It’s not just you. The global

It’s not just you. The global trends in cloud accounting

@AccountingBExpo

Sholto Macpherson is head of content for the Accounting Business Expo and editor of DigitalFirst.com

Last month I was riding in an Uber from São Paulo to a town called São Bernardo do Campo, in Brazil. It was my first time to that part of the world. But it wasn’t the first time, sitting in the boardroom of an accounting firm, that I had heard this question. “We know we can totally change our firm. But how do we do it?”...

It doesn’t matter whether

you’re an accountant in São Paulo or Sydney, Auckland or Amsterdam, the desire is the same. A wave of technology is breaking across the accounting industry with an enormous advantage to those who are most open to change.

There’s a lot to learn from these global trends which are happening on three levels; accounting software, firms and the cloud software ecosystem. The shift from desktop to cloud software is well underway in OECD countries. Australia and New Zealand have been leading the scoreboard with estimated penetration between 20%-30%. The UK and the US are making headway.

It is gradually rising in developing countries, too. The two most popular cloud accounting programs in Brazil have just over 50,000 subscriptions between them in a market of nearly 7 million SMEs. This transition is inevitable. The economics of selling cloud software are far more attractive to software companies. The benefits of cloud software are far greater for businesses and consumers than those of desktop software.

Less obvious is the shift in accounting firms. SMEs may be moving to cloud software, but does that mean accounting firms have to change? The answer is overwhelmingly yes. Accounting firms in the Netherlands and Brazil are also talking about diversifying their services from compliance.

It’s clear that accounting firms are moving to the cloud in stages. The first phase is working on the client’s accounting file rather than importing the data to practice management software. The single ledger or common ledger concept is a big conceptual change. In Brazil it’s still very much unknown.

That first phase may take a longer time to complete in developing markets. Desktop accounting software had relatively little and Brazil many companies still use Excel spreadsheets or even pen and paper to manage their accounts. There’s a logic to using a practice management system to centralise data from multiple sources.

The second phase focuses on automating the compliance through various applications. Australia and New Zealand are well in front here.

The third phase is adding complementary services and new revenue, often facilitated by technology. These include managing superannuation or pensions, personal wealth, stocks or shares, sales inventory, business assets.

There are indications of a fourth phase emerging within the next 18 months, but there is not enough evidence to validate it just yet.

Finally there is the ecosystem of cloud business apps that support each cloud accounting program. In small countries such as Australia and New Zealand many of these apps have global aspirations. However, larger markets will create domestic competitors. The ecosystem apps are very much a cottage industry. It takes a lot of success – in Singapore, Hong Kong

effort to get to break even as the attachment rate to cloud accounting software is not that high given the number of competing apps.

But it’s clear that some are breaking away from the pack.

Sholto Macpherson and Accounting Business Expo Event Director Laura Venables

The most obvious development is in valuations. Practice Ignition (Australia), Receipt Bank (UK) and HubDoc (Canada) are three apps that have raised several million dollars to pursue a global market. Another sign is the quality of the education each app provides outside of the app itself. Unleashed Software (inventory), Practice Ignition (firm metrics) and Spotlight Reporting (business advisory) have invested in how-to videos on the delivery of associated services or processes.

Often these apps need to invest also in employees to handle change management, within SMEs and accounting firms, to ensure customers get the maximum benefit from their software. This reflects the relative lack of cloud software integrators in the face of huge demand. Until the delivery channel grows to a decent size – it is happening very slowly – the apps will have to bear the cost of implementation themselves.

So the whole world of accounting is changing, albeit at different speeds. There is a lot to share between countries for a shared outcome: stronger businesses, for accountants and their clients. And given the risks of starting a small business in any country, this is excellent news.