Is It All a Big XeroCon?

Alexander Kohl About Us, Blog 7 Comments

Xero is beautiful accounting software.

Not because it looks great. Not because of it’s powerful automation features. Not due to the growing add-on partner network that delivers great solutions to most business needs. Not even because of the passionate team where the founders, investor (Craig Winkler, co-founder of MYOB), customer service staff and even accounting and bookkeeping partners share in a passion to make a difference to clients.


The real reason is that it totally disrupts the accounting and bookkeeping industry.

These services will move from an annoying but necessary business expense to a useful investment that has a direct correlation to business success. Bookkeepers can no longer hide behind an hourly rate for entering data. Accountants can no longer hide behind outdated advise based on historical data.

Time intensive tasks are automated with minimal human input and all data is available instantly.

Which leaves two tasks for accountants and bookkeepers:

  • implement business systems that take advantage of this automation and
  • empower business owners to understand their figures and make great business decisions

 

Naturally, there is some compliance work to keep up with ATO changes, but this will become just a commodity that is added to the real service of providing clarity to business owners.

How Accounting and Bookkeeping will Transform

In all of the sessions at XeroCon, the annual Xero conference held in Melbourne yesterday, there was a huge focus on how to transform accounting and bookkeeping practices into offering these new services.

While listening, my first instinct was that bookkeepers will be redundant in a few years. Data entry is automated and accountants have instant access to up to date financial information, so that they can give great advice. Hamish Edwards (co-founder of Xero) actually addressed this issue in a session. Here is his take on the collaboration:

Role of BookkeeperRole of Accountant
Owns the transactionsRole of Bookkeeper
Keeps the ledger up to dateManagement reporting
Provides daily reports to business ownersFinancial reporting
Debtors & CeditorsCommunication to ATO
Bank ReconciliationProviding strategic advice

 

I am sure he is sincere and means it. But he is an accountant and the session went on highlighting how accountants can put together value bundles to deliver these services. Sort of as an afterthought, bookkeepers were mentioned as being able to do the same.

Where the Real Value is Created

From all other sessions it was clear that the real value lies in providing management and financial reporting and helping business owners understand what they mean (providing strategic advice). All of these are shown on the accountant’s side.

In this vision bookkeepers are doing the daily reports. But really, how many small businesses are there that need daily reports interpreted by a bookkeeper? These reports come out of Xero at the click of a button and once a business owner knows where that button is, there is no need for further support on that level.

Transactions, bank reconciliation, debtors & creditors? I think they are either automated (or will be soon with some of the add-on partners and new Xero features coming up) or are handled easily and efficiently by the business owner.

That leaves keeping the ledger up to date, which can be done through infrequent checking (quarterly for most businesses when the BAS is due) and tweaking the automation. Just as much a commodity as the tax work.

Which leads me to BAS. “BAS can be done by the accountant or bookkeeper, does not matter, they can just decide that.” Maybe Hamish did not say these words, but that was his message. It confirms the convergence and competition of the two services. Bookkeepers are investing heavily into becoming and staying registered BAS agents. Accountants do the same for being tax agents. Why would you give this income away? For a BAS agent it is essential income, especially with an average of only 20-30 clients.

Accountants Squashing Bookkeepers?

My logical conclusion: it might be better to change from being a bookkeeper to being an accountant.  But then I met John Birse from ICB and owner of the Jim’s Bookkeeping Franchise. He turned that around by reminding me that bookkeepers are often much closer to business owners. That the established trust is much greater. That the fees are much lower.

It leaves the potential that we’ll see bookkeepers really embracing this new service and just hiring a tax accountant to do the compliance work. In the same way that accountants already hire bookkeepers to do the data entry work today.

So what does it all mean?

Xero, the beautiful accounting software leads to competition between accountants and bookkeepers. And business consultants, really. While this might hurt these industries , the result is a much better and more valuable service to small business. The sales process will not focus on hourly rates any more (which had always created a dilemma: the quicker I was at my work the less I earned) but on the value created: What Return on Investment do I create for you by increasing profitability and reducing your time spent in running the business?

Xero needs accountants and bookkeepers right now. So naturally the message needs to keep the peace between the two. And reality is that the market is so large now that there is plenty of space for everyone and it will be like that for some years to come.

But the ultimate outcome is that there will only be one integrated industry. Xero is blowing open the protectionism that accountants have established over years and bookkeepers have just created with the BAS agent regime. Both have the opportunity to adapt and change and expand into the same market. If they have the confidence, flexibility and foresight, there is a huge opportunity and the big winners are small businesses.

Xero is beautiful accounting software because of the positive impact it has on small business. And I will do everything I can to promote it, so that small business owners can have more beautiful lives.

7 Responses to Is It All a Big XeroCon?

  1. Matthew Addison

    The missing part of the scenario described is that so much of “bookkeeping” is about actually running the business.

    It isn’t about just matching bank statements to the business transaction record (which can be automated to a great extent). It isn’t just about matching receipts to the customer.

    It is about running the business. Issuing the invoices, having a business system that runs the business. Paying the creditors when it is appropriate, dealing with payroll.

    Payroll is typically not standard and not mechanical it is about people and it seems most weeks are different.

    I love where software is going. I love how Xero is changing the face of processing etc.

    But bookkeeping is far from dead and far from being pushed by IT to the side.

    Yes the Institute of Certified Bookkeepers is about bookkeepers so you may be saying “of course you would say that”. But what we spend most of our time on is helping bookkeepers help businesses do business better. Yes we do the compliance but bookkeeping in Australia is far more.

    • Alexander Kohl

      Thanks Matthew,
      I absolutely agree with you. Bookkeeping is not dead. It just needs a major shift in understanding who we are and what we are really providing to our clients.

  2. Mike Block CPA

    Xero is not a con. It and similar programs disrupt accounting and bookkeeping in good ways. My Xero Fully Automatic Accounting vs QuickBooks – The Bad Old Days shows that Quicken and QuickBooks automated about 80% of accounting steps http://bit.ly/KTf0cm.

    Programs like these also simplified work, so around 20 million no longer need accountants to do much of this. Xero-like programs now seems to ask why do accounting, if you can get more accurate, automatic, current, easy, fast, free, reliable, safe and secure financial management, by phone, fax or computer? There is no reeason, but it will take a while for 30 million to realize that.

  3. Sholto Macpherson

    Excellent post. Will be interesting to see whether you’re right!
    Bookkeepers could be in a better position to “implement business systems that take advantage of this automation”, as you say. They are at the coalface and therefore can have a better understanding of how the business operates on a daily basis. They could recommend cloud software to eliminate repetitive or manual tasks, formalise and accelerate processes, etc. Throw in change management, some business coaching and staff training and support, and the bookkeeper could be on the verge of an exciting reinvention.
    We’re right at the beginning. I’ll be watching with interest.
    — Sholto

    • Alexander Kohl

      “We’re right at the beginning.” You are so right Sholto. Thanks for adding to my inspiration with your presentation.

  4. John Birse

    Thank you for a great article Alexander and for giving me more credit than I probably deserve for seeing that bookkeepers have a real place in the small business owner’s value proposition.

    I see the introduction of new technology and companies such as Xero who are taking advantage of such technologies causing a massive shift in the way people do business. We can see this with the pressure internet selling has on retail industries but also media, manufacturing and certainly business directories and marketing.

    Those businesses that do not adapt to these changes will lack the competitive edge necessary to survive and as Matthew points out it is all about how people run their business. Technology is now taking over from cash as a means of exchange which means we can now get a better idea of actual rather than declared transactions. This all means businesses can now get better information on how their business is operating and while tax is one of the necessary reporting outcomes it is not the most important.

    Getting businesses to focus on their profitablilty and how to improve it is certainly an important role for bookkeepers and accountants, the ones that do it best in the eyes of the client will be the true trusted advisor.

  5. Daniel Odd

    Bookkeeping is far from dead or dying, but it should change. You rightly point out that Xero is “shaking things up”, which I think is long overdue. As an accountant, I love what the program is allowing me to with my clients – via the bookkeeper.

    Computers, no matter what program is used, still have the GIGO factor – Garbage In = Garbage Out. A good bookkeeper is worth so, so much more than a poor accountant. Put a good bookkeeper, and a good accountant together, and the cleint should benefit ten-fold.

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