Accounting PSOs transform with the cloud
- Summary:
- The accounting market is undergoing a quiet but perceptible revolution as cloud accounting takes hold. What brings transformational change and how will this shake out? There are several possibilities but they will be led by customer preferences.
There is plenty of evidence to infer that the SME space is seeing something of a quiet revolution as businesses opt for cloud accounting as their preferred way of dealing with daily finances. In his occasional newsletter, Euan Semple says:
Over the years I have tried many budgeting accounting combinations, some applications some web based. I thought it might be worth sharing my current combination which I am really finding works well for me. My business tool is Freeagent which makes it really easy to create and keep track of invoices. You can also use it for all sorts of accounting activities but I am currently keeping it simple.
My budgeting tool is YNAB. In fact it is not just a tool but also an approach to getting on top of your finances.
How many people do you know who talk about what they use for accounting without being approached for a referral? This has become surprisingly common in recent years.
Emerging patterns
When this idea was first mooted back in 2006, professionals did not perceive this as something they need consider. The rationale was predicated on a decades long held belief that the power relationship between professionals and their customers was firmly in the hands of the professional. That was bolstered by the fact that most customers relied on their professional advisor for almost everything related to their financial affairs.
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What professionals could not foresee was a time when that power relationship would change or how the changes would benefit them. In 2006, I said to the professional market:
The 60-80% of time you spend on routine admin pretty much vanishes alongside the objections but is replaced with the monetary equivalent of value added services. This allows you to develop the kind of presence that others would kill for. It means your talent pool is enriched because now, you’re offering quality driven services and so can attract the very best who are passionate about their work. In turn, you have a genuine shot at acquiring ‘trusted advisor’ status. It also means the nature of compliance changes to one that is secondary yet complementary to business value delivery.
I was talking about a future I predicted would arise in 2010. I was about right in timing terms but not in numbers. While the number of practices that are aligned with cloud accounting is still relatively small, in other markets, things have moved apace. In Australia for instance, Xero has made significant inroads, most recently signing up Deloitte. From the blurbs:
Deloitte expect that by the end of its financial year approximately 2,000 ledgers will have been migrated to Xero’s platform alone.
That's quite a coup. In the Netherlands, Twinfield has had remarkable success with well in excess of 100,000 customers. They count BDO as their principle cheerleader. In the US, McGladreys has embraced the cloud model.
But change does not come easily.
Ushering in change
Change is a topic that is taking on increasing importance across many industries. It is one that often frightens people because it always takes management out of their comfort zone, often requires a rethink of the business model and implies a degree of pain. The sad reality is that pain is often the only condition that impels business to change. Even the mighty Apple almost had to go bankrupt before it could be reinvented. This might sound strange until you remember that in 1997, Steve Jobs said:
“If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here."
The last point about corporate pain is especially important in the professional market because they have largely been insulated from the need for internal change for many years. Even those firms that express a desire to change find transformation difficult to achieve.
In the video at the top of this article, Gavin Wareing implies that some change has to be imposed. In another video Paul Meissner says that when he was with another firm on the partner track he found: 'I couldn't even change the lunch order.'
Change also occurs in markets. The most successful professional services firms I come across are those that have built their business model from scratch or are sufficiently 'young' to not have fully acquired 'old' model habits and beliefs. The WOW Company is a great example. They always surprise me. I like for instance the way they get their customers to talk about what it means to be successful and how that is achieved. That's almost unknown in the 'old' world. It's also a really smart marketing model.
How and when?
So - are we stuck? Is change something that will only occur by small degrees and even then when corporate pain becomes insufferable? Experience suggests that these things are generational. My sense is that generations are now being measured in different time units to those of the past.
The speed at which the SME cloud accounting market is now growing is accelerating at an astonishingly rapid pace. In the UK for instance, we estimate that something around 100,000 businesses are using cloud solutions today. We expect that number to double in the next year.
The size of the addressable market is much larger than is possible with on premise solutions. We believe it could be as large as four million in the UK and 36 million in the US. Taken in that context, the scope of potentially imposed change by customers wielding their power is much broader.
The only questions now are when that tipping point will be reached and how professional firms react. Colleagues suggest that change will happen when professionals see high business model replacement value. I argue that opportunity already exists. What we don't know is whether the professional market ends up being reshaped by emergent firms in the same way that Apple reshaped the computing hardware market.
What do you think? Let us know in talkback.
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