Accountants working in business often complain that practitioners are so tied up with statutory accounts, audits and tax returns that they have no idea about what actually goes on in the real world.
But that perspective is becoming less credible. In-house accountants buried in the minutiae of their own business may not always appreciate that practitioners can draw on experiences and insights gained from hundreds of businesses. And with the growth of the “virtual FD” concept, many accountancy firms are now carrying out core management accounting tasks such as strategy and KPI formulation, planning, investment appraisal and preparing and discussing monthly management packs (see box below).
● 31% of 2014 shortlisted firms offered strategic support to clients
● 25% operated in some kind of business advisory niche
● 17% prepared and delivered KPIs for their clients
● 17% offered a full “virtual FD service”
● 14% offered business planning services.
This article sets out to look in more detail at the shift from compliance to management reporting and whether this trend holds the key to accountancy’s future on both sides of the business/practice fence. It will examine the kinds of activities being under taken and how management reporting is evolving in this new environment.
The Virtual FD model
Half the firms entering the Practice Excellence Awards this year (PEA15) offer management information as part of their service for business clients - up from 33% in 2014. One reason for this jump is that the approach has been shown to have a very beneficial effect on client satisfaction and practice profitability. Probably because it serves a fundamental client need.
Businesses with a poor grasp of management information are going to be at a disadvantage. Entrepeneurs are not always well versed in financial matters and if they lack these skills they may lack the knowledge they need to stay in control of their business.
Until they reach a certain size, small firms are not able to afford £30,000-£50,000 a year for a trained accountant to handle their management and financial reporting. This gap has existed for years. Now that online accounting tools make it possible for external accountants to oversee the accounting journals and reports, we have witnessed a surge in financial management outsourcing among small businesses and the accountancy firms serving them.
Those fast-moving entrepeneurs may also be so caught up in the rush of day to day demands that they don’t have the time to sit back and reflect on what their financial numbers are telling them. The virtual FD can step up to fill that strategic void, and help the business plan not just for the short-term, but for the future.
What kind of management information?
While many practices are becoming the finance team that puts together monthly reporting packs for company managers, Receipt Bank founder and CEO Alexis Prenn argues that monthly management accounts are not the future of accountancy. Cloud technology has changed the dynamic of accounting so much that advisers should be thinking more creatively about what they could do with this information.
What if accountants and businesses could get their hands on transactional data even more quickly and efficiently? Why not produce weekly management accounts?
In a scenario that is familiar to accountants on the Australian accounting conference circuit, specialist bookkeepers are now doing this for Antipodean coffee houses and eateries. “Cafés can run up costs very quickly - if you have three unprofitable weeks, you’re sunk. With online tools and transaction capture, the café can close its books on Sunday and get the weekly management accounts by Tuesday,” Prenn said.
Accountants with specialist knowledge and clients in this market will understand what each café’s performance metrics need to be and be able to respond more quickly if problems arise. “They can get more creative and look at what the business should look like in 12 weeks,” Prenn suggested.
It’s an intriguing vision, but not one that completely convinces Spotlight Reporting’s managing director Richard Francis.
“Management accounting is a halfway house” said Francis. But having access to real-time numbers is not a strong enough foundation to push practitioners down the advisor route: “What if they don’t have the right skills?”
Those skills need to include the ability to use the data to derive client-specific insights - and then present them to the client in a meaningful form, he continued.
The rise of the virtual FD has been accompanied not just by cloud accounting software such as FreeAgent, KashFlow, Xero, QuickBooks Online and Sage One, but also by associated tools that help advisers to analyse and present accounting numbers. For many advisers, this might well be Excel, but the accountant’s best friend is getting a run for its money form cloud reporting add-ons such as Spotlight and rivals including Fathom, CrunchBoards and many, many other cloud tools.
A common theme from all of these developers is that the management accounts are not the product, but a vehicle that helps the accountant to deliver relevant advisory products and services to their clients.
CrunchBoards founder Hannah McIntyre explained,” We designed the product from the business owner’s perspective. It’s about giving a tool to the accountant so they can create information that their clients need fast and efficiently. That speeds up their practice, but ultimately it’s about the conversation.”
She argues that Excel is too cumbersome to respond to “what if” discussions with small business owners. Spreadsheet tools hold accountants back from offering small business clients valuable services such as cashflow forecasting, “which is what they need most”.
This is the kind of quick and flexible reporting CrunchBoards tool was designed to produce, she continued. It allows small businesses and their advisers to compare multiple options and different planning scenarios. “If expansion does go ahead, you can compare actuals v forecasts and see how you would get on - or let the bank manager and investor see,” she said.
For Spotlight Reporting, the emphasis is more on accuracy than speed, but Francis too described his product as a “gateway tool” for advisory services. “Reporting and business intelligence allow you to have conversation about the future rather than past. We visualise it so the client can understand it,” he said.
“That allows the accountant to have a two-way dialogue with a client who’s not confused by the P&L and balance sheet. The accountant is more or less forced to give advice.”
MyAccountancy Place, Woods Squared and Kinder Pocock are just a few PEA15 entrants that are achieving great results with management reporting services.
As part of an all-round re-engineering project for a web design client, Kinder Pocock linked Xero to its ecommerce systems. Drawing on this detailed data, the firm produces management reports including forecasts that have helped the agency attract new investment and negotiate a sizeable overdraft from its bank.
Introducing smart cloud technology to automate the finance function of small business owner clients has had a profound effect at MyAccountancy Place, according to founder Paul Barnes. “Previous to beginning their relationship with our firm, many of our clients would only really understand the profitability of their business once a year when they met their accountant. With accurate daily reporting and expert advice from qualified professionals, our clients are able to take control of their profitability day in, day out,” he said.
Stephen Paul at Valued Solutions has gone a step further and created a management reporting consultancy and mentoring programme. The service hasn’t just benefited clients, but has had a positive effect on staff retention because people get to do more interesting work.
There’s a real turn up for the books: accountants actually like producing useful reports.
Find out more about what accountants like Stephen Paul and Sharon Pocock think about the profession's future at AccountingWEB's Practice Excellence Conference on 24 September in London. Click the graphic for more details: