Xerocon: The future of practice is in the cloud
The cloud can transform practices’ relationships with their clients and increase their profitability, but are UK accountants addicted to traditional ‘broken’ practices, asks Rod Newing from the Xero user conference.
The Great Hall at Moorgate Place was packed, as speaker after speaker explained how the cloud is transforming accounting practices, changing client relationships and improving cash flow and profitability. Then the excitement and optimism was brought to a shuddering halt by Richard Anning, from the IT Faculty. He said that a survey of 700 accounting practices of all sizes a year ago revealed that just 3% were looking to use the cloud for accounting.
The occasion was a user conference staged by Xero, the New Zealand cloud accounting developer that is rapidly expanding in the UK. The company provides a free service to accounting practices to run their practices, and manage their clients. In return, practices sign up existing and new clients to use the Xero service for their bookkeeping. (*slight amends, see comments below - Ed)
The bookkeeper, business owner and accountant can access the books at any time, transforming these relationships because the up-to-date books present a clearer view of the state of the business.
The vision of Rod Drury, Xero’s founder, is that by being proactive with advice, practices can move clients from an annual “distress purchase” to a monthly subscription, covering all routine accounting services and business advice.
Practices using this new model report that clients love being able to solve simple problems at no extra cost with a telephone call. They get early cash flow and because the books are clean and up-to-date at the year end, they have time to concentrate on providing value through the monthly subscription, using their “trusted adviser” status to help the client grow its business.
Drury says that the annual year-end fee is “a broken model that has trained small businesses not to use their accountants as business advisers.” However, with an ongoing relationship clients are “less likely to get into trouble, more likely to manage their cash flow, more likely to get business flowing, more likely to hire new people and more likely to export. If you are connected to your small business customers, you can really drive their businesses forward”.
With three offices in the North of England, Valued Accountancy Services includes Xero use of Xero in its monthly subscriptions to clients. Partner Steven Paul says that it is bringing 20-30% productivity increases. “We are able to respond to clients very quickly, job tracking is much easier and we know what is happening in our clients business all the time,” he said. “We are closer to clients, interacting with them all the time and getting additional fees.”
Paul Bulpitt, co- founder of The Wow Company UK, a national practice, told delegates that the cloud has changed client relationships completely, from the traditional disjointed approach to more pro-active, informal relationships. “Running the practice on Xero is ‘a dream’” he said. “We couldn’t run the business on any other platform.”
New Zealand chartered accountant Dave Jessep runs his entire practice in the cloud, which proved vital when an earthquake destroyed to Christchurch business district, denying many businesses access to their files and servers.
“In New Zealand, if you don’t offer a fixed fee monthly package, then you are going backwards,” he said. “Some of the older practitioners are starting to lose their ‘baby boom’ clients, are not interested in new technology and are starting to retire. There is a sea change going on as younger guys with cloud-based systems are taking over.”
He was surprised to find that his clients didn’t want quarterly meetings or monthly reports that they didn’t have time to read or couldn’t understand. In contrast, they love being trained on Xero; having access to information; free phone support for simple queries; and the certainty of fixed fees.
With 800 loyal clients on Xero, the practice is providing extra services, such as budgeting, benchmarking and company filing. “We can drive a NZ$3,000 spend to a NZ$5,000 spend,” he says, “which really impacts the bottom line.”
Round Earth Consulting was recommended Xero by a New Zealand friend and pays the top rate of £19 per month, to cover foreign currency billing. “Our accountant thought the whole thing was completely ‘loopy’”, says Sarah Lafferty, one of the founders. “They were perfectly capable and a great team of people, but geared around a more traditional model. They didn’t want to use Xero at all, so they copied everything into their own accounting software, which was really inefficient. and costing us money. We couldn’t really afford their services and we knew we could do a lot of things ourselves, like file our VAT returns and keep an eye on our cash flow, through Xero.”
Xero introduced her to The Wow Company and the consultancy pays £120 pm for ongoing support, which includes a couple of planning meetings a year and the cost of doing the year-end accounts. “The great thing about Wow is that they are really happy to have a light touch approach,” says Lafferty. “Most traditional accounting firms want to do everything for you, even if you can’t afford it! Wow is set up for people who want to share the load. Xero makes it really easy for you to do the day-to-day stuff like expense recording and managing your own forecast and cashflow.”
The message from practices that have moved to the cloud is that they are getting away from being number-crunchers selling hours to reluctant clients at the year end. They are helping clients to grow their businesses, as business advisor, coach, IT specialist and advocate. Clients can see the value and increase their spend, impacting practice profitability.
One can only hope that practices have moved on in their attitude in the last year, since the IT Faculty survey. However, AccMan blogger, Dennis Howlett, warned the conference that institute members are “going to be dragged kicking and screaming into the 21st Century, whether they like it or not. Nobody cares about compliance any longer. The tipping point for the cloud is going to be wholly dependent on the speed with which the incumbent on-premise software vendors collapse under their own weight and their inability to take on the DNA of the cloud.”