(c) Hong Kong Institute of Certified Public Accountants. Contact HKICPA for permission to reproduce this article., Fintech

Sky’s the limit

Some small- and medium-sized accounting firms around the world have accelerated their move into tasks and activities less susceptible to automation. They tell Nicky Burridge about the new services they offer and how the cloud is a crucial tool when making the transition to advisory.

A Sydney pub company employed a full-time bookkeeper who spent the first day of every week driving to each of its venues to collect the documents needed for the accounts until My Accounts helped the company set up paperless accounting system Receipt Bank, enabling managers at the pubs to scan all of their documents.

The move instantly eliminated a full day’s work, while it also gave the company near-real time financial information, enabling it to make better-informed decisions.

My Accounts is one of many small- and medium-sized accounting practices (SMPs) globally focusing on helping clients switch to cloud-based accounting systems, enabling the firm to evolve its offering to include chief financial officer-level strategic analysis at a time when technology is disrupting the traditional accounting model of delivering services such as auditing and financial reporting.

But Hong Kong lags behind other countries when it comes to the adoption of cloud-based systems, with many small and medium enterprises (SMEs) still viewing accountants as professionals who do little more than prepare the annual accounts and tax returns.

“SMPs should leverage on the current business intelligence technology offered by cloud accounting software to provide value-added services, such as data analytics and business process improvements advisory services,” says Eugene Liu, Managing Partner and Head of Consulting at RSM Hong Kong, and a member of the Institute’s SMP Committee.

He adds not only does cloud accounting enable SMPs to provide advice to their clients in areas such as working capital, liquidity management and forecasting, but many of the software providers reward partner SMPs for client introductions and referrals, creating a new revenue stream beyond offering traditional accounting and outsourcing services.

Branching out

Accounting firm Nova CPA & Company began to offer additional services three years ago, after realizing some SMEs in Hong Kong wanted to install cloud-based accounting systems but were unsure how to go about it.

The firm helps its clients select the right accounting system based on the nature of the company’s business and its workflow. It also provides staff training and ongoing support for making the best use of cloud-based accounting software.

Cornerstone Management Group also helps its clients switch to cloud-based solutions, such as Xero. Adrian Lai, its Managing Director, explains that for a retail business, cloud technology enables sales transactions to be captured throughout the day and automatically added to the accounting system, without the need to input them manually.

“The goal is to help create a seamless, automated, affordable enterprise resource planning-like system for SMEs,” he says. But the services it offers do not end there. As cloud-technology generates a lot of data, Cornerstone also provides business analysis services to its clients.

Fresh Accounting was somewhat of a pioneer in Hong Kong when it launched in 2014. While the group offers software implementation, training and technical support, it also prides itself on being able to accelerate business growth through its advisory services, which include accounting through to financial management, as well as undertaking finance director and chief financial officer roles for its clients on an outsourced basis.

Paul Gardner, Founder and Chief Executive Officer of Fresh Accounting, explains that while small businesses may be able to install cloud-based accounting systems themselves, it is more complex for firms with operations in several countries, and they are more likely to outsource the process.

Implementing the software helps SMPs to establish a relationship with the client, and often leads to the client asking for additional services, such as training and ongoing technical support. From there, it is a natural step for them to want advice on the data being generated, which they do not always know how to interpret themselves.

Gardner says: “Once you start having meaningful information, the client may want to see more. They might want a business plan or a view of their group of companies. You can help them move from reactive accounting to proactive accounting, which often leads to a demand for a financial director role.”

Will Farnell, Founder of Farnell Clarke in the United Kingdom, which was named the most innovative practice at the British Accountancy Awards in 2016, agrees that once SMPs have helped companies set up cloud technology and established a relationship with them, they can then start to offer other services.

“The technology is just the enabler. You can then do advisory work. We also introduced HR services. We run payroll for nearly all of our business clients, so HR is an obvious place to start,” he says.

Multiple benefits

As Liu at RSM points out, SMPs are particularly well-placed to help SMEs. “SMPs are like the family doctor, where they have an overall view of the business health for their SME clients. When small businesses have issues, SMPs are in the best position to capture these pain points, either provide relevant resolutions or refer them to an expert,” he says.

Gardner points out that many of the problems clients came to it with, such as issues with cash flow, receivable management and not being paid on time, were exacerbated by not having visibility of their financial situation and meaningful, timely financial information. “Putting in a cloud-based solution enabled them to see the information quicker, make decisions faster and get paid quicker,” he says.

In fact, Xero claims that when its cloud system was introduced in Hong Kong, the average payment time was reduced from 43 days to just 21 days for firms using the software.

Noel Tiufino, Managing Director of My Accounts, which was considered an early adopter of the technology and offers cloud-based solutions including Intuit QuickBooks Online, MYOB Essentials and Reckon One, says: “There is a real want for immediacy and structuring something around that. Clients want live financial reporting that they understand. Important decisions need to be based on accurate data.” He adds that if a client has posted a poor report in December and they only find out about it in March, they have already missed three months in which they could have rectified the situation.

Indeed, the upside to SMEs of using the additional services offered by SMPs can be significant. “The benefits to our clients range from decreased labour cost and HR management effort, to the introduction of best practice principles, to increased financial reporting efficiency and transparency,” says Cornerstone’s Lai.

Cornerstone specializes in e-commerce and retail, and it has set up systems for its clients that connect point-of-sale systems, such as Shopify, with inventory management, such as DEAR, logistics and warehousing through Xero.

Lai says this approach helps small business owners with performance, as it provides them with timely financial data, enabling them to make better decisions. “That’s where the real value to the client lies,” he says.

Tiufino agrees, pointing out that the data can be used to set more accurate goals that can shift dynamically if required, and measure progress against them in a timely manner. It can also help identify strengths and weaknesses in the business, enabling better performance management, but businesses often need help interpreting it. “A live, data-rich environment is only useful if the data is curated specifically for your business and if you, the business owner, understand the metrics being presented and how to utilize it,” he says.

Slow take up

Despite the obvious benefits, take up of cloud-based solutions in Hong Kong is slow.

Matthew Li, Co-Founder of Nova, says: “Based on international conferences we have attended, we have found adoption among Hong Kong SMEs is quite limited. The technology is used much more widely in Europe, Singapore and Australia.”

Gardner of Fresh Accounting thinks part of the problem is the tax system in Hong Kong means companies only need to prepare their accounts once a year. “In Hong Kong we don’t have sales tax or payroll tax, so everything is end of year accounting, minimizing tax, end of year sign-off,” he says.

A lot of SMEs are not aware of the benefits that come with adopting cloud technology, notes Liu at RSM. “There needs to be an awareness change among the SME community that SMPs can provide high-value advisory services with a niche focus,” he says.

Li thinks another barrier is that many business owners are nervous about cloud-based technology, particularly regarding its security. “We try to explain that web servers are widely popular and adopted by Fortune 500 companies,” he says.

Tiufino of My Accounts thinks fear of change is an issue, adding that a large part of what his firm does is change management. He says: “Just replacing technology with technology isn’t the solution, you often need to align the whole team. There is always going to be resistance to change.”

Another challenge is around pricing. Gardner explains that business owners often have a price they want to pay but that is not always realistic. “The benefits of taking a desktop legacy accounting software and putting it on the cloud is worth the cost, but sometimes it is a price they don’t want to pay, particularly when there are more than 3,000 CPA firms that can do their accounting for less,” he says.

Farnell of Farnell Clarke advises SMPs that want to branch out into offering additional services to do so on a fixed-fee basis. “To run a modern digital practice, you have to offer fixed fees. We took the view that our clients were buying into an offering, so they could ring us or email us without fear of a bill for two hours of partner time,” he says.

The government also has a role to play, and Li would like to see it do more to encourage take up of technology, ranging from e-payment solutions to cloud-based accounting, among SMEs. He believes that part of the problem is that the legal framework is not yet in place in Hong Kong to encourage firms to embrace it.

Massive opportunity

“From our client’s feedback, most traditional firms offer corporate secretarial, audit and accounting services and rarely do anything further,” says Lai of Cornerstone. “Basically, it’s a once a year regulatory engagement which only provides compliance value.”

The fact that the majority of firms in Hong Kong do not yet offer new services creates a significant opportunity for those that do, including having a first-mover advantage.

Farnell says in the U.K. his business has grown by 40 percent year-on-year every year for 10 years because it was one of the first to be active in this area. “My advice is don’t wait,” he says. “There is a massive opportunity from being an early adopter and providing people with technology that your competitors aren’t.”

This article was originally published in the January 2018 issue of A Plus. You can also read the digital edition.