quickly.

Some clients will only ever want compliance, and the speed with which we can now offer that service is incredible. But for anyone who wants more, Xero unlocks the real-time information for us to give quality management advice. We’ve found we can often transform a $2,000 to $3,000 a year compliance client into a $1000 a month client without any fee resistance, due to the profit increase and real lifestyle improvements they receive in return.  

We now have the time to help our clients work on their business, not just in it, and that education alone is enough to switch someone’s mindset from being self-employed to being a business owner. You rarely turn back from such a mental shift – and that, for me, is what it’s all about.

As an example, we recently took on a new business client with a prior year net profit of just over $200,000. But this had been trending downward for a number of years. Within one year of basic management accounting using only Xero, they are on target to triple this to at least $600,000 this financial year. As you could imagine, they’re over the moon. They tell me they now have more time to spend with their daughter.

That’s part of what life is really about: using the tools at your disposal to create more time to do the things you want.

Create impact: teach people to teach people

Scaling the impact doesn’t stop with the things I teach my clients. I teach my team to teach too.

That’s why I want to free as much time as I can to ensure we attract and train the best people to do their best work, and communicate to the best of their ability. Our ultimate goal is to help our clients achieve their goals, whether they know them or not. By teaching to teach, the practice becomes self-replicating, allowing for almost unlimited growth.

With those big ideas, we’re only at the beginning on our journey. But when I consider Xero’s approach to continual improvement, I have no doubt we will have an unbelievable future together – where our both our clients and our firm benefit in ways we simply can’t predict.

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