The bleeding edge of accountancy has entered the new era of innovation. Saying you’re a cloud firm isn’t going to cut it anymore.
In 2009, two years after setting up his firm Farnell Clarke, Will Farnell decided to move all his clients online – long before “cloud-based” became the badge that proactive firms like to wear today.
When he started out, Farnell looked beyond spreadsheets and software. As someone who lists record shop owner and band manager on his CV, Farnell wanted to buck what accountants had done during the previous decade.
The year he formed his practice more than 97% of all telecoms data was being carried over the internet. The stars aligned.
“To adopt it seemed like a no brainer,” Farnell wrote in his book, ‘The Digital Firm’. “Why wouldn’t we want access to client data 24/7? Why wouldn’t we want access to the same ledger on which our clients were working? Having just one ledger had many advantages. With this, it became possible to provide the type of bookkeeping services accountants have historically avoided.”
Today, cloud accounting has gone mainstream. The proportion of Accounting Excellence Award entrants supporting clients on cloud software rose to 88% last year. With so many firms embracing cloud as a catalyst for change, have we entered a new era of innovation? Well, not quite.
(Above: Will Farnell joined a panel of fellow pioneers Alex Falcon Huerta and Simon Kallu in this AccountingWEB interview filmed at 2018’s Accountex)
How cloud are you?
For Farnell, simply saying you’re a cloud firm doesn’t cut it if you want to be in the innovative vanguard. A firm with just 20% of its clients on the cloud still has a long way to go to be considered innovative, according to Farnell. A more realistic platform for innovation would to have 75% of clients on cloud systems.
Drilling deeper into last year’s Accounting Excellence data, the 50% rise cloud adoption since 2015 was driven by Making Tax Digital (MTD), with many firms seeing it primarily as a compliance fix, not as a platform for new services. Of the 88% who counted themselves as cloud practices, only 16% were aiming to be cloud-only.
Those firms competing for the Accounting Excellence innovative firm of the year had to do a lot more than go online. Last year’s winner The Accountancy Cloud is a 100% cloud firm, but is pushing the boundaries with chatbots integrated into its helpdesk, internal collaboration co-ordinated through Slack, and Xero, Receipt Bank, Fathom and Visible engineered into its “business as usual” service package. Innovation is a way of life for the firm that has developed a digital community platform and is catering for its millennial team with no set start/stop time.
Xero’s Pacesetter research also found that firms squeezing all the juice out of cloud tools are reaping the biggest rewards. As Xero’s Damon Anderson told AccountingWEB: “Cloud technology is enabling significant growth and as a result, revenue is increasing, teams are expanding and roles are evolving.”
What’s holding firms back?
Accounting software insider Dermot Hamblin considered 50% to be realistic entry-level benchmark for cloud accounting firms and 90% those aspiring to be out on the cutting edge. But even they have to factor in clients.
“They’ve still got a lot of work to do,” said Hamblin. “Every firm will have the garage owner or non-tech-savvy client who is hard work to get onto MTD. Self-employed people who work from 8am-6pm and do their admin in the evening are the ones who fill many accountants with dread.”
So far, cloud computing has revolutionised bookkeeping, but compliance and practice tools moved more slowly.
“Despite all the talk about what the cloud is and all the marketing around it, the biggest IT spend is going to be compliance software for the vast majority of firms,” Hamblin noted.
This limitation is regularly heard on our regular Practice Talk series. Justin Randall said how 2018 Accounting Excellence specialist team award winner Jeffreys Henry is “held back by legacy software”. Currently at 80%, Martin Tregonning is another pushing to get to 100% but is hampered by GDPR questions over DropBox cloud storage.
The Practice Talk series has shown how much easier it is for startup firms to go cloud compared to established firms, At But the Books, for example, founder Zoe Whitman opted from the outset to focus on both Xero and QuickBooks Online.
Alan Hemingway achieved fame as the QuickBooks UK firm of the future by orchestrating a big bang approach to cloud migration. Fresh into practice from industry, Hemingway challenged himself to move every client to the cloud and only lost one.
What does a cloud firm look like?
So, what does this look like in practice? For starters, Farnell says cloud firms should emulate The Accountancy Cloud and use a trio of cloud products to master the input, bookkeeping and output processes.
(In the podcast above, leading tech-first accountants stopped by the AccountingWEB studios last year to discuss how cloud accounting has transformed the inner workings of their firms.)
The outputs would be handled by compliance tools such as IRIS or CCH, alongside reporting apps like Futrli, said Farnell. The input comes from Receipt Bank, datamolino or AutoEntry and the bookkeeping is taken care of in hubs like Xero, QBO, or Sage.
“Even if you are a compliance factory you’d have all those three elements; albeit, it might not be Futrli, it might be your compliance suite and unfortunately, that is not on the cloud,” said Farnell.
Returning to an important theme, however, Farnell emphasises that it’s a mistake to equate innovation with software tools. His Digital Firm model, like Accounting Excellence innovative firms and Xero’s pacesetters, uses technology to enhance the client experience in areas including onboarding, fees, content marketing, recruitment and beyond.
“What I recognised is that client expectation is different,” Farnell said. “We’ve used technology as our USP for a good chunk of the last nine years. But actually, everyone can buy the same technology that we’ve been using - that’s not enough anymore.”
(Will Farnell, pictured in the middle, raising a pint in his firm’s office pub, appropriately named the Tax and Pounds. His firm Farnell Clarke refurbished an old meeting room into the pub - it’s quite the upgrade, we think you’ll agree.)
Having built the Tax & Pounds pub in his firm’s office, Farnell puts culture at the heart of his digital practice. With millennials accounting for 75% of the workforce by 2025, Farnell Clark ditched the standard 37.5 hour working week and 20-odd day holiday entitlement. Instead the firm now offers a more flexible six-hour working day and unlimited holidays.
Farnell Clark is not the only firm pursuing this path. The rise of flexible work patterns and more people-oriented management approaches has been marked in recent years among Accounting Excellence entrants. In recognition of this trend, the awards will include a new Investing in People category for both practitioners and business accountants.
Ever the soothsayer, Farnell is already looking ahead to the profession’s next evolution. We’ve had the online accountant, then the cloud accountant, and if we take Farnell’s digital firm as today’s current era, then what comes after?
Firms still live and die by compliance, Farnell acknowledged, but when everyone is digital, automation will underpin everything. Innovative practices will need to guide client expectations and adapt to new technologies while keeping their eye on the main prize.
“At the heart of everything we should be doing is recognising what our clients get from interacting with us as a business and how technology can help us deliver that experience and take that to another level. Customer service is a baseline – you have to do that. If not, you fail,” said Farnell.
“If you can deliver a customer experience rather than just deliver good customer service, your clients are going to become stickier; they’re going to be more dependent on you, they’re going to buy more and they’re going to tell more people that you’re really great.”
If you’re part of the innovative vanguard, enter the Accounting Excellence awards and tell us what makes your firm innovative.