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Should accountants fear the great software consolidation?

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This year has seen the accounting software market march to the steady drumbeat of acquisition, as small developers are snapped up by larger rivals. As their customers, should accountants be worried about this increasing trend of consolidation?

20th Oct 2022
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Over the years, accounting tech watchers have seen the software pendulum swing back and forth between two extremes: on the one side an everything-in-one-place suite that offers all services under one roof, and on the other, core accounting software with an Apple Store-esque ecosystem plugged into a number of best-of-breed solutions  – with most accounting firms occupying the space somewhere in-between.

Factors such as lockdown-driven innovation driving cloud adoption, cheap funding for startups and lowering software development costs gave rise to a fintech boom in recent years, with 2020 marking the crest of a wave for independent developers in the accounting industry.

From then on, we’ve seen a steady contraction in the market, with AccountingWEB's own Insights research pointing towards a swing back towards integrated tax and practice software suppliers as the transition to MTD for income tax self assessment (ITSA) nears. As interest rates rise and the cost-of-living crisis kicks in, larger developers have made hay by snapping up their smaller competitors like Pac-Man and the Ghost Gang.

Bright Group has led the way, thanks in part to an injection of funding from accountancy-focused PE house Hg Capital. Formed in September 2021 following a merger between payroll provider BrightPay and Irish compliance tool Relate software, Bright has grown significantly over the past 12 months, acquiring practice management tool AccountancyManager and recently following it up with the purchase of compliance tool BTCSoftware.

Sage has splashed out on AutoEntry, GoProposal and Futrli, Access Group recently acquired Fathom, while Bright’s Hg stablemate IRIS has bought Senta, Staffology, Taxfiler and AccountantsWorld.

Accounting community reaction

So are accountants worried about their software world contracting? Or excited about the opportunities presented by a new breed of cloud suite, and the efficiencies this could bring?

Take the temperature of AccountingWEB reader comments on articles about any of the above acquisitions, and you’ll find the majority in the “concerned” camp. Members flagged past experiences of their beloved products selling out to “the man”, which led to price rises, support tailing off, account managers leaving, a lack of development and the eventual sunsetting of the product – or at best being rolled into a larger product set.

Worries flagged by the AccountingWEB community include good products being killed off by a buyer simply wanting to expand its market share, and on the customer side, small firms are not keen to incur the additional costs of retraining staff and clients on new software. One major issue highlighted numerous times is access to past data, and whether this is maintained once a product heads off to the great software elephant graveyard in the sky.

These are all legitimate concerns, but surely also represent an opportunity for vendors to reassure their new customers that they have their best interests at heart – or at the very least make sure their price structure and future plans are transparent and available on the website.

And the door is also open for accounting suite vendors to meld their acquisitions together to boost practice efficiency, particularly in the run-up to the government’s (current) mandation date for Making Tax Digital for income tax self assessment (MTD ITSA). In its recent announcement about a new MTD ITSA sole trader tool, serial acquirer Sage was keen to emphasise the efficiencies firms can gain from the ability to sign-up a client, extract and manipulate their data and file their returns, all through the same product.

What happens next?

With the current economic uncertainty likely to continue into 2023, there may well be more consolidation yet to come. But all is not lost for new tech enthusiasts, with several new trends appearing on the horizon.

Coconut CEO and chartered accountant Sam O’Connor has talked about a post-cloud-accounting world, where browser-based systems such as Xero or QBO are superseded by demand from younger users for mobile-friendly tools – although as the boss of a mobile-friendly accounting tool, it could be argued that he would say that.

Another trend to mark the seasoned tech watcher’s card is the rise of accountants themselves as fintech founders. Frustrated with the lack of flexibility provided by the major players, a growing number of accountants are picking up their ledgers and dealing with developers direct, or in some cases building the tools themselves.  

The majority of the acquisitions mentioned in this piece also form part of an effort to consolidate a set of best-of-breed tools into a comprehensive cloud offering. With the major vendors now operating with a complete set of cloud tools, this may serve to slow down the rate of acquisitions.

As is the case with many things in accountancy, from Big Four bookkeeping failures to big firm consolidations, the pendulum always swings back the other way. Although sometimes not quite in the way one might expect.

Replies (11)

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By Self-Employed and Happy
21st Oct 2022 10:55

I actually think the biggest worry accountants should have is HMRC's trend to seemingly freeze us out and try to deal directly with the tax payer, add this to the software promises of submitting direct to HMRC and there could potentially down the road be far less demand for compliance work with smaller tax payers / businesses (regardless if they make a mess).

I do agree about the part where they kill off products, however more specific to that, products killing off features to then only re-introduce said features within a higher subscription package, therefore not making the product better at all, just trying to make people pay more money for the same features.

One thing the softwares aren't great at is simple on-boarding (why would they be), so if you ever wanted to change your entire practice cloud accounting offering then you'd probably wait for each clients year end to finish and move them over gradually.

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By North East Accountant
21st Oct 2022 11:13

No Accountants shouldn't fear the consolidation, it's a good thing.

Rather than a hotch potch of cloud software cobbled together I would much rather one vendor provided an end to end cloud system for all the key areas every accountancy businesses needs.

I know no-one does it all but as few as companies involved as possible means an easier and more efficient flow of data from start to finish.

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By mkowl
21st Oct 2022 11:17

Looking back over time my firm had various software providers and gradually Sage swallowed them all, so by default we ended up with them across all lines aside from payroll. Not the cheapest option but frankly when you factor in the opportunity cost of changing and basically not enough hours in the day to do so - but also that one of the big boys will likely acquire them, then in the words of Massive Attack - Inertia Creeps

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By twohaporth
21st Oct 2022 12:32

My experience suggests that when companies are bought up - usually because their product is viewed as good and thus a competitor - the product disappears or the price is hefted upwards.
This seems to be true of anything where HG is involved.
The other problem is that quality reduces. When we started with IRIS about 15 years ago it was a fantastic product and the support was faultless. Now we only use it in an associated business and have more problems than enough with malfunctions and a difficult to understand support team who probably work from home so cannot solve difficult problems.
Of course it is true to say that HMG and HMRC make it all more difficult with so many tax law changes all the time (especially now we have revolving Chancellors if the current incumbent can be regarded as such - I personally think it was just to get him a bigger pension - so hopefully he may be dispensed with sooner rather than later) so if HMG could do as they keep saying and make it all simpler we should all be better off.
As for dispensing with us lot, Heavend forfend that we should all have to be auditors to earn our crusts - that would certainly be me to shelf filling at Sainsburys! With the greatest respect to the man in the street most just wouldn't cope with tax law if my experience is anything to go by. Useage of Xero and the like produces a pretty answer but often claims VAT where there isn't any and tax relief on items for private use and so on. How could HMRC possibly cope with this? Their staff often don't understand the tax rules themselves so how can they expect Jo (lady this time) Public to understand them.
It isn't just MTD for ITSA that is a disaster in the making - the whole Civil Service is pretty much a disaster already. Future Governments will raise taxes by fining people for breaking this rule or that rule and that doesn't even feature in any politician's mandate. You only have to look at MSN to see the wonderful new opportunities for new fines to be collected and that's just in your car!
The overall problem is the same in Government and software houses - too many clever grauates with no experience of real life so cannot appreciate how difficult it is for ordinary people to cope with technology. HMRC is the outstanding example of this - exemplified by calling taxpayers 'customers'. A joke! If they were customers they'd be long gone after trying to deal with such a bunch of wallies. My little wager is that the 'Tax Gap' will widen after MTD for ITSA just as it did for MTD for VAT. Of course it won't matter as they'll make it up with fines - mostly on the people who can't afford it. It makes them total ****s in my view.

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Replying to twohaporth:
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By flightdeck
24th Oct 2022 15:47

Excellent response. You have summed up a tangle of problems very well.

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By Ian McTernan CTA
21st Oct 2022 12:41

Biggest issue I have is with IRIS, who swallow whatever company I go with who are providing an excellent, no frills product, then proceed to try and tack on things I don't want whilst doubling the price then adding at least 8% per annum after that.

I like small, bespoke providers who can adapt and supply a product that does exactly what I need. I don't need or want something with bells and whistles designed for a multi million pound practice with 100's of staff and timesheets.

I'm guessing IRIS will increase the Taxfiler price by 15% in April, whilst telling us once again how great the add ons will be and how hard they have tried to keep the increase as 'low as possible'...

And of course you need to have given them notice in January before they even announce what the rise is as they put you on a 12 month auto renewing unless you give three months notice contract...

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By whyowhy
21st Oct 2022 15:54

I'm no software developer so am probably talking nonsense but I get the feeling that it is getting easier and easier (and cheaper) to produce software in the accounting sphere. If you look at all the reporting apps in the Xero app store alone, they all do the same thing - produce reports that are prettier but ultimately less flexible than Excel. And new ones appear fairly regularly which makes me think that they are not hugely technically challenging for someone who knows what they are doing. Then you get accounting firms like Mazuma et al just building their own software and apps. I think this is going to get easier to do as time goes on. And so if a software company buys something and then restricts use, something else will fill its place. I would love to know how many accountants left Xero to go to QB because DataDear was no longer available to Xero users. I doubt thatDataDear will provide a competitive advantage to QBO that will justify the purchase price (whatever that was). We switched to G-accon with almost zero issues. Far easier to do that than migrate from Xero to QBO.

Technical software like payroll I assume is far more technically challenging but the rest - reporting, cash flow forecasting, practice management, proposals etc can't be that hard.

But who am I to say.....?

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By [email protected]
22nd Oct 2022 11:13

HMRC large developers delivering products for their benefit not the tax payer. HMRC benefit and HMRC 's staff benefits are interchangeable. Getting developers to deliver. Twohaporth yes, mix in with the lack of tax knowledge of many of HMRC staff and they could be at the job centre on either side of the fence.

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By TB93
22nd Oct 2022 16:02

Is this why we're seeing more software being developed 'by accountants for accountants'?

When the software solution is just not quite doing what you want it to as efficiently and cost effectively as you want it to, those that have the determination and skill-set to do so may create their own solution. Take LimeBooks for example, you don't pay if you don't use it and it's designed to be the most efficient software for smaller jobs, seems to wipe the floor with the big 3, yet nobody has heard of it because it was created by a small accountancy practice.

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Replying to TB93:
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By Hugo Fair
23rd Oct 2022 14:26

This doesn't appear to be accounting software ... not even book-keeping software (which is what it claims), just bank transaction filtering - with all the usual auto-allocation 'features' that are arguably the worst thing about such 'solutions'.

Nothing on the web-site is clear - not even the name of the owner or supplier, so how financially secure it is remains unknown.

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