Exploring the SaaS option for SME accounting

By Kevin McLoughlin, UK Manager of Software-as-a-Service provider, Twinfield, part of Wolters Kluwer. The accountancy market is in a state of flux – squeezed by the trend towards lower priced book-keeping services at one end and the push into the mid-market by the ‘big six’ at the other. But as the UK’s Small-to-Medium-sized Enterprises brace …

February 29, 2012 | Wolters Kluwer

By Kevin McLoughlin, UK Manager of Software-as-a-Service provider, Twinfield, part of Wolters Kluwer.

The accountancy market is in a state of flux – squeezed by the trend towards lower priced book-keeping services at one end and the push into the mid-market by the ‘big six’ at the other. But as the UK’s Small-to-Medium-sized Enterprises brace once more for a tough 12 months as the economy dips, I believe there is an opportunity for accountants to offer real value to clients via Software-as-a-Service (SaaS) managed contracts and improve their cash forecasting and visibility into the business at the same time.

There is a chance to evolve from the traditional annual client discussion once a year while doing an audit, towards a more interactive service that meets the needs of businesses struggling to assess the way forward. SaaS financial software, delivered on a managed services basis with little upfront capital expenditure but on-going fees, offers the chance to transform the accountancy procedures at many smaller firms. In my opinion it can streamline processes to drive down costs and help drive the adoption of subscription-based added value services, such as daily or weekly cash flow forecasts, proactive advice on profitability or tax planning, or even real-time access to scanned invoices. Yes, there are fees to pay for SaaS but it gives SME firms access to technology that they otherwise probably couldn’t afford. And accountancy firms can be the ones to deliver these services.

Despite the present tough financial climate, pressure on clients and changing marketplaces, accountants are, in the main, still making money. No surprise there you may say, but they are being increasingly squeezed by a new breed of book-keepers leveraging cheap software to offer ‘shoe box’ services to UK SMEs; and they are seeing the ‘big six’ reduce fees further and extend their services into the mid-market. Yet despite this clear and growing trend, few medium-sized accountants have woken up to the serious implications of a fundamental change in operating models and cost bases. It is time to do so.

How long can the mid-sized accountancy firm hold its share in this market? How long can they survive as margins are cut and profitability eroded? How can they compete with the top six firms as they increasingly leverage technology to offer lower cost audits – often as loss leaders – in order to win customers and cross-sell more profitable research or value-add data and consultancy services?

Right now many companies are giving away services in an attempt to retain clients. Yet they have no idea how long it is taking to find the information required to answer client queries or manage client demands; indeed many do not even know whether or not a client is profitable.

This is not a sustainable model. Rather than simply cut fees, accountants should be leveraging their expertise and becoming a key part of the client’s business. They need to provide more than an ‘after the fact’ overview of profitability – it is too late, and businesses know whether or not they have had a good year! And in this market, to be frank, the UK SMEs need far more insight in order to stay in business.

Accountants need to be able to offer real-time insight into profitability by product or service line; they need to undertake analysis of the cost base and deliver advice on options for business change or expansion – these are the value-add services increasingly demanded by clients looking to make tough decisions. Such services can only be achieved with real-time – or near real-time – information from clients; the old model of an annual review is outdated and, increasingly, irrelevant. SaaS-based financial software offers the chance to transform the client relationship. The subscription model minimises the upfront investment required and removes the need for expensive internal IT expertise or server infrastructures. Large accountancy firms can perhaps afford the upfront capital expense of installing such value-adding analytical technology but for smaller firms SaaS is the only way to go in my opinion.

The monthly ‘pay as you go’ approach enables accountants to embrace a new business model. Clients can sign up for a monthly subscription service which can range from basic book-keeping to other, more added value services. Cash flow is improved with the regular monthly income, while upfront IT costs diminish; and the fact that the information is online, and available 24×7, means there is no need to be office bound, allowing SME firms to embrace more flexible working practices.

Automating Processes
A key component of the SaaS option is integrated document scanning. Purchase invoices can be scanned in and automatically posted into the accounting system, checked by the accountant, and confirmed. Scanning purchase invoices in this way and with the use of – either in bulk or by each client together with ‘self learning’ software – drives down the cost of processing, enabling firms to compete with book-keeping services.

Straight Through Processing techniques cut costs and increase visibility into the business. More critically, by encouraging clients to scan purchase invoices on at least a daily basis, accountancy firms have access to the timely business information required to deliver these new, added value services.

At the most basic level, the ability to provide any business with near real-time insight into performance is incredibly powerful. Simply accessing the accountant’s portal to discover how different parts of the business are performing, to track cash flow or assess the impact of currency fluctuations provides unprecedented confidence in decision making. Building on this basic information provision, additional services can include cash flow forecasting or business analysis, providing a depth of financial expertise that will be essential to help SMEs maintain or even grow the business during this current economic downturn.

I believe there is a huge opportunity for accountants to step up to the mark and play a vital role in enabling a new level of business insight and understanding that could transform the performance of the UK’s SMEs. But to achieve this critical role will require a significant shift in attitude and culture. It will require accountants to adopt not only new technology but a new way of working that minimises repetitive administrative processes and frees up talented individuals to share their expertise and knowledge with the marketplace. Technology can help enable this cultural shift and SaaS can help to make it affordable for smaller service providers.

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