Cloud firms grow faster, says Xero
Pacesetting accountancy practices that embrace cloud applications are growing more quickly than technology followers, according to Xero research.
The New Zealand-based cloud accounting developer polled 400 of its users to produce a UK Partner Benchmarking Report that allows practices to compare where they stand with their peers by size, fee income, age and growth patterns.
UK accountants lag behind Xero customers in Australia and the USA in terms of the numbers of clients they support in the cloud, but similar reports compiled in those countries suggest British practitioners are beginning to close the gap, Xero said.
Currently, just under a third of Xero UK accountants (31%) support 80% of their clients online, but 56% plan to reach this mark by December 2018 - no doubt thanks in part to the demands of the Making Tax Digital regime.
“Those that were earlier in that adoption curve were all telling us they expect to be significantly down that cloud journey in the next two years,” Xero UK managing director Gary Turner told AccountingWEB at Accountex (see video below). “Businesses that were maybe at 20% adoption can see themselves getting ahead to 60%-70% adoption in the next 24 months.”
There is obviously a strong agenda in the report to promote wider use of Xero software, but also customer data to support the developer’s claims.
The average growth rate for the profession as a whole was 12% in the past year. In contrast, firms with more than 100 business clients using online accounting experienced 16.3% year-on-year revenue growth. Those firms with fewer than five clients using cloud accounts averaged 9% fee growth.
By mapping growth rates and client profiles over firms’ lifecycles, the study identified other characteristics of the better performers. Among the fastest growing new firms, there appears to be a growth surge during year three from 100 to 200 clients, while average performers can take 5-6 years to reach the 100-client mark. By that point, the leaders will be making the transition from medium size (5-19 employees in Xero’s definition) to the large firm category:
Growth in client numbers over time
The Xero Benchmarks parallel some of the findings from AccountingWEB’s Practice Excellence Awards data, which confirmed in 2016 that 18% of entrants were supporting all their clients on cloud accounting systems, and that the practices that were more heavily committed to cloud were leading the transition away from compliance work to proactive business advisory services.
Also in common with Practice Excellence trends, Xero’s survey found that firms devote more attention to marketing as they scale up their online client portfolios. “There’s a clear step up in the interest in marketing when firms shift from fewer than 35 online clients to larger portfolios,” the study reported. The other key areas of interest included preparing for Making Tax Digital and finding out more about online apps:
Topics of most interest to firms
|How to prepare for MTD||66%|
|Which apps should firms use?||59%|
|Client onboarding & engagement||51%|
|Marketing in the digital age||43%|
|Moving clients from spreadsheets||34%|
The Xero study also asked practitioners to rate banks, which saw Barclay’s topping the ratings as the best bank to work with for small business clients.
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