The Accounting Industry's Death is Great News for Your Business
Change isn’t comfortable -- especially when it comes to industries steeped in tradition, such as accounting. Whether they welcome the innovation or loathe the disruption, accounting firms are forced to adjust as their previously static sector grapples with major change.
Asian brokerage firm CLSA recently released a report detailing the future of technology in the accounting world. While the shockwaves of cloud storage technology still reverberate, the report indicates accountants won’t have much time to rest. Machine learning, the gig economy and AI are poised to disrupt the industry even further.
We’re living during a watershed moment for accounting, which creates repercussions throughout the business world. It's the end of accounting as we know it, but entrepreneurs should feel fine. A new normal will rise from the ashes of the archaic industry, and this revival will lower costs and increase transparency for businesses in every sector.
Why accounting needs a reboot.
As an industry, accounting has been broken for decades. It holds onto the old ways of doing things, even in the face of inevitable change.
The rise of personal computers in the 1980s turned the profession on its head, with software empowering business owners to handle their own bookkeeping and finances. Accounting became a more commoditized profession because of technology, forever altering the dynamics between accountants and business owners. Unfortunately, accounting firms didn’t get the message.
People running accounting firms tend to be older, less comfortable with technology and unfamiliar with new tools. As a result, there is little incentive for junior team members to innovate. Their clients end up missing out on opportunities for increased efficiencies or other areas of improvement.
For example, I have met countless business owners who were in the dark about their company financials because of outdated technology. If your accountant is still working on the desktop version of QuickBooks -- or keeping records in shoeboxes -- he or she is the only one who has access to your financials. Unless you can convince your accountant to embrace QuickBooks Online or similar cloud software, you’re basically unable to track your company’s performance.
Beyond glaring technical issues, many accountants stubbornly adhere to antiquated traditions. Firms stifle rising talent by enforcing lengthy wait times for partnership -- sometimes up to 10 or more years. This sort of inflexibility pushes ambitious young workers and creates a stagnant culture. An established accounting firm feels reliable, but entrepreneurs who work with these companies receive obsolete service instead of innovation.
Despite these incredible inefficiencies, accounting firms still manage to sustain bloated profit margins. As one of the most lucrative trades in the nation, the accounting industry enjoys net profits averaging 18.3 percent of sales -- the highest of any sector, according to Sageworks. If their net profit margins are nearly 20 percent, their gross profit margins must be closer to 60 percent.
Accounting firms certainly don't mind those hefty profits, but their clients will begin to question bloated bills for second-rate service. Entrepreneurs could easily receive better treatment for less money, but these fossilized firms have had no reason to change their ways. This excessive wiggle room also creates space for newcomers to disrupt the industry. As Amazon CEO Jeff Bezos eloquently stated, “Your margin is my opportunity.” Ready or not, change is coming to accounting.
The dinosaurs of the accounting industry are dying, but new entrants are ready to embrace technology, provide better customer service and offer increased transparency. Amid this accounting renaissance, it's still important to consider a few basics:
1. Understand the differences between various titles.
Bookkeepers, accountants, analysts and CFOs all do different things, but that isn’t always clear to outsiders. We’ve had many clients ask for a CFO, for example, when they actually needed a bookkeeper. Considering the average CFO could earn nearly eight times the salary of a bookkeeper, it’s important to pick the right person for your needs. Don’t let big accounting firms strong-arm you; educate yourself on the role you need to fill, and learn to ask for what you want.
2. Ask potential partners probing questions.
How will this firm support your businesses through different growth stages? What resources do they have? How have they adopted new technologies? If they have served others in your industry, request references. Ask which tools they recommend clients use -- including examples such as Recurly, Xero and Kabbage -- and see whether they offer blank stares or useful insight.
Finally, ask about their system of checks and balances. How will they assure you their work is correct? How are they billing you? Which deliverables will you receive regularly? Don’t be afraid to ask difficult questions; you’re trying to find the perfect partner for your business.
3. Consider every available option.
While a local mid-market firm might be ideal for your company, don’t feel like you’re limited by traditional arrangements. Bench, for example, uses artificial intelligence to deliver bookkeeping services to small businesses and independent contractors.
If your company is beyond that initial growth stage, you could embrace the gig economy and use freelancers to handle your accounting. Marketplaces are infinitely more efficient than antiquated accounting firms, creating potential cost savings for business owners. Considering that a Randstad study found that 68 percent of employers believe half the workforce will be part of the gig economy by 2025, it doesn’t hurt to familiarize your business with this growing trend.
4. Seek like-minded partners.
According to CultureIQ, 73 percent of employers believe a better corporate culture provides a competitive edge. Go through a values exercise to solidify what your company stands for, and associate yourself with companies that share those ideals. If you trust your employees while encouraging openness and flexibility, seek modern accountants that buck the old trends and mesh with your approach.
5. Stay on top of trends.
Most trends don’t manifest overnight. Read books and articles, listen to podcasts and talk with others in your industry to see which way the wind is blowing. If you haven’t already -- IDG Enterprise reports about 70 percent of companies have at least one application in the cloud -- use cloud computing to make it easier to share your financial information internally and with external partners.
Are you still clinging to paper receipts? Get with the times by embracing digital platforms to track and organize expenses. Apps such as Expensify and Wave can do a lot of the work for you, but you can also just snap photos and keep them in a designated receipts folder. Stop sending snail mail invoices, and start emailing those documents to clients. These steps might be painful, but they’ll make it much easier for your bookkeeper or accountant to see exactly what’s going on with your finances.
The accounting industry might be broken, but that doesn't mean entrepreneurs can throw their arms up in disgust and neglect their finances. As upstarts break into the field and offer accounting solutions that match the modern marketplace, the landscape will undergo tremendous change. Regardless of your solution to this accounting problem -- a midmarket firm, an in-house accountant or a team of freelancers -- it's necessary to know what you're getting yourself into. Your company's livelihood literally depends on it.