FreeAgent Central founder Ed Molyneux tells John Stokdyk how Cloud computing is beginning to change the nature of accountancy services for the freelance and contractor community.

In an interview with BusinessCloud9.com [1], FreeAgent central founder Ed Molyneux wrestles publicly with the dilemma his online accounting service faces in 2009 - whether to chase new investment and an ambitious growth strategy, or to stay focused on the product and perhaps let other, better funded operations gain market share.

Molyneux admits to considering the venture capital option, but says: "We're not throwing ourselves at it. If you don't need their money, they're really keen to give it. But when you do, they're very cagey."

Instead, the three-strong company appears to be comfortable with staying close to its core freelance and microbusiness market. "We all came from freelance and accounting backgrounds and what's in the product comes from that," says Molyneux.

The key element in the FreeAgent interface is a "timeline" linked to an accounting and tax calendar. The timeline tells users when they are going to next have to deal with tax liabilities - and how much they will be. While the mechanics of ordinary bookkeeping are reasonably straightforward, FreeAgent's understanding of UK tax rules and how they interact with the underlying accounting model are its unique selling point, Molyneux says.

The FreeAgent accounting engine not only keeps the user alerted to impending deadlines and liabilities, it also maintains a real time "distributable reserves" figure that draws from the P&L and tax modules and reacts to any new figures entered.

The Corporation Tax module, for example, starts with the P&L and then takes account of all the capital allowances. Molyneux admits that the program's assumptions are based around the needs of small, service based organisations, but the logic is solid enough to come up with reasonably accurate figures for most of its user base. Because of the way the program works, users can enjoy the experience of seeing their CT liabilities go down as they enter business expenses, he adds.

The user's own personal self assessment return is also processed by FreeAgent and entered into the timeline.

The same effort has gone into the system's VAT reporting modules. "We always seem to go a step beyond where other developers stop and set out to model as much as we could do - including cash, invoice accounting and the flat rate scheme," Molyneux says. "The user can switch between cash and invoice based accounting and we'll take care of it automatically. And we now have a VAT cash deferred liability account that models when you raise an invoice."

Like many online bookkeeping systems, FreeAgent's growth strategy is based around developing partnerships with accountancy firms that will bring their clients on to the online accounting system. Deals have been tied up in 2009 with London-based Blevins Franks, and Upton & Co from Wakefield in Yorkshire. As part of the arrangement, Blevins Franks has launched a monthly accounting service that will cater for 300 within the FreeAgent system.

Molyneux admits that FreeAgent has struggled to gain a stronger foothold, but insists that forward-looking accountancy firms are beginning to get its message about the new way of working. "In five years if you don't have an online solution, you won't be offering what the client expects. The firms we are talking to are reorienting their business model about exchanging the data and where they can add value around that," he says.

For Blevins Franks, FreeAgent will help with migrating a couple of hundred clients from different accounting systems. Data from these users is being exported to a series of spreadsheets that will be imported into FreeAgent where they will appear as live transactios rather than just a trial balance. "Even if we only bring in 80%, that's saving [Blevins Franks] a significant amount of time," Molyneux says.

Other avenues being investigated include mail-in processing services for clients and data validations. These experiments and the Blevin Franks flat-rate service package are paving the way for a new kind of accountancy, Molyneux predicts.

Blevins Franks are working out what they can take out of the service and still provide the compliance clients need - say £65/month, with possibility of £45/month for bare bones compliance. If the off-street pricing starts to look like a £20/month, it will create a new bottom-end concept."

Commoditisation of accountancy services is already happenign and there pressure will continue to build on accountants to justify their prices.

"The market will become much more consumer-driven," says Molyneux. "Accountants have the knowledge which gives them power over clients. There's no incentive for them to educate clients, otherwise they would need accountants less. This relationship seems to have maintained itself for several years, but now accountants are having to justify their fees more - because we're making it easier to migrate accounts."

If it becomes easier to move between accountants, there will be a proper marketplace around accountancy services, rather than the current model based on practitioners' ownership of accounts data, he argues.

"It's the clients' data, so they should be able to chop and change. We're not in the accountancy market to make switching easy, but there's an inevitability that if technology makes that process easier, there will be a pull between clients."

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