innovation practice management

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If someone had told you a decade ago that your clients would soon be able to make bank payments, issue invoices and log their expenses using their mobile phones, you probably wouldn’t have believed them. But thanks to the

rapid technological change that has transformed our society since the turn of the century, today they can do all of those things. This rate of change is expected to accelerate even faster in future so it’s important to ask – what will it mean for accountants? Will they still have clients in 10 years’ time or will they have been ditched in favour of an app?

Of course, numerous factors beside technology will shape the evolution of the accountancy profession over the next decade. These factors include legal and regulatory developments, social trends, shifting economic cycles, mergers and changes in the operating structures of firms. But technology will undoubtedly play the most profound role in the transformation. “It already is,” says Paul Shrimpling, managing director of practice consultancy Remarkable Practice. “The rate of change associated with technology is almost exponential.”

Technology“Online collaboration is going to really develop over the next few years,” says Simon Crompton, managing director at CCH Software. “At the moment, it’s taking the form of accountants moving clients online for bookkeeping, but we are beginning to see accountants exchanging documents via portals and getting clients to approve them online. They’re also starting to use portals as a marketing mechanism.”

Already, a new breed of accountancy firms is thriving on the back of cloud-based bookkeeping software such as Xero and ClearBooks. These practices, which include Cheapaccounting.co.uk and specialist contractor firm SJD Accountancy, encourage their clients to do their accounts online and keep contact virtual as far as possible. As a result, they are able to offer low-cost, fixed-fee monthly accounting packages that cover basic compliance work such as accounts preparation, VAT and payroll, and Companies House returns.

Given that business owners increasingly view traditional compliance work as a commodity, the advantages of this internet-enabled operating model are obvious. For clients, it’s convenient and cost-effective, while for accountants it offers an efficient way of working, low overheads (since the firm can be run from a spare room, there is no need to lease an expensive high street office) and the elimination of geographical barriers.

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ldWe live in an era of rapid technological change, which has led to client expectations and experience evolving. So, asks Sally Percy, what does the future hold for practising accountants?

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In theory, the whole country is your oyster if you’re an online accountancy firm. But what is the impact of the virtual accountancy firm on practices that aren’t yet exploiting the potential of the internet and still hope to eke out a living on the high street? “An accountant who doesn’t embrace technology is going to struggle,” predicts Martin Casimir, managing director at publisher Bloomsbury Professional. “Software, communications, websites and social media – it’s all part of it. And it’s how you can keep your prices down.”

Technology is a threat as well as an opportunity for accountants, even for those firms that have pinned their colours to a virtual model. Indeed, perhaps especially for them. We should soon see software combined with artificial intelligence that is so powerful that business owners won’t need real-life accountants to do any compliance work for them. “With regulation hopefully becoming less burdensome and with filing done online, software will fill the gap,” predicts Paul Tooth, managing director of the accountants division at software company Sage. “So the need for an accountant to do the final accounts production and file it on the client’s behalf will gradually recede.”

Shrimpling predicts that accountants will be “like the guys who used to make cars” and are now the “guys who maintain the robots who make cars”. He adds: “In 10 years, it could easily be the case that the job of a technical accountant doesn’t exist.”

Meanwhile, audit looks likely to go the same way since most companies with a turnover of less than £6.5m don’t even need a statutory audit. The trend of exempting companies from the audit is set to continue, says Shrimpling. “If technology is taking over, it can’t be manipulated as it could if a human being was doing the numbers, therefore HM Revenue & Customs will have greater confidence in the data, so there’s less need to audit.”

“There’s still the element of regulation,” observes Tooth. “But if the business has everything online and doesn’t store physical documents, you need to ask the question, do we need a team of auditors to physically turn up?”

“Work has been lost through deregulation of audit and a lot of time has been saved by the implementation of IT systems both at clients’ offices and in accountancy practices,” says Peter Hollis, chair of ICAEW’s practice committee and founder of Sheffield

Ian Barker, director at recruiter Hays, says that accountants have to get “on the front foot” with business development and networking. He adds that social media is going to play an increasingly important role within the accountancy profession, with more and more sales leads coming from sites such as LinkedIn and Twitter, and this is already influencing partner appointments. “The new partners coming through are business and commercial people,” he explains. “The by-product is that they are technically brilliant at the same time.”

Nevertheless, accountancy firms face a challenge when it comes to recruiting the right staff, and retaining and motivating them. Shrimpling says they need to think about having flexible working hours so that they appeal to high-quality Generation Y accountants (those born in the 1980s and 1990s). “What they want from work is radically different from the 55- to 60-year-olds who are running firms now,” he explains. “Unless firms design their cultures around brilliant Generation Y people, they won’t attract the best people and run the best accountancy practices.”

operaTing modelOn the subject of culture, Shrimpling is openly critical of the partnership model that accountancy firms continue to favour, claiming that it hinders decision-making processes, which will need to become more rapid as the pace of change increases. Corporate structures, he says, are the way forward.

Meanwhile, Hollis predicts that the UK’s falling corporation tax rate will mean that more accountancy firms opt to run as a limited company rather than as an LLP or partnership over the coming years. “A company is a better way to run a firm,” he adds. “You get the separation of ownership and management through having shareholders and directors.”

But Lee believes that while limited companies can work well for very small practices, they also have their disadvantages, such as making succession more difficult. “How are future directors going to get dividends? They have to buy shares,” he points out. “Where are they going to get the money from to buy the shares? In a partnership, you can become a partner and they may require you to put in some capital, but you can build that up over time.” He also notes that it is impossible to predict whether the taxation system will be more favourable to partnerships or limited companies in 10 or 15 years’ time.

As for listed companies, the well publicised failure of RSM Tenon, following on from the earlier demise of fellow listed accountancy firms Vantis and Numerica, will act as a strong disincentive to any firm contemplating that route. “Tenon is the extreme case of taking the partnership away,” says Michael Goldstein, a senior audit partner at BDO. “Clearly that hasn’t worked. The partnership is still a very viable, attractive mode of working. The only time that I could see a partnership model not working is if there was a need for external investment. In that case, perhaps a hybrid would be formed. In essence, it would still be a partnership model, but it would be flexed so that external equity is able to come in.”

The Competition Commission’s recommendation that FTSE 350 companies should put their audit out for tender every 10 years has already sparked activity in the large audit market and it might lead to change at the top end of the profession, especially if firms below the Big Four succeed in attracting investment from

innovation practice management

firm Hollis and Co. “There is surplus capacity in the profession.”If you’re an accountant working in practice, the future being

outlined might sound depressing. But fortunately, there are some positives. “The thing that’s enduring is the quality of the relationship between the accountant and the business owner,” notes Shrimpling. And this is where technology again becomes your friend rather than your foe. Online collaboration gives accountants a real-time insight into their clients’ businesses, which they can capitalise on. By monitoring their clients’ finances, they can react quickly should a problem arise and offer timely advice. They can even market their services along the lines of being a virtual FD to the business they’re advising.

Specialising in a particular client base or aspect of taxation will also be key to survival. “One of the key ways to stand out is to show a degree of specialisation and a particular niche,” advises Mark Lee, a practice adviser and speaker who publishes a string of useful tips for accountants on his website bookmarklee.co.uk. “Then people in that niche are more likely to choose you rather than an accountant in general practice who claims to be all things to all people.”

“Giving bespoke tax advice will continue to be a profitable area,” Hollis concurs. “It requires the application of judgement and experience and the ability to stitch a lot of different areas together.” He also argues that accountants need to broaden the variety of their offering and consider handling wills and probate. “And they could have another look at insurance and pensions, as many banks have stopped giving independent advice.”

peopleGiven the trend away from compliance work towards providing advice, technical expertise alone will not be enough to allow accountants to prosper in future. “They need to increase their skill base so they are better able to identify the right types of prospective clients and better able to convert them to become clients who pay commercial fees on commercial terms,” says Lee.

“Communication skills will have to improve dramatically,” observes Crompton. “Technology means that accountants can spend more time communicating with clients because they are more educated on the client’s business.”

Move your practice forward with confidence by following these tips

1 embrace technology technology gives you knowledge and knowledge is power. so use technology to serve your clients effectively and make yourself indispensable.

2 specialise think about a profitable area in which you could specialise and offer bespoke advice clients can’t get from a software package. then market your services ruthlessly.

3 hone your people skills and those of your team it’s no good hiding behind a computer in the back office. You need to be out there in front of your clients, selling your skills.

4 make sure you have the right operating model for your practice is a cumbersome partnership structure hindering decision-making processes? Your practice needs to be able to respond quickly in an era of rapid change.

5 Follow the Big Four the profession’s largest practices prize their people, expand their service offerings and continually reinvent themselves. so can yours.

outside investors. “We believe there is a big opportunity for us to grow our audit practice on the back of this,” says Goldstein. “The gulf between the Big Four and us and Grant Thornton in terms of size is still enormous, and it will continue to be big, but that doesn’t mean we can’t grow.”

more like The Big FourTurning to the Big Four, it is worth noting there is a reason why they are the undisputed leaders of the accountancy profession. “They are incredibly well run organisations, the ideal of the accounting world,” says Casimir. “What will change the Big Four is if they have political and economic change thrust upon them.”

These giants worked out some time ago that advisory work, rather than compliance, is the source of growth and profits. Hence they advise on a range of subjects ranging from actuarial to sustainability and climate change. And it is this model of adding value through advisory work that smaller accountancy practices must ape in their own way if they are to succeed.

So now for the big question: with the onward march of technology, will the world still need accountants in 10 years? “Technology can do a lot of things, but it isn’t going to advise someone on their business, the markets they should be entering, where they may need new staff, how much risk they should be taking and how they should manage that risk,” observes Crompton. “But technology provides the collateral to give really good advice. For accountants, the potential of what they can deliver to business if they use technology is phenomenal.”

ICAEW is running Practice Forum events on innovation in service delivery in Exeter, Manchester and St Albans in early November.

Survival plan“Accountants will be like the guys who

used to make cars and are now the guys who maintain the robots who make cars”