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 Accountants can no longer hide behind outdated advise based on historical data.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 Bookkeeper||Role of Accountant|
|Owns the transactions||Role of Bookkeeper|
|Keeps the ledger up to date||Management reporting|
|Provides daily reports to business owners||Financial reporting|
|Debtors & Ceditors||Communication to ATO|
|Bank Reconciliation||Providing 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.