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How an accountancy firm moved 70% of its clients to cloud accounting

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With the introduction of Making Tax Digital for VAT, businesses above the VAT threshold have to adopt some form of digital accounting for their VAT records.

The duty of care for an accountancy firm, therefore, is to ensure its clients make the switch to software, if they haven’t already.

This is not just about ensuring clients are compliant when filing VAT returns. Following their first VAT period after 1 April 2019, a company’s VAT accounting records also need to be kept digitally, which means storing them in that way for at least six years.

For Emily Smith, practice manager at Finlayson & Co near Huddersfield, the announcement of Making Tax Digital (MTD) for VAT inspired an ongoing digital transformation for her practice and its client portfolio.

The firm went from 10% of clients on cloud accounting to 80% of clients upon MTD for VAT’s introduction, with the aim of that being 100% as MTD progresses into income and corporation tax mandation in the future.

It also saw the firm make the bold move of dropping a number of VAT-registered clients who obstinately refused to make the move to digital, despite repeated approaches.

We spoke to Emily to learn more.

Inspiration and initial steps

The announcement of Making Tax Digital for businesses several years ago was a wake up call for many within the accountancy industry, not least Finlayson & Co’s sole partner, David Finlayson. Those of the firm’s clients that had embraced computing for their accounting mostly relied upon spreadsheets.

“We had nothing in place,” says Emily. “We had absolutely no cloud software available for clients. Basically, my boss said to me, ‘Right, you need to find out what’s happening—and find the solution!’

“I went to exhibitions and road shows across the UK. My job was to roll out Making Tax Digital in the practice and put together a plan.”

It became clear during her searches that there were many options.

“We decided to take a stance of embracing one cloud accounting solution instead of a variety,” she says. “We’re a small firm and we didn’t have the resources to be sending one person to train on one cloud solution, and somebody on another.”

The initial step following this was to start filtering the client list. This was about more than simply splitting the list into VAT and non-VAT clients.

It was about identifying the level of support each business would require, and ensuring they received it long before their first Making Tax Digital for VAT deadline.

Emily says: “Initially, we started with the ones I knew were up for digitalisation—the ones I knew that are very techy.

“Typically, they were millennials. They wanted the cloud. They wanted something that was easier for them to use. Then we worked our way down to the clients who were still using cash books for their accounting.”

Read more about Making Tax Digital

Demos and training

Initial communications with clients to tell them about Making Tax Digital was via letter but this wasn’t a simple mail merge full of boilerplate text.

“Each letter told the client when they had to start using the software, based on their year end,” says Emily. “We told them the costings and offered incentives to get them to switch earlier—we sold the software at cost, for example, and fixed that price for the year.

“We had to spread our workload. To do that, we knew we’d have to take the hit.”

Clients who responded were given free demonstrations of the software and even offered a free initial training session. The clients who, as Emily describes, “had a good brain when it comes to digital”, required perhaps a few hours of training.

Those who relied on paper-based accounting required up to 11 hours of training, says Emily, and again those who signed up early got this free in an attempt to avoid the crush.

“Our initial worry was that it would be a car crash—that these clients wouldn’t know what they’re doing,” she says.

“But by offering them 100% support throughout the financial year and being there to guide them when they had queries, we’ve avoided that.”

The demonstrations were held in local pubs, where the rooms were free. They alternated evening and afternoon sessions to ensure maximum participation, and offered refreshments.

Emily says: “We ensured we only had about 15 to 20 people at each session. That felt more personal. Everybody who came signed up—100% take up.

“We took questions and because we weren’t in the office, or a meeting room, it was much more relaxed. There were all sorts of businesses there, so it was social as well.”

Emily working with clients on a fun project

Emily (right) from Finlayson & Co working with clients on a fun project

A learning experience

The switch to a digital practice has had all sorts of side effects, comments Emily.

She says: “It’s also developed relationships with clients, We were formerly quite traditional. People came in for their annual meeting and it was just the partner that took the meetings. None of us really got exposure to meeting clients.”

However, because the outreach mentioned earlier brought many staff members into contact with clients, there’s been a cultural shift within the practice.

“Staff morale has gone up,” she says. “Among clients, there’s more confidence in the junior staff. Clients are no longer just asking for David or myself.

“You can see how it boosts the confidence of all the staff. They’re having to speak to clients and advise them, whereas before they weren’t exposed to that.”

Similarly, the way the practice handled training also brought unexpected benefits.

Emily says: “It didn’t all fall on senior staff. It was great for our team in that training others helped our own staff learn.

“It actually benefited us a lot more than we initially thought it would. By going out training the clients and utilising every bit of the software, we learned a lot more ourselves and learned how the different parts of the software help other businesses.”

Terminating clients

Despite the practice’s best efforts, some clients refused to listen to the message Finlayson & Co was promoting.

These clients typically followed a similar pattern, says Emily: “It was those who weren’t willing to even listen. They implied it was our fault—that we were forcing them on to this software.”

Other clients just didn’t respond, despite repeated attempts to communicate with them.

Around January 2019, with the Making Tax Digital for VAT deadline looming, Finlayson & Co realised it was time for radical action. “We terminated engagement with any clients that were just becoming problems,” says Emily.

She adds immediately that they “only got rid of a couple” and the decision rested with the practice’s owner and sole partner, David Finlayson.

Ultimately, adds Emily, the decision was driven by relationships.

Long-term clients of the practice who proved resistant to the digital transformation message were simply approached in person again. “They just required a friendlier approach. If you make them feel important, it does work,” she says.

In fact, Finlayson & Co has found itself finding new business because of its approach to MTD preparedness, something Emily says “came as a bit of a shock”.

She adds: “It’s almost like it’s given us the ability to be picky. We can attract the clients we want on to our portfolio.

“Businesses are speaking to our existing clients, talking about how they want to make the change, and how they want to embrace MTD. But their accountant maybe hasn’t contacted them, or hasn’t engaged with them enough.

“Our client says: ‘Well, Finlayson & Co did it for me.’ So they come to us and it’s been a huge success. We didn’t expect so many referrals.”

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Top tips on how to create a digital practice

Emily’s advice for converting clients and enabling a digital transformation within your accountancy firm can be summarised as follows:

  • Put one person in charge: Transformational programmes within any business need strong leadership, as Emily’s story demonstrates. She not only created the plan but also drove it forward, with clear and measurable goals in mind of converting the majority of clients to digital accounting.
  • Give personal service: This was at the heart of Emily’s plans. The practice contacted clients personally with a plan for their own Making Tax Digital situation, such as mentioning when they’re required to be compliant. In the demo sessions, she and her staff attempted to address their personal issues, and provide a relaxed environment in which to express them.
  • Provide a demonstration: The best way to learn is in person, rather than through an impersonal brochure. Emily invited people to presentations about the software, and showed directly what it could do for them. Evening events outside of business hours were good for this, but afternoon sessions can also be enticing for those with commitments later in the day. Costs were kept low for the practice by using free rooms in pubs and offering staff time-in-lieu for evening events.
  • Offer training: Training can be a good revenue stream as well as helping businesses, but offering an initial session that’s free of charge can be a warmly received gesture, as demonstrated by Finlayson & Co.

Fast track your MTD plan

Putting your Making Tax Digital plan in place but need some support to see it through? Read this guide for top tips to help your practice and your clients make the move to MTD.

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