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Accounting Excellence: Return of the VFD

24th Jul 2018
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The ability for accountants to take away much of the day-to-day financial administration for a business has been a staple for many years: bookkeeping services, leading through to accounts and tax which overtime has embedded individuals of the firm at a high level with certain clients. With the help of technology, this has evolved to form a deeper service offering.

These virtual FD (VFD) services have been well documented over recent years, and leading lights in this area such as Bristol’s FD Works has carved out an interesting niche for themselves, bringing cloud-based outsourcing and integrating their previous industry experience to focus on offering a high-level service to aspiring businesses.

2017 saw a decrease in the number of Accounting Excellence entrants that identified VFD as a key service, due partly we suspect to the “MTD effect” where so much attention was focussed around the digital tax plans for income tax that little else seemed to make it onto the agenda.

2018 has seen a bounce back with more than 12% of entries citing VFD services as part of their core offering, but we are also seeing a reconfiguring of the classic outsource services enhanced into what could be called virtual financial controllers (VFC).

More than just the basics

The services offered by a VFD have a strong focus on analysis, operations and indeed strategy. Often the numbers part is focussed on management accounts and their narrative as part of regular board level reporting, but this is only a small part of the role.

Simon Cowie, MD of Aberdeen firm and shortlisted Accounting Excellence small firm of the year Infinity Partnership, said: “We may do the outsourcing right through to tax; however, the interesting parts are where we start to add significant value, so lots around patent box, R&D tax, and given our experience, the corporate finance side. We have a close strategic relationship with them, so we are there at each step.”

For Kamlesh Rajut, CEO of Sterling Finance, the bread and butter work of bookkeeping, accounts, and tax still sits at the heart of the service. However, his specific industry experience within import and export markets play a huge bearing on the kinds of enhanced service they can offer.

“Our services are very suitable for clients who can’t afford to have a full-time bookkeeper, and are also looking for a higher level of technical advice,” said Rajut.

“A wholesaler might have very complex currency and documentation requirements for example, and even need specialist software knowledge. Handing all of this to us allows us not only to generate meaningful management accounts but focus in on financial and operational advice such as contracts, terms, invoice timings.”

Good technology and good systems are the backbones

Unsurprisingly, the common factor across those offering these enhanced outsourced services is technology and systems. “We have a good system in place which is both technology and methodology,” said Infinity’s Cowie.

“Working with cloud has given us capability, and ability to work consistently. We tend to go with Sage as we have a high understanding of how it works, it's user-friendly, and we can get people trained up pretty quickly locally where we need to. But we have a real mix of the other solutions.”

It’s an approach Rajput echoed: “We use online tools and cloud technology whenever possible, but we start on the basis of using what the client uses, we don’t impose or ask them to move outside of their comfort zone. However, we actively adapt their system and make improvements wherever they are needed.”

Within the Accounting Excellence data, we are also starting to see more emphasis around offering credit control and cash flow forecasting, traditionally expensive and time-consuming services which firms have been reluctant to do in volume and points towards an embrace of providers such as Chaser, Fluidly, and Float to help automate and manage.

As a trend, it is worth noting that the emphasis seems to be more on these kinds of day to day business efficiency and cash tools rather than a push towards business reporting and consulting tools.

Fixed fees an essential ingredient

A consistent component is the use of fixed fees. This is rarely from a strict menu or prescribed package. “Each client is bespoke; however, we ensure that it boils down into a fixed fee. Projects that arise are based on hours or success,” explained Cowie, reflecting their strong hand in corporate finance.

There is a similar approach for Rajput. “All of our fees are fixed, and are tailor-made for each client,” he said. “Everything is bespoke and based on requirements, and there are no packages. This helps to take a very long-term view of the customer, including what we can do to advise help and grow.”

Research amongst others in this field reveals that this approach is common, and highlights the desire for transparency, and an ability to seek an appropriate reward for the work involved.

VFD is a growth area

Figures from the Accounting Excellence entrants show that successful firms in this area are seeing significant 30% to 40% growth.

Cowie was clear that this success was impacting the balance of the firm’s fees. “Four years ago 50% of our fees were in corporate finance. Today the business advisory (VFD) is 30% and corporate finance 25%, and we have grown through the Aberdeen downturn. The types of clients are the same, but we are offering more to more and our headcount has doubled”.

It’s a similar story for Rajput. “We started by supporting startups and now we are growing through larger businesses, to the extent that 40% of our fees now come this way.”

However, this growth has to be achieved in a sustainable way and is not without its own practical problems.

Growth challenges

For Cowie, getting things right from the outset is understandable essential, but it does restrict the acceleration of growth. “There are a limited number of clients we can take on in one shot, as it takes two-to-three months to get them in a place where everything works properly. It’s often a learning curve for both sides.”

There is also the consideration that you need staff with the right skills in order to provide the higher services, highlighting the reality that technology part scales much easier than getting the right skills in place. This is not a cheap outsourcing operation, but an investment in doing things that will consciously require expertise and staff time.

Rajput, in particular, consciously invests much in staff to ensure they are able to meet demands. “We have to continue to invest in the right tools, procedures, and a high level of training. We show a great interest in personal and technical development, and recognise that there can be significant pressure and some stress, so we also invest in external personal coaches for each member of staff.”

The future

It’s hard to gauge specifically if there is a certain kind of client that is most suited to this kind of enhanced approach as examples range from startups through to group companies. And through the fixed fee model, it means that pricing can also be highly inclusive.

What does seem to be a standout is this idea of not just lifting the financial administration burden, but proactively coming up with cost-effective ways of augmenting those services with tools and specialist insight that move away from perhaps the current notion of the advisory firm, and into something more practical and achievable for a broader cross-section of firms.

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