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In-house books open the door to outsourced finance model


The latest AccountingWEB insight data underlines the growing adoption of online bookkeeping and data capture apps to cater for MTD ITSA workloads – but also uncovers a deeper shift in practice working patterns.

17th Aug 2022
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While evidence to support the accounting industry’s gradual shift to online bookkeeping has existed for some time, the latest research from AccountingWEB’s Insight Programme provides the clearest indication yet that in-house bookkeeping is acting as a gateway to virtual finance services.

Last quarter’s figures flagged that more than half of practice respondents were either offering bookkeeping as a service or planned to within the next two years. This quarter’s statistics took this further, demonstrating that the data sluicing into accounting practices is now being funnelled into an increasingly diverse range of services, from management reporting and forecasting through to credit control, payments and funding.

The latest research saw well over half of respondents state that they believe outsourcing the bookkeeping function to a firm of accountants is more efficient than if prepared internally. 

“While 42% of practitioners cited better MTD ITSA [Making Tax Digital for income tax self assessment] reporting as a benefit of bringing books in-house, reducing hassle is seen as the main catalyst,” commented Julian Green, AccountingWEB’s head of insight who heads up the survey. However, he added that respondents highlighted some reticence from businesses over losing control and concern over having access to appropriate records.

In terms of automating bookkeeping tasks, respondents highlighted the gains and time savings this afforded them in areas as diverse as data entry, payroll and expense management. However, almost a quarter of all medium-sized respondents reported that the greatest time savings have been achieved through the preparation of management accounts. 

“This is a trend we have seen developing through successive quarters of the AccountingWEB Insight Programme and is further evidence of an emerging virtual finance function being offered by certain parts of the market,” added Green.

Natural move to outsourced finance function services

The virtual finance trend has been in and out of fashion among early adopter firms for several years, but ticked upwards in 2020–21 and appears to be spreading rapidly in 2022. 

The adoption of cloud accounting tools is often the first step, as firms that have made the leap report that bringing the books in-house secures better-quality data to work with.

In a comment on a recent AccountingWEB piece on the subject member Rob Winder stated that since moving to cloud accounting, his firm has let most clients raise their own sales invoices but that’s as far as it goes. “I would say it takes us less time to do the bookkeeping for a client than it does to sort out the mess where they insist on doing it themselves,” he said.

Bank feeds pulling into general ledgers such as Xero and QuickBooks have existed for some time. However, the improvement of feed quality following open banking-driven innovations and the development of pre-accounting apps to streamline and categorise information – such as Xavier (now Dext Precision), AutoEntry and HubDoc – has boosted data accuracy, although plenty of work remains to be done to achieve the nirvana of total automation.  

Once the books are up to date, it’s a natural move to offer management accounts and as the relationship between client and firm grows the opportunities to slot in more outsourced finance function services present themselves.

Pamela Phillips, co-founder of de Jong Phillips Ltd told AccountingWEB’s John Stokdyk that her firm’s finance function service started with bookkeeping and evolved from there. “The more you do and deliver analysis to the client, the more it makes sense to tell them,” she said. “We then spread to cashflow forecasting, management reporting and credit control. We started with monthly management meetings, which were hugely valuable to clients. No cash in the bank and £1m worth of debtors – how can we fix that? We can help with credit control, do some cashflow forecasting or get funding in. That’s a win-win. The client gets outputs and results and we get an insight into what services clients need.”

The overall virtual finance model proved convenient to organisations struggling with remote working during the pandemic, with cashflow forecasting services in particularly high demand. Enough client businesses and accountants recognised the value of this proposition to give it real momentum as the economy opened back up again. The potential of an incoming recession will be a good test of its continuing relevance. 

Do the benefits outweigh the struggles?

Another accounting firm leader who has grasped the nettle and taken bookkeeping in-house is Eriona Bajrakurtaj, managing director of Majors Accounts & Co. She told viewers of AccountingWEB’s MTD Bootcamp earlier this month that ahead of the MTD for VAT transition, her practice had moved all clients onto cloud accounting software, aided by data capture tools. 

Initially, the reasons were to manage clients more efficiently and standardise service levels for the new regime, but her practice started to realise the broader benefits of hands-on bookkeeping. 

“The benefits of them being on the apps outweigh the struggles you’re going to have to get them on initially,” she told the webinar audience. “You can provide more information, you can help with advisory and you can understand the client better because you’re getting that information a lot faster and help build that relationship.”

Whether the books are done internally or by the client, online bookkeeping and data capture apps are changing the nature of accountancy practice, she added. 

KPMG small business: A cautionary tale

While the heady cocktail of cloud-led service line growth may sound enticing for practice owners, there is a cautionary tale to be aware of. Back in 2014, KPMG launched a service line for small businesses, proclaiming their programme would be “the death of the high street accountant”, offering compliance services leading to enhanced advisory and one-to-one sessions with experts – all thanks to efficiencies driven by cloud bookkeeping tools.

It didn’t end well, with the Big Four firm pulling down the shutters in 2019 after spending a reported £40m on the scheme. A senior manager in the programme told AccountingWEB at the time that they hadn’t been prepared for the poor quality data received from clients, and the time their chartered accountants on relatively high salaries were having to spend cleaning the data before getting to the advisory gold at the end of the rainbow.

Three years on from the demise of KPMG Small Business Accounting (SBA), have tools and processes improved to a point where this may now be achievable? As Paul Layte, founder of Next Level Business, commented in the wake of SBA’s demise, to achieve success in this competitive arena takes a combination of process, people and technology: “To deliver world-class small business accounting (and the promised advisory) at that scale to that wider industry sector would require exceptional planning and execution.”

While the majority of firms looking at virtual finance service lines won’t be doing so on a scale matching KPMG’s, it’s still worth bearing those wider lessons in mind to have the best chance of success.


Replies (7)

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By Paul Crowley
17th Aug 2022 18:01

Every link on these articles always results in no more answers wanted and no data

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By Hugo Fair
17th Aug 2022 20:23

"they hadn’t been prepared for the poor quality data received from clients, and the time their chartered accountants on relatively high salaries were having to spend cleaning the data before getting to the advisory gold at the end of the rainbow."

The problem with that KPMG attempt, and with those proselytising for MTD, is that they always assume that everyone is the 'same' as them (same motivation, same values, same priorities).
Whereas a common personality type (I don't have statistical %ages) of the small business owner - and even more within the self-employed cadre - is determined by a 'leave me alone' starting-point.

For such people there is every chance that they don't share the perception of "advisory gold" ... to them it will seem like an attempt to sell them 'rip-off' services that they never asked for - and often wouldn't accept these even if provided free.

And the "poor quality data" that someone is going to have to spend time "cleaning"? Well that's what they pay someone (as little as possible) to do ... not because they see this as important but because it's part of achieving insulation from the demands of big brother/government.

Surprisingly to promoters of these dream 'solutions', it's not common to encounter "No cash in the bank and £1m worth of debtors" ... not just because that's hardly a typical small business, but also because most owners are not stupid. The one aspect of finance that is innate in them is cashflow management, even if many wouldn't recognise the Mr. Micawber dictum.

What they want (minimum hassle, with resources & costs focussed on the business rather than on legislative compliance) equates to submission of returns with virtually no involvement from them + a few quick hints (often too late in the day) for how to reduce their tax bill.
None of this seems to align with the 'vision' being pushed by HMRC, by software suppliers and by digital 'gurus' ... who are looking down a different end of the telescope (or even an entirely different optical device).

The questions posted by non-accountants here on this site, under Any Answers, will be found to support my above hypothesis (irrespective of whether the OP leaves the thread a 'happy bunny' or a disillusioned carper)!

Thanks (9)
Replying to Hugo Fair:
By Bristol-Cardiff
18th Aug 2022 06:19

This is pretty much spot on. The businesses below c£1m of turnover would get benefits from the insights advisory can deliver, but find it difficult to look beyond the cost of it.

Our job as accountants is to keep the clients safe in a compliance sense and not to give that additional value away for free. If we as a collective reduce the leaking of added value we provide the clients as a collective will further understand that's the cost of providing additional value to them...

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Replying to Hugo Fair:
By jonharris999
18th Aug 2022 08:08

You are entirely right @Hugo about the prevailing psychology.

But there must come a 'tipping-point', no? A moment of: you can't beat it, so join it.

I have anecdotal evidence only: but every single one of my VAT-regd sole traders, who of course (for the very reasons you say) rolled their eyes at MTD for VAT, now over on the other side of the river see the benefits, and say it works better, saves them time etc. It's costing them more cash, but they feel it's good value.

I think what is so hard about the present position is that it is easy to believe (and many AWeb contributors make it more so) that there may be a further delay in implementation, or even a shelve. HMRC's track-record on this is unhelpful.

If there is to be a delay, then the naysayers are helping.

If there is not to be a delay, then the proselytisers are helping.

And vice-versa.

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By tom123
18th Aug 2022 08:43

No cash in the bank and £1m worth of debtors – how can we fix that?

Surely a business with that level of debtors must have trained accountants working for them?
If not then they certainly should do.

After all, management accountants can offer vastly improved insight into the day to day running of the actual business, that could never be gleaned from outsourcing some processing?

(That's my pitch for "my side of the fence")

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By ireallyshouldknowthisbut
18th Aug 2022 10:23

When KPMG launched that service, I recall responding and saying that it wouldn't last as small business wont pay a premium to have KPMG do their books. Its a completely different market.

I trained with KPMG and didn't do any bookkeeping. Indeed my double entry was appalling when I qualified, and I was one of the better ones.

We have lots of clients using cloud bookkeeping where suitable.

We also have lots who don't, as its not suitable for them due to either preferences or the size of business.

if I drew a graph for client use in my practice with "age" on the left Y axis and "digital use, low to high" on the X, it would run from almost 100% at 18 to 0% at 90.

I could do a similar one for transaction levels.

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Replying to ireallyshouldknowthisbut:
By Paul Crowley
18th Aug 2022 13:55

'if I drew a graph for client use in my practice with "age" on the left Y axis and "digital use, low to high" on the X, it would run from almost 100% at 18 to 0% at 90.'
And an exact opposite line for understanding what information is needed by an accountant to get some sensible accounts

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