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Sometimes you find it’s the simple systems that work the best. Back in the day, manual ledgers were the accounting hero for most SMEs. The retro green ledger book, ruled up and reconciled each period, may have been labour intensive, but it worked, pure and simple.
More importantly, the regularity of the work allowed accountants to spot trends within their clients’ data, and to keep track of potential future problems, not to mention the kudos they received for translating green ledger book balances into a GL system, preparing P&Ls and balance sheets, and spending time with their client.
Not only demonstrating their value as accountants, they were performing an advisory service.
During the 1980’s and 1990’s in Australia, from the many discussions I’ve had with accountants from this era, I’ve been told that accounting fees were much higher during that time than they are today (and in real dollar terms also, not relative!).
So, why has this happened?
There is no denying that advancements in technology helped to eliminate manual processes of the day, much like we are seeing now. But, in my view, off the shelf desktop systems convinced SMEs that they could do it all themselves. Whereas previously their accountant may have reconciled the books, soon it became the role of spouses or partners pouring over late night DIY accounting programs once the kids were in bed.
In doing so, they probably saved some real dollars, but what they didn’t do was to reinvest those savings back into growing their business. They also omitted to then engage their accountant to work on new tasks, simply relegating them to end of year books.
In addition, desktop accounting programs weren’t particularly user friendly, which meant numerous, niggling inaccuracies snuck in, only detected by the accountant when fixing the year-end files.
And because clients were putting pressure on fees as a result of now doing their own ‘bookkeeping’, accountants were forced to keep increasing their number of low value clients simply to maintain a level of earnings. Compounded with the added pressure of GST and a rise in the required amount of compliance services, accountants became too busy to even consider offering advisory services, let alone be paid for the advice.
In short, desktop accounting hugely devalued and undermined the whole accountancy profession.
And yet, because SMEs believed they had their financial numbers in order but still required business guidance, they turned to external business coaches to ‘advise them’.
It is painful witnessing ad-hoc advice previously given to your client being duplicated by a business coach who is charging thousands for the pleasure, without any accountability when things don’t go to plan. (The industry’s own fault, I know, but still a reality)
The whole desktop era saw no innovation in the accounting and advisory space despite accountant’s cries for help. As vendors just kept spitting out DIY programs for SMEs, desktop programs did not empower an accountant to get more involved. They said they did, but they did not make it easy or cost effective. It was a downward spiral for the industry.
Enter the Cloud. This was a revolutionary time for accountants, but with their perceived business value at an all-time low, accountants found it harder rather than easier to convince clients of their worth. The expectation gap between the value an accountant feels they provide versus the value SMEs think their accountant provides continues to be a hot topic today.
From a whole economy perspective, I mourn the value of wasted fees on pure compliance services. I wonder about the number of avoidable business failures, not to mention lost Super, PAYG, Income Tax and GST as a result of forced liquidations due to SMEs accountants spotting the red flags too late.
On a positive note, the emergence of bookkeepers in Australia (who are now a very valued part of the industry) was as a direct result of the introduction of GST and desktop programs becoming too user unfriendly. Unable to profitably deliver bookkeeping services internally accountants looked to external bookkeepers, and in turn the industry grew.
But here is the danger. As we see now, automation has eliminated the much of data entry part of a bookkeeper’s role. Desktop programs with their lack of innovation and manual methods helped bookkeeping to thrive, but it is now going through its own revolution. And that revolution in turn is threatening the management advisory roles of accountants…
The Desktop era has a lot to answer for, not the emergence of the Cloud. As we look to the heavens through ‘the Cloud’, it is delivering endless opportunities for accountants to become connected to their clients again and really is the saviour of the industry.