I’ve just spent a fortnight in the UK and by all accounts the UK economy isn’t in great shape. The Government is drastically cutting spending, which is creating much debate and idea generation over how to cut costs. Such ideas verge on the ridiculous at times. For example local councils are turning off street lights to save money. But whatever transpires, all public organisations will have to become more efficient and that’s going to involve technology and using the internet to interface with customers. UK citizens are adapting and changing.
Two interesting examples of this new ‘forced’ innovation are:
1. Cheques will be gone in 2012 so everyone will have to use internet banking and payment gateways like PayPal to make payments.
2. Greater numbers of HMRC and Companies House filings must be made online, and from April 2011 some of them in the new iXBRL format.
All the accountants I spoke with are feeling pricing pressure on their core compliance work and are very interested in how to build efficiency into the processes so they can stay price competitive. This is no different from the situation in Australia and New Zealand. The reality is core compliance work is becoming commoditised and low cost operators are pushing the pricing for this work down. In order for the accounting firm to stay alive, it must evolve. The successful firm of the future will have higher touch points with its clients, bundled offerings, fixed fees and it’ll engage in more management accounting and general business advisory work. At last the compliance and tax return monkey will be gone.
Electronic bank statement data capture (or ‘bank feeds’ as we call it) will be the single biggest technology improvement at a business level that accounting firms in the UK have seen since PCs hit our desks.
With Xero your clients’ bank statement data arrives automatically into their Xero accounting system every day. There’s no need to enter the date, amount or payee for every single bank statement transaction line. All you need to do is code the transaction to the correct ledger and decide on VAT. At Xero we’ve added a lot of additional functionality around the front-end data processing, so this process is incredibly fast. If you compare the way Xero works with traditional desktop software, the accounting firm stands to save more than 50% of the processing time. If processing is about 50% of the whole job, then the firm will save about 25% of the total time. In fact I spoke to an accountant in Bath who uses Xero bank feeds and he told me the time saving on transaction processing were “ridiculously high”.
Time saving and improved efficiency are fantastic because they create faster throughput, which means improved cashflow. But they will not result in short term bottom line profit improvement, because most accounting firms have relatively fixed salary costs. What will probably happen is you’ll recruit fewer new team members over time, so in effect the longer term bottom line will improve. The other thing is Xero’s bank feeds create ‘spare’ time for a firm. What you do with your spare time is the key to keeping your clients.
As an example, when completing the VAT, bank feeds within Xero enable the accountant to complete a management report as well. The VAT and Management Report with supporting work papers can be completed in about 1-2 hours. In the new world, where every person in business must know their cash position daily, the accountant is mission critical to the success of that business. So more frequent management reporting will be the new staple of accounting firms.
While the economic position for the people of the UK is ‘pants’, the Brits are a resilient bunch and will tough it out. The good news is the highly innovative new companies of tomorrow, which will help the UK grow again, are just getting warmed up.