Michael Office, VP product management and marketing for accountants and bookkeepers at Sage, discusses how any accountant practice can transform into the Practice of Now. Watch the video and read the transcript below for his advice for the modern accountant, which covers AI and increasing client demands.
In the Practice of Now research we found that 83% of accountancy practices believe clients now demand more of them. What’s driving that, to be completely blunt and open and honest about it, is the technology that we use in our personal lives. We’re used to things being more real time. We’re used to things being done in an instant.
We’re also used to getting more value out of the things that we use day-to-day. Typically, it’s about getting more value for the same price or less than we’ve paid before. That’s where the client demand is coming from. We’re translating that now into our professional lives.
So, as a small business owner working with my accountant, I’m expecting to get a lot more value than what I would have done before – either at the same price, or I want to get what I got before at a lower price. I want it to be real time and I want it to be instant.
As a client, I’ve got a very low tolerance for things that I perceive as being old fashioned. Things like paper-based accounting, landline phones, putting things in the post – all the things in our daily lives that we did maybe 15 years ago and we don’t do any more. That’s what’s driving the change in client demands.
Dealing with competition and rising profits
The Practice of Now report was really interesting. It found that a big proportion of accountants thought that competition was rising in the industry but at the same time many of them said their profits were increasing. There’s really two reasons for that.
Firstly, as clients are becoming more demanding, accountants are starting to take advantage of that opportunity. They’re sharing the knowledge they’ve got and they’re charging more for that.
The second thing that’s happening is that clients are outsourcing more to their accountants. In the past when you got to about £10,000,000 turnover you probably employed your own accountant. You probably had a loose relationship with the accountant you were working with and needed more insight.
You needed a finance person to whom you could go and get some real understanding about your business. But now that more accountants are providing that level of service, you don’t need to get that in-house accountant.
As complexity in legislation grows, like Making Tax Digital, and changes in accounting terminology and how we account for revenue – these things are headaches that small businesses just don’t need.
People are outsourcing more. There’s more demand on accountants. Serving more clients in the market means you’re going to drive efficiencies faster. Therefore, profits rise.
For profits to rise even more and to deal with competition – which I think is healthy if it doesn’t get too much out of control –it’s all about unlocking efficiencies and getting a real-time relationship with clients.
That’s how practices can stay ahead of those curves, grow profits and be competitive.
Responding to changing client demands
In order to react to changing client demands, accountants have three real options. The first option is that they can take on more people so they can spend more time with clients.
What that’s going to do is probably lower their profit margin. It might even force them out of business. So, while more staff is an option, it’s probably not a viable one for most practices.
The second thing is to do nothing. But by doing nothing you’re not going to stay with the times. You’re not going to be able to serve your clients in the way you expect to.
And while you might maintain the clients that you’ve got, you’re probably not going to get a lot of new ones. There’s only one outcome at the end of that journey.
The third thing, and the thing that I would recommend accountants do is this: 65% of accountants’ time is spent on manual data entry. Admin and non value-added activities.
A lot of people will say let’s get rid of all of that. But that’s probably impossible. There’s always going to be some element of down time in the way that you work.
But imagine if you saved only a third of that time and reinvested it into providing more forward-looking advice to clients. Not only can you maintain your business today and serve the extra demands, but you can also start adding even more value and charge more for that.
Many kinds of accountants I speak to, and the ones that are really taking advantage of this approach, are growing their fees. They’re growing their profit margins. There’s a lot of value in the advice that’s locked in an accountant’s head that they can give to their clients.
By having a real-time relationship and more time means you can put those two things together to deliver much better advice and forward-looking services for a client.
Artificial intelligence for accountants
There’s a big boom in artificial intelligence in the profession at the moment. The Practice of Now research found that two-thirds of accountants would be willing to embrace it.
But we’ve got to be really careful about artificial intelligence in terms of what accountants really mean when they answer questions like that.
They want something that just works but they also want something they’re in control of. They don’t expect or want artificial intelligence to replace them. There’s a real fear in the industry right now about whether these things are going to replace the role of an accountant.
The answer is it never can do, but also, why would we want that?
What this is actually about is where those mundane tasks are that can be done faster by artificial intelligence. Many accountants embrace that idea and are keen to change.
They see how it can really reduce down the 65% of accountants’ time that’s wasted on admin and manual data entry. So how can you make AI work for you?
First and foremost, you need to be using technology that’s at least connected to the cloud.
We have a mantra at Sage: you don’t need to rip out your entire system and replace it with a new one, and get all your clients and staff to work in a different way, in order to be ready for the future.
There is a choice around whether you go completely to the cloud – so cloud-native applications – or continue what you’re using today but get them cloud-connected.
We’re working on some really exciting things with AI right now. We’re seeing that we can speed up a lot of the practical things that accountants do, while keeping them in control, through machine learning and artificial intelligence. But to unlock those things you must be starting to take a foothold in adopting cloud technology. It’s the most important part of the journey.
The second thing I would recommend is to start reading up and seeing what’s going on in the industry around AI and machine learning. Understand how far you would want to go. That will help you make choices when more solutions come to the market.
The final thing I’d say is there’s very few AI solutions out there.
There’s a lot of talk and there’s a lot of promises. But there’s very few actual solutions out there. We’ve actually held back quite a lot in getting products out there because we want to get it right.
We want to be absolutely sure that, for the accountants we’re working with to build it, it’s making a difference to them. I think a lot of other vendors are in the same position, so doing some research is important.
Adapting to Making Tax Digital
There are actually more practices than you would assume who’ve yet to make the jump to the cloud. Right now in the UK, eight out of 10 accountants don’t have a robust enough plan for Making Tax Digital. Of that eight out of 10, 65% don’t have a plan at all. So, if 80% of practices in the UK don’t have a strong enough plan for Making Tax Digital, that means they have not yet taken the right step into the cloud.
Putting a plan together is really easy and at Sage we have the biggest team in the UK to help accountants do that. But still a big swathe of the accountancy population needs to get more serious about Making Tax Digital.
In the Practice of Now research we found a high proportion of accountants are less positive about the prospects going forward and they were compared to a few years ago. The simple reason for that is that there’s a lot of fear and confusion in industry right now predominantly around Making Tax Digital.
A lot of the people who serve the industry – the vendors, the partners, advisors to accountants, some software vendors – are driving a belief that you must completely rip out your entire system, change your entire workflow across all of your colleagues and every single one of your clients in order to be ready for Making Tax Digital, and to be relevant in the future, and to be competitive. Quite frankly, that’s not right.
As an accountant or bookkeeper in the UK, you’re able to adopt new ways of working and unlock the power of the cloud and be ready for Making Tax Digital, but at the same time don’t need to change all your systems and you don’t need to have all of that disruption.
You work with clients in different ways. You want to use a different mix of different systems whether it’s desktop apps and cloud apps.
What accountant and bookkeepers need is a partner they can trust and that gives them that choice that isn’t going to force this cliff-edge moment where Making Tax Digital is seen as a lever to drive everyone to one way of working. That’s not how the profession’s going to go, in my view.
Vendors such as Sage are trying to put forward a more pragmatic and more honest argument about where things are at, and offer a different way forward.
The Practice of Now
We surveyed 3,000 accountants worldwide to reveal how the accounting landscape is changing. Discover how your fellow accountants are approaching the cloud, automation and bots and what you can do now to keep your practice successful.