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Episode 17: Get the right advice from your accountant

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All Xero In episodes

Hosted by Jeanne-Vida Douglas and Rob Stone

Once upon a time your relationship with your accountant was mostly about tax returns. But small businesses today want much more, making tax the least interesting part of what a great accountant can do for you.

Business technology journalist Sholto Macpherson says a combination of new technology, improved customer service and niche services has changed the shape of the modern accountancy practice. More than ever before, great accountants are offering coaching services to help grow your business, and acknowledging that your success is theirs, too.

Sholto talks to Xero In about the intimate relationship small business owners can have with a great accountant, and how it can propel you further, faster. He gives us an insight into the skillset of the modern accountant, and the three key questions you should ask before getting involved.

Small business resources:

How to choose the right accountant – Small Business Guide

Why small business owners should make and keep these new year’s tax resolutions – huffingtonpost.com.au

Episode transcript

RS: Welcome to Xero In. I'm Rob Stone, and joining me is JV. JV, how are you?

JVD: Not too bad at all. Going very well. We've got a really exciting guest today.

RS: We do. He's a household name in the IT world, Sholto MacPherson. Ex-journalist and now covering the IT space, in particular, SaaS IT. Sholto is one of the thought leaders in our space.

JVD: Yeah, and while I don't like the term, he's a bit of a futurist, too. He's good at predicting what's coming up.

RS: He is. Along with his dulcet tones, he's got some great opinions.

JVD: And well-founded, which is what's so exciting about being able to have a chat with him today, because what we're really going to focus on is accountants and the thought processes that you really need to go through when you're selecting an accountant and when you're deciding whether or not to change.

RS: Sholto brings that together, being a small business owner himself, to actually commentating around the accounting industry as a whole.

JVD: This whole idea of changing your accountant, too, is really interesting because I think your accountant is one of those relationships that traditionally you would have for the life of your business, but that's not true anymore.

RS: Yeah, as a trusted financial advisor, through to becoming a trusted coach and someone who will actually help your business grow, not just provide compliance work.

JVD: That's really what you need. Let's switch over to Sholto.

RS: Okay, let's do this.

Welcome to Xero In, your guide and inspiration for all small business owners out there. Joining us today is Sholto MacPherson, business technology journalist and commentator on cloud software. Welcome!

SM: Thank you very much, Rob.

JVD: I'm really happy to have Sholto here because we've actually worked in the same industry for many years.

SM: We have indeed. Thank you very much for the invite, JV.

JVD: We go to all the same parties maybe.

SM: Only the best.

RS: So, Sholto, today, we're talking around accountancy. You're obviously an expert in that field as a commentator, but you would have to be one of the most widely-connected people out there in terms of knowing the difference between good accountants, bad accountants, good advice, bad advice. Why don't we kick off by asking, how do you work out and determine which accountants are right for a small business owner?

SM: It's a great question, Rob. I think that the answer to it has changed in recent years, because most small businesses, when they think about their accountant, they're thinking about one thing, and that is, the output, the tax return, and choosing one from another, there may be marginal differences in the amount of money they can claim back and the amount of money that they'll have to pay, but it's quite a limited criteria for choosing someone.

We're seeing that totally flipped on its head. I don't know whether it's tied to millennials or just increasing expectation of customer service, but small businesses these days, want much, much more than a tax return. In fact, the tax return is the least interesting part of the relationship I want with my accountant.

We're definitely seeing that in the type of things that accountants, fast-growing accounting firms, how they're signing up new business owners is not by saying, "We do really cheap tax returns," or really fast tax returns. They're saying, "We will help you run your business." I think that is the number-one thing that you need to look for in an accountant is someone who wants to help you run their business as opposed to just do your tax return.

RS: Yeah, we're seeing that sense of caring a lot, so someone who wants to be involved, but it must come to a point where you're saying, do I give them part equity? How much am I prepared to pay for that return on investment and their time?

SM: I reckon a lot of business owners would be happy to give a bit of equity for someone to care about their business because the truth is, running a business can be an incredibly lonely experience. You're going to bed at night holding secrets to your heart that maybe your partner sleeping next to you doesn't know about, but your accountant does. It can be quite an intimate relationship.

We're talking about this idea of customer service. It is something that is quite foreign to a lot of accountants who have bored into that old-school image of you're the authority...

JVD: Being a bean counter, effectively.

SM: ... you sit behind the big desk and people come to you and ask you questions for your sage advice, but there's not so much reaching over the desk and saying, "How are you? How can I help you?"

The tools are changing and the services the accountants can provide are changing and business owners, if they look around, they can find accountants who can offer much, much more than compliance, , and someone who actually can help you a lot in your business without even needing to give them a part of the business equity.

RS: If we're talking about that power of differential between the old accountant, one where they've got that stature and prestige, versus the new accountant, which is almost like an extension of their own partnership and caring, underneath that new partnership model, What's the top three things you would like to the accounts help in your business?

SM: Top three things. Definitely one of the most important is regular communication, and not just passing on mail from the ATO. I don't call that communication. This is notifications. I think calling up, asking how you're going, checking in and there being some level of interest in your life beyond check boxes.

The second one, a lot of accountants starting to use the accounting software to provide some kind of KPIs or reporting on a regular basis. This is one of the most interesting things that probably a lot of small businesses don't know anything about, and that is that this idea of a monthly reporting or quarterly reporting is available for not a lot of money.

In the past, yes, it used to cost a lot of money because, to get those reports out, you had to make sure all the data was correct, and generally you'd have to be a big enough company to afford a bookkeeper to spend the hours to get everything up-to-date and all reconciled, and then you could produce reports and sign off.

 

The amount of work that's required to keep your accounts up-to-date is much less than in the past, which means that accountants can offer these KPIs or monthly meetings or reports at an affordable price, and that is fantastic because a business owner wants good quality advice, hopefully for not too much money.

JVD: We're talking about, too, I guess not only what you can get from your accountant now, but also, it is a question of when you look for an accountant, because traditionally, small businesses are very tactical. They're focusing on what needs to be done.

RS: They're working in the business not on the business.

JVD: Exactly. They'll come to an accountant or they'll start to look for an accountant when something needs to be done. They're task-orientated. I think it sounds like what we're talking about here is to be more strategic and to say, "I'm not looking for an accountant because I need something done. I'm looking for an accountant because I need a partner to my business."

That's really not a decision that you can make a week before some documentation is due. That's a decision that you need to make when you're not pressed for time. Is it more about when you make that decision as opposed to what you make that decision about?

SM: That's a really great point, JV. I guess there's a process of gathering information to work out who's the right fit. You talk about a partner; picking partners in any context is difficult. You need a lot of information to work out whether they're the right fit for you, whether you're the right fit for them.

I think the traditional channels of finding an accountant are also changing. Some of the best avenues are the barbecue conversation, to talk to other people, other small business owners, "How is your accountant?"

It might not be the best conversation on a Sunday afternoon around a barbecue, but you will find someone who says, "Yeah, my accountant is amazing. They talk to me all the time. They care about me. They care about my business. I've got these reports here and they tell me where I can make more money or I can cut costs." That all translates to how much more I can put into my back pocket at the end of the year, and that is something that every business owner cares about.

RS: But longer term, do you think this rate of change is speeding up, Sholto, or do you think-

JVD: Like are we more likely to change accountants ...

RS: Exactly.

JVD: ... than we used to?

RS: Do you think the switching will continue to increase at a fast rate?

SM: It has to. There's a demographic urge there and there's a large percentage of accountants, Baby Boomers, and they're looking to retire and pass their practices on. Even if people aren't going to change their firms, they're probably going to change their accountant within the firm.

That happened to me with my first accountant. He was recommended by a family friend, and within two years, he retired, and so I had a new accountant. Then there's also the cloud accounting phenomenon. I think that as businesses become more aware of what is out there, the types of choices they have, they're more likely to try some of those out.

Just to get back to how they're finding accountants, because I think this also bears on that, accountants, particularly cloud accountants, are becoming much smarter about sales and marketing.

You're finding accountants advertising in different places and in ways that they haven't done before. One of those is obviously niches, and you're seeing them pop up in healthcare or in events or in retail or in pharmacies ...

JVD: So they can say...

SM: ... or whatever.

JVD: ... "We understand your industry...

SM: Exactly.

JVD: ... We understand specifically what you're going through."

SM: That's fantastic. Seeing an accountant who's proactive about the sales and marketing is a great sign because if they're good at their business, they're probably going to have good advice for yours. Secondly, as we say, they hopefully should know something about the niche they're wanting to dominate.

RS: a lot of the accountants are moving away from just seeing themselves as a traditional professional provider, so, "I'm part of a professional body. I am here to give advice," to actually saying, "I am first and foremost a small business owner. I'm here to help people grow the business and I'm here to help me grow my own business."

For me, that spells one thing: the market is becoming a lot more competitive.

SM: It is becoming much more competitive.

I think we're seeing also this rise of the business coach. You've got Gazelles or ActionCOACH, these coaching systems. For their coaches, it costs apparently $8,000 a year for that licensing arrangement. They'll go out and pick up maybe 20 clients and charge them $3,000 a month each to provide advice.

Now, that is a service that accountants could also provide, because how fantastic if your business coach is also your accountant and understands all your numbers already? We're seeing some of this. Some accountants are doing it off their own bat, they're becoming these business coaches

That is good value, and business owners will pay two, three grand a month or more. Compare that to the three grand a year or four grand a year for your tax return and that's a bonanza.

JVD: It's going to be worth it to them, too. If they're paying that, that must be the value plus that they're bringing back into the business.

SM: I pay.

JVD: Yeah?

SM: Worth it to me.

JVD: Absolutely. Tell me, too, I guess as these accountants move into particular niches, is it also enabling them to bring a certain amount of passion about a certain industry or an area to that work? What does that add to the business at the end of the day?

SM: That is a terrific point. I was listening to a podcast the other day about sales and marketing for a small business, and there was an accountant featured on there in Queensland, Inspire CA, you've probably heard of the guy, and he's just focusing on small businesses run by moms and dads and he wants to help them achieve their goals.

The great thing about having a niche, even if it's not an industry niche like Inspire CA, is that you can define yourself as something. It means, yes, you have to turn away business if it doesn't fit within your definition, but it means it stands for something and it gives you a purpose. I think that a lot of accountants and accounting firms have been missing a sense of purpose.

To be a one-stop shop for every man and his dog who comes to the door to do their tax return, yeah, I guess it's a purpose, but to have that connection to a much more defined customer base and say, "I am here for you," that means much more to them, and in return will mean much more to you, too.

RS: So you've got more upside on the marketing because people could see that you care, and then at the backend, they'll be getting more efficiencies as well because you're replicating processes for a narrow segment as well. I think that’s better for the accountant also.

SM: And more intellectual property. You will know so much more about, say, for example, which programs will connect into their accounting program to run their e-commerce or their point of sale or their inventory or their field management or whatever it is, you’ll just say: hey 10 companies I work with use X, I think you should choose that one.

JVD: Yeah, absolutely. That...

SM: The right value.

JVD: ... level of insight.

RS: Add-ons, JV, are softwares that, because Xero, at the center, created a very open API, which allowed them a lot of softwares to then correct connections with Xero, which is fantastic, but add-ons, I almost prefer the term "sister software companies" that work together.

SM: Let's call them sisters.

RS: If you own a café and you go in there, okay, you've got accounting at the backend, but then you need a point of sale, you need something to manage the inventory and then maybe something to track the customer...

JVD: If you've done half...

RS: ... the CRM.

JVD: ... a dozen of those businesses before, you know exactly what they are, which is great.

RS: Every software's got its own quirk when it comes to integration, so you do need to build up expertise...

JVD: Yeah, absolutely.

RS: ... particularly around in a niche.

JVD: I was just going to say, too, it also gives a huge opportunity for job satisfaction as well, because the thing that has always intrigued me about accountants is they often have really quirky outside interests. They're often also passionate about other things, like surfing or jumping out of helicopters to go skiing in strange parts of the world or driving on frozen lakes.

RS: That sounds just like Sholto's weekend.

JVD: I guess one step backwards, because we started out with what other services you can get from your accountant, then we looked at when is the right time to change. Can we go a step back and say, what are the warning signs if you've got the wrong accountant? What are the things that make you go, "Mmm..."

SM: The wrong accountant. Let's set aside fraud or mismanagement. The wrong accountant, there may be no warning signs, but there just may be a better accountant. For example, your existing accountant may provide good service and whatever. I think that what is important is a missed opportunity by finding someone who could do a better job.

RS: That's really hard, though. You don't know what you don't know.

SM: I think back to JV's point about when do you change, I just think you always need to be gathering information. If this is something that you want, an accountant who is proactive, an accountant who can give you regular reports on your business and so on, then start talking to people and find out what is out there, what services they offer, how much they cost, and decide whether your accountant meets that level.

RS: Maybe we should have an international Trial-Run Another Accountant Day and see what you think-

JVD: Change Your Accountant Day, like Ride to Work Day.

RS: I'm curious, how many accountants have you had since you started your business?

SM: I'm up to my third.

RS: What were the points in time, you mentioned one there was a hand-off inside a firm, but then what was another time when you had to change-

SM: I have four, including that. The points when they changed, one was when I wanted someone who was much closer to the online world in which I'm working, and so I changed for experience. That was great, but it was a larger firm and I wasn't quite at the size where it was worth my time or theirs.

I changed again and went to someone who I thought could give me the regular reporting and someone who I knew was really interested in the business of accounting because, obviously, that's what I write about and I want to talk to someone who can give me ideas and also who is doing interesting things themselves.

It's a bit of a blurred line for me as to how I choose an accountant, but I think the basic principles are definitely around communication, someone who has switched on, someone who is really efficient through technology, because I know there's so much scope there and I don't want to be paying for an accountant's inefficiencies.

Tech-savviness was critical, and just someone who I thought could grow with my business, so I could see that they're growing their business very quickly, and you want to get on that train. It's like, come on, let's do it.

RS: That's fantastic. Tech-savvy, I don't know...

if you would've heard that 10 years ago.

JVD: At the same time, I guess it's tech-compatible, because you'll have, Sholto, a different level of requirement in terms of technology and the way technologies are explained and implemented from perhaps a mom-and-dad business or

SM: I disagree, JV. I disagree, because there's so much technology out there, just for all small businesses, but accounting firms as well, that all thistechnology helps reduce the time it takes for you to do the tasks to earn money.

A non-tech-savvy firm will take more time to do something which will cost it more money and they'll earn less money, so they'll have to charge the client more money to make up for that, to make their margin.

RS: I would say that as being one of the big trends we're going to see over the next 24 months is more notification, and almost automatic notification from accountants via software to the end user.

SM: Yeah.

JVD: Saves so much time. So much time.

RS: And business intelligence. Pointing to if you've got thresholds, say, for instance, your turnover is reducing or your actual receivables days is blowing out. Then that can trigger a warning to your accountant, who can then go and notify the business owner saying, "Listen, you need to start worrying about your cash flows a little bit more closely." Most of the softwares that are out there today have that smarts baked into them already.

JVD: I guess, too, someone who can take you on that journey, because there will be people who aren't comfortable Someone who's actually willing to take the time to say, "This technology might look a bit intimidating right now, but here's why I think it's relevant to your business."

SM: I spoke to an accountant who runs a bookkeeping service just last week, who one of her clients is a mechanic and he struggles with email. She says, "Every time I go out and see him, I teach him one new thing. The last time it was how to do batch payments in your online banking to pay out the bills."

She said, "He's taking a really long time, but I'm chipping away at it, and every time I show him how much easy it is to do it a different way, he gets it." There's that ongoing education that is fantastic for the business owner. It's a real soft skill , it's real intangible, but it's-

JVD: It's so insightful to know that you need to, I guess, bring out these things one at a time, bring them out more slowly, rather than saying, "Here's a new software system. Now implement it. Now use it. Here are all the little techniques it has."

Small business owners are specialists in whatever it is area they have a small business in. All of these other stuff needs to be easy for them. If they're being overwhelmed with information, then that's probably a key that this is the wrong accountant to be with, that you need to be with someone who can hold your hand a bit more and can put the information out a bit more slowly.

RS: Would you agree, Sholto, as a generalization, Australians as a whole are very early adopters of technology compared to globally, say, for instance, the US where it's still primarily a check-based economy?

JVD: Don't even go there.

RS: Whereas Australia, we're quite early in the take-up of internet banking, and we only have to look at the adoption rate of mobile technology. I think there is a willingness to change more so than ...

JVD: In other cultures, yeah.

RS: ... on a global level, but obviously there's still going to be subsections of any population that's going to be resistant to change.

SM: Yeah. I chatted to someone about this the other day. The take-up of online accounting software is higher in Australia and New Zealand than elsewhere in the world by quite a margin. Why is that? What is it about? Theorizing about Australian cultural attitudes of wanting to give something a go, trying new stuff and seeing if you can make it work and...

Maybe there's something in that, because we do have one of the highest mobile phone, smartphone penetrations in the world. You see it in lots of other areas. I think for the accountant to be sitting there thinking, "Yeah, I don't know how many of my clients would be into this," you might be surprised by the answer.

RS: Small business owner, Sholto, you're running a very successful online magazine, a thought leader in accounting and bookkeeping spaces, technology particularly around cloud-based technology. Where to from here? What's the next stage for you into-

JVD: What's 2016 looking like?

SM: You know what? I am really keen on working with young accounting firms and young accountants who want to start accounting firms and helping them get up to speed as quickly as possible, because there's all this stuff that they don't teach you in accounting school.

For example, we're talking about, say, this move to subscription economy where you can buy razor blades on subscription and everything is becoming subscription, CDs have gone Spotified, et cetera, yadda yadda. Ask an accountant what are the subscription metrics for a business, and they will struggle to tell you what LTV stands for or churn or any of these other things, because apparently, and I was gobsmacked by this, they don't teach you that in accounting school.

I'm a words guy, right? Those are numbers. That is your game. How can you not know that? There's this big gap. There's that side, there's this embrace of technology to become more efficient as an accounting firm, and that wheel is turning faster and faster, digital signatures and all this kind of stuff.

I want to get involved with the people that want to change and the people that want to do something new and say, "Let's work at how to do it fast and have a good time. Let's make a really cutting-edge accounting firm. What does that look like?"

RS: That sounds like a lot of...

SM: CRM-

RS: ... fun. The advisor to the advisors. Looking back, what advice would you have given a younger version of yourself when you were starting out with your business?

SM: Such a good question. I would say to that kid five years ago, who's so naïve, I would have said, "Listen more," because, particularly as journalists, I think we get caught up in trying to define what it is everyone needs to read and sometimes that conversation is not as two-ways as it should be, so getting out there and talking to people and saying, "What is the information that you really need? I will go and get that."

I think that translates to all small business. You see the people who do really well in business and they are so close to their customers. I know it's like a cliché and whatever, but to actually put that into practice and to pick up the phone or to go down and meet them and say, "Hey, how are you going? What's happening? Where are the problems? How can I help that?"

We're talking about how accountants can do more for their small business clients. This is a conversation I think too few of them are having. You have to say, "What can I do as an accountant? How can I help you?" and be imaginative. If the small business comes back and says do something that you don't ordinarily do or you feel slightly uncomfortable about doing it, try it! Try it with one. See how it goes. If it sucks, don't do it again.

I think it's so important to not limit yourself into this idea of, have these little ideas about this what other people do. Five years ago, I would've said, "Listen to what people want. Do what they want."

RS: That's very much the Lean methodology. Keep going out there asking what the market needs, trying to help-

JVD: Be prepared to make mistakes...

RS: Experiment and iterate.

JVD: ... with experiments and fail fast.

SM: Yeah. Listening.

RS: Good advice, really good advice. Thank you, Sholto.

SM: Pleasure, Rob. Thank...

JVD: Thanks very much for coming...

SM: ... you, JV.

JVD: ... on the show.

SM: I had a great time.

JVD: Excellent.

RS: The salient points that I got from Sholto there was really trying to find an advisor that will give you that report and the communication and alignment with helping you to grow your own business, so communicating regularly and gaining that sense of purpose that you as a small business owner has.

It's not just about compliance anymore. It's really about going in there and providing almost like a life coach to help you, the accountability, to continue to grow your business.

JVD: it made me consider how important it is to have that regular contact with your accountant and to be hearing from them often.

Also, I guess for accountants, to remind people that you're speaking with people, not just business owners, that your customers are whole people and they have other concerns that ultimately will impact their business, so to really, I guess, service to talk to, to support the whole person and not just the business entity.

RS: I think there needs to be a conference from small business owners saying, "I want more."

JVD: Absolutely.

RS: "I want to go out there and it's not just about tax and quality activity statements. I want to go out there and find someone who's going to really make me successful."

JVD: The great thing about having, I guess, the level of digital engagement with your finances, with your accounting now is that you can change. Once upon a time, changing accountants meant getting all of your paperwork off them and taking that huge file down the road to someone else and getting someone else to get up to speed.

You don't need to do that now. You do have the option to be really conceded about what accountant you use and whether or not they're the right accountant that will match to your business.

RS: You make it very much sound like a relationship.

JVD: Yeah. I guess it really is. Your relationship with your accountant is probably the most important relationship you have. Maybe your solicitor is the next, but yeah, when you're in business, they're fundamental to your success.

RS: I agree. Thank you.

JVD: Yeah! Thanks very much. That was a lovely conversation. I'm really looking forward to the next one.

RS: Can't wait.

 

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