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How cloud are you? Innovation goes beyond the cloud

25th Feb 2019
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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
Farnell Clarke

(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.

What next?

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. 

Replies (7)

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By DaveyJonesLocker
26th Feb 2019 11:21

"self employed people who do their admin in the evening"

Yeah, how DARE they work hard all day and do their admin after. They shouldn't be working and playing with their cloud toys instead .

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By johnjenkins
26th Feb 2019 11:38

So, once MTD is up and running properly with all its finery, where is the need for these innovated cloud companies? HMRC will have all it needs (details of every transaction) from normal Accounting Packages. So, as I see it these innovated cloud companies will probably peak in the next year or so then become non existent.

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All Paul Accountants in Leeds
By paulinleeds
26th Feb 2019 13:04

Most of my clients are self employed (limited company) people who do their admin in the evening.

I do not have a single client in the cloud. I run a very profitable practice with just me.

My clients may not all be in their 20s and 30s but they are very happy with the simplicity of their Excel based systems. 'Thank god' I do not need to buy and use more apps and software I hear from my clients.

I understand the need for access to some larger client's data. However, my clients do not need me to feed back to them immediately or comment on their profitability.

Most clients of mine can easily send me a Sage backup (or use SageDrive) or their Excel sheet for me to deal with annual accounts & MTD VAT returns.

Unless there is a very good reason to 'force' clients in to the cloud, then we all stay dry and use tried and tested means.

I'm not averse to IT. To me there must be a reason to change and not simply follow the crowd.

It tends to be the cloud software companies who are pushing their software. Today it's so sunny and warm (the hottest in winter-time). I'm staying away from the clouds!

Thanks (4)
Replying to paulinleeds:
By DaveyJonesLocker
26th Feb 2019 14:57

Amen, nice to see a sensible down to earth comment. Sir, I salute you.

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By raybackler
26th Feb 2019 16:22

All of my clients, bar a few small property maintenance companies and the odd sole trader, use cloud software. They are all limited companies and most are registered for VAT. The transition to MTD for VAT will be relatively straightforward, because Liberty Accounts have done the hard yards with their software. In fact the hard bit of MTD for VAT will be setting it up with HMRC.

There are other benefits of being in the cloud that simplify bookkeeping, reduce costs and improve management information - bank feeds, integrated payroll and in-year accountant verification of transactions. Most of our clients use the system for sales invoicing, which is something they often screw up on spreadsheets. The shared workload with the client is the biggest benefit. It avoids duplication of effort and improves the results for clients as well as reducing the mind-numbing work for accountants.

When we do the year end compliance work, it is a simple exercise to finalise the accounts in Liberty Accounts and transfer the Trial Balance to Taxfiler. Job done and none of this nonsense of year end entries failing to be updated on Excel. I have lost count of the number of times a new client’s bookkeeping doesn’t match the statutory accounts.

Using online systems will become the norm. The technology is there now, is tried and tested across a number of vendors and the capability far exceeds the complexity inherent in using spreadsheets.

The next phase will see further integration with bank data, integration with supplier invoicing and uploading of customer invoices. Just check out what delivery companies have done with technology to get an idea of where accounting is headed.

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Replying to raybackler:
By johnjenkins
27th Feb 2019 09:04

If posting is done right in the first place (the cloud still won't stop errors) it will be easy and effortless to finalise accounts in any accounting package. I'll go as far as to say that using spreadsheets correctly with all the links will have the same outcome.

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By AndrewV12
27th Feb 2019 11:48

Extract above
'So far, cloud computing has revolutionised bookkeeping,'


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