Category: Financial Advice

For an accountancy firm to compete effectively in the UK accountancy sector, it must utilise cutting-edge technology.

I embraced this model many years ago, when I first started out in business. By doing so, I was able to implement a tremendous amount of workload-reducing procedures in my own award-winning accountancy firm at the time.

I founded We Run Your Practice when I realised that other accountancy firms could benefit from this service — making them profitable while reducing their workload.

Artificial Intelligence

Probably the most exciting advance in technology for accountants is the use of artificial intelligence in accounting.

Previously, a subject only touched upon in Science Fiction movies and novels, the use of artificial intelligence in accounting has since become a day-to-day fact.

And few accountants know about it, never mind fully leverage it!

What is Artificial Intelligence in Accounting?

Artificial Intelligence is defined as:

“The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.”

Some key words pop up in that definition that should alert any trained accountant to the potential use of Artificial Intelligence in an accountancy practice.

“Decision-making” requires data. And, through the analysis of financial data for a client’s accounts, decisions can be made.

There is only so much data the human mind can process in a second. A computer can process much more than that.

And, so, we enter one aspect of the realm of Artificial Intelligence as applied to accounting.

Visual perception, speech recognition, language translation — these things have become the norm. For example, merely by inputting data into a system like Xero and QuickBooks, we are allowing that software to engage in the perception of that data.

Which Existing Systems Utilise Advanced Artificial Intelligence for Accounting?

There are a few new products on the market which offer advanced AI for accounting, such as the German-based company Smacc, as well as a company called Vic.ai.

But let us not look at the existing software offerings in the way we tend to view the world of a hundred years ago.

In a world surrounded by such mind-boggling technological advances as virtual reality, constant connectedness and continual communication, it is easy to overlook that we already do live in that sci-fi future only dreamed about in novels.

It isn’t so much a question of which accounting systems utilise artificial intelligence, but which ones don’t.

Let’s take a simple task which is offered by all the major online accounting software vendors: Automatically matching bank transactions to invoices.

This is a process of decision-making, which is the very meaning of artificial intelligence.

Many analysis and reporting tools also implement artificial intelligence to draw conclusions and provide visual representations of data.

RPA (Robotic Process Automation) in Accounting

The place where truly advanced Artificial Intelligence in accounting starts to shine is in a specialised field called RPA, or Robotic Process Automation.

A recent article in Blackline Magazine stated:

“In finance and accounting organisations, RPA employs machine learning techniques to monitor simple accounting tasks such as journal entries, credit notes or accrual calculations. When a result goes beyond a set threshold, RPA can initiate a solution by triggering a remediation workflow.”

There is currently no “one-software-fits-all” for RPA in accounting, that I know of.

But, utilising extensive knowledge of a plethora of online and offline tools, it is possible to emulate, to a large degree, Robotic Process Automation in an accounting firm.

By knowing how to interconnect and integrate all these various tools into one cohesive system and workflow, one can start to implement RPA solutions in one’s practice, such as:

1. Automating secretarial work
2. Automating scheduling for clients
3. Automating alerts for client bank accounts
4. Automating innumerable day-to-day tasks which consume time and reduce profits

Which tools to use to effect this RPA is an extensive subject. Indeed, a comprehensive understanding of all the potential integrations and tools available is key.

Our own understanding of this field, obtained as a result of years of work in the accountancy sector, prompted us to found We Run Your Practice, which assists accountancy practices in implementing advanced AI in their practice, and so reduce their workflow.

For a taste of many of these procedures, we provide a free ebook discussing many of these tools as well as how to implement some of them in an accountancy practice.

Summary

Regardless of the particular tool or software chosen, the thing to understand clearly is that Artificial Intelligence and Robotic Process Automation have arrived. They are here, and the most successful accountancy practices are utilising this advanced technology to decrease their workload and increase their efficiency.

We Run Your Practice was recently shortlisted for the Digital and Innovative Firm of the Year Award, by Accounting Excellence. Our entire firm is built on the idea of implementing advanced AI to be able to white-label multiple firms under our umbrella and assist them in turning a profit.

By utilising this advanced technology, it is indeed possible to turn a higher profit in an accountancy firm as a result of the enormous time such processes save.

Many are the accountants who almost feel personally insulted when they discover that their decades of hard work and excellent client service are worth nothing more than 0.8 – 1.2 times their Gross Recurring Fee.

That’s what accountancy practices are usually valuated at, at the time of sale: 80 per cent to 120 per cent of GRF.

But what about tax enquiries, VAT inspections, PAYE inspections and other occasional services? These are not, technically speaking, recurring fee income services, but they do come up intermittently for clients. If your practice has 500 clients, the chances are high at least a few of them will require this kind of add-on service each year.

There are also other add-on services which many UK accountancy practices offer, such as financial advisory services. This might not be a “recurring fee” in the strictest sense. You might provide the advisory service only occasionally to any clients who look like they might be heading into financial straits.

Some accountancy practices have invested heavily in in-house professionals to up their marketability, thereby improving the practice’s viability. Surely this could factor into the practice’s final valuation?

Maybe it would, but the final estimate would unlikely go over the 120 per cent mark.

Efficient practice? So what?

The fee-based calculation seems to penalise forward-thinking and tech-savvy practices a lot harder.

If you have invested heavily into increasing your accountancy practice’s efficiency over the years, likely you were are able to charge a lower fee than your competitors and still turn a profit. This strategy might’ve been great when you were in the process of actively seeking new clients, but it isn’t so great when the time comes to sell.

That lower recurring fee adds up to a lower valuation at the time of selling.

Accountancy is a tight-margin industry. Turning a profit requires near-genius these days. The volatile environment of ever-changing tax laws, as well as a playing field which grows more competitive each year, means that many accountancy practices must charge those lower fees just to stay in business.

Not great news for the almost-retired accountancy owner, now long in the tooth, who only wants to pack up his shop and retire comfortably in Gibraltar.

It’s a catch-22 situation.

The dream client base

And then there’s the matter of the client base.

Good businesses are built on solid relationships. If you’ve been in business for more than a decade, it’s likely you know very many of your clients personally.

People buy relationships more than they buy brands.

Will that client base stay with the company after it has been acquired by another? Did you offer service with a “personal touch” over the years?

If the personal touch is gone — you — so is the client. This can lead to a lower valuation.

It’s almost as if selling a practice is counterintuitive. Those very things which were necessary to build the practice in the first place — competitive fees, the personal touch, relationships above branding — are the same things which could lower its eventual valuation.

The dream accountancy team

The same applies to the team you have built over the years.

Will the staff remain under the new management?

If your competitive edge is based on having a team with specialised knowledge of various areas, your client base might also decide to leave if those team members are not there.

At the end of the day, you are selling a client base and nothing more. The action of selling an accountancy practice is cold and calculated.

Possibly the company acquiring your practice is indeed very human and caring, but that still doesn’t change the process itself.

The process itself of selling a practice comes down to profit margins and nothing more.

Alternative options

One option would be to hand the practice over to a willing friend or family member who will give you a nominal fee for it but still let you retain a portion of profits as the years roll by.

This is a risky option at best if your practice is already struggling.

Then again, if it is struggling, the price you’ll be offered likely won’t be great. At least with this option, there is still the remote hope that the practice can be salvaged sometime in the future, and that you will eventually get your dues.

The second alternative available is to outsource your accountancy practice’s activities. This is an extensive subject and is not without its risks. We’ve written extensively about outsourcing accounting activities before.

The bottom line

That’s what it comes down to, isn’t it? The bottom line.

And the bottom line when it comes to selling your accountancy practice is that no price could ever match up to your life’s work, or even to the work of a few years.

Perhaps in another industry, yes — a tech startup, maybe, or the latest unicorn.

But not in accounting.

The accountancy business model is made up of fee income. One can get creative when one is in the business, marketing to clients for additional advisory functions or finding ways to increase efficiency.

But when it comes to selling an accountancy practice, it’s difficult not to get the short end of the stick.

Most accountancy owners would settle for something that, at least, doesn’t hurt their pride.

If an accountancy owner really wants to let go of the reins, and make a profit while doing it, they would need to embrace a different strategy entirely.

Accounting is a tight-margin industry. New laws and tighter regulations quickly reduce a firm’s profitability.

To increase profitability in our industry, one must either:

1. Drastically improve efficiency
   OR
2. Reduce costs

How to improve efficiency in an accounting firm could easily fill a book.

In this article, we will give you an overview of how to cut costs in both respects.

1. Invest in effective and worthwhile software

There is no lack of software offerings for businesses these days. The sheer enormity of offerings makes the task daunting.

But there is no doubt that the way to improve efficiency is to invest in software which:

1. Streamlines mundane tasks
2. Shaves minutes off every hour, and hours off every week
3. Reduces confusion (and, hence, wasted time)
4. Keeps the business secure (cyber attacks waste time and can lead to expensive legal repercussions)
5. Improves client service
6. Guarantees that the company can keep working entirely remotely should they ever need to

The solution to knowing which software to invest in is simple: Don’t try to invest in it all at once.

I’ve spent nearly a decade learning about software and which cloud tools work best to increase an accountancy firm’s profitability.

There is a lot to know.

The trick is to start somewhere.

In a recession, it’s challenging to stay calm when the need for efficiency becomes almost like the need for oxygen.

Calm or not, it’s simply impossible to implement everything overnight.

So, dedicate a few minutes a day to learning one new tool, one new piece of software. Sign up for a trial and test each software one-by-one.

Slowly, your firm’s efficiency will increase, and so will your profit margin.

2. Increase prices

If prices are increased for existing clients, they might feel betrayed and go elsewhere for their services.

If they are increased for new clients, they might consider you too expensive and go to your competition.

Still, increasing prices is a tried-and-tested way to increase profit margins.

One way to go about it is to offer services in “packages”. You could have a Basic Package and a Premium Package.

The Premium Package would contain more services. You could propose this to existing clients and keep them on the Basic Package if they refuse, and you could offer both packages to new potential clients.

3. Reduce fixed overheads (rent)

The mindset regarding office space has changed. A recent PwC survey revealed that 25 per cent of CFOs were looking to cut back on real estate costs since COVID-19.

Indeed, keeping an office might turn out to be even more expensive than it was as a result of new government guidelines which might very well become law.

Cutting the office rental fee is a surefire way to quickly knock out substantial expenses immediately.

Still, there is a certain prestige to writing Canary Wharf on your letterhead. If you deal with top-level clients, an expensive office might be necessary to keep up appearances and so keep those clients.

This matter of fixed overheads is something each business owner must decide for themselves.

4. Obtain recurring clients vs one-off

Recurring services at lower prices start paying off after several months. If you’re able to take a cut on immediate income and really serve your clients well for the long haul, the recurring fee will slowly and steadily inch up your margins.

There is always the risk that new clients leave you in the first few months, forcing you to operate at a loss for those clients. So, start off slowly to reduce risk.

5. Increase the value of your clients

Big firms pay big bucks. But they also demand six-star service.

Assuming you’ve overcome the initial setup required to even get those big clients (superb marketing, astounding service, top-notch staff, possibly even an address at Canary Wharf), keeping them thereafter is a full-time job.

Small mistakes on large firms’ accounts can lead to massive costs (for them), and lost business for you — possibly even legal difficulties.

Pulling this off requires exceptionally competent staff who have extensive experience with large accounts.

Start small. Don’t go for the biggest fish. Try get in a few mid-level ones while you build up all the necessary elements to both attract and keep larger clients in future.

6. Suppliers’ terms

Although this isn’t the easiest to effect, one way to improve margins is to try and negotiate suppliers’ terms with landlord and software providers.

This would be more difficult with software providers because software is usually provided at a fixed rate, with only minimal discounts possible.

Still, you could also look at other suppliers with whom this might be possible.

7. Outsource

In its current paradigm, outsourcing all of one’s accounting duties is a risky investment for an accountancy firm.

And yet the use of outsourcing firms continues to grow.

What is needed, really, is an entirely new type of outsourcing; one which is:

1. Transparent
2. Local
3. Regulated
4. Accountable

If an outsourcing firm fits all those criteria, it is worth looking into to increase margins.

What not to do

Dropping wages is one option that is not recommended. It leads to a sense of betrayal on the part of employees, which in turn could bring about lower quality work and high staff turnover.

Staff who are pleased with their working environment are more willing to go the extra mile. This itself is a way to increase profit margins — by improving the quality of service on an immediate basis, leading to more referrals from satisfied clients.

Conclusion

As with everything in business, the solution lies in the long haul. None of the above can be achieved overnight.

If you are truly strapped at the moment — especially as we head now into the UK’s deepest recession in 300 years — you might want to consider some of our services to increase your profit margins.

But if you still have your head above water, the above 7 steps will put you well on your way to increasing margins if you work on them regularly and with patience.