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Scanning the horizon for tech trends in 2021 Xero practice performance report
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Even pioneers have growth struggles in 2021

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John Stokdyk digs back through Xero’s benchmark archive to assess how much impact the pandemic had on practice growth and technology habits.

19th Oct 2021
Editor at large AccountingWEB
Columnist
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Xero has a long tradition of research into its customer base, particularly accountants who recommend and support the cloud accounting software to their clients.

Since 2017, we’ve seen a number of reports into practice performance and the characteristics of Pacesetter firms that are evolving the cloud-based trusted adviser service model that has become a staple of software marketing in recent years.

The latest Xero practice performance study was released in August and presents an opportunity to assess the extent to which Covid-19 accelerated cloud technology use and client advisory work. We took a look back of some of those older benchmark reports to see what light they could shed on accountancy’s technology evolution and also brought in a couple of pacesetters to hear how they are planning to overcome obstacles to growth as firms and their clients recover from the pandemic.

The cloud adoption formula

Xero is understandably keen to promote the message that more cloud clients you have, the better. The pandemic and the government instruction to work remotely obviously validated that assertion in a new way.

As of 2021, Xero-using practices had an average of 59% of clients on cloud accounting systems. A smaller group comprising 11% of the practice population were all-cloud – the famous Pacesetter contingent identified by Xero back in 2018. In another confirmation of the Xero hypothesis, the firms that had supported the largest proportion of clients online were the most likely to report that they were growing faster than before the pandemic.

In a webinar with AccountingWEB, Raedan founder and self-confessed technology enthusiast Jonathan Bareham was surprised at the relatively low adoption rate. “I don’t know how we could have survived this last two years without the base of Xero and other tools so we could work remotely and create that base of efficiency,” he said.

Growth comparison

On average 43% of practices taking part in the 2021 practice performance survey said they were back on a similar growth path to pre-pandemic levels and 19% said they were growing faster.

The questions and data published by Xero make it difficult to do like-for-like comparisons across all key measures, but the average numbers of new clients added suggests that firms are still behind the growth peaks experienced in 2017-18. Back during the first phase of MTD implementation, Xero estimated that around 224,000 businesses switched accountants.

The average client gain registered in 2018 was 32 clients. In 2020, the equivalent figure was 27, a drop of 15% in the underlying growth rate. Average fees earned per client also showed a downward trend from £1,997 in 2018 to £1,551 in 2021.

Recovery and growth strategies

The recent webinar on Xero’s performance report delved more deeply into the constraints and obstacles to renewed growth and heard several practical suggestions from Raedan’s Jonathan Bareham and Pamela Phillips from de Jong Phillips about how they were adjusting to the new circumstances.

At both firms, most of the new growth in 2021 came from additional work for existing clients rather than gaining new ones. Bareham and Phillips were surprised by Xero’s finding that there had been a drop-off in client contact at some firms during 2020-21.

“We’ve had more conversations with clients on how they doing during the pandemic,” said Bareham. “One of most powerful things we did was speak to people, send them emails or pick up the phone to, ‘Say how are you?’ It led to us doing a lot more with those clients.”

Phillips had a similar experience: “We’ve got daily and weekly bookkeeping and management accounts that provide regular opportunities to speak to clients. I don’t know how [contact] could have dropped, because every client we spoke to needed that support.”

The two panellists touched on several of the difficulties webinar participants raised an online poll:  

  • Workload associated with the next phase of MTD
  • Client intertia
  • Inefficient processes
  • Stretched too thin by current workload and lack of resources, particularly people.

“We had to put things on hold because of recruitment. We’ve been trying throughout the pandemic, but it’s been really, really slow,” said Pamela Phillips.

To hear more from Jonathan Bareham and Pamela Phillips about their recruitment and recovery plans, make sure to watch our 2021 Xero practice healthcheck webinar.

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