Finding New Opportunity in Compliance Services

A new recipe for the secret sauce of success.

By Rob Nixon

Statutory compliance or "have to" annual accounting is mandated by the government as a task you need to do with your clients.

MORE ON STRATEGY: The World Is Flat | Will the Internet Replace CPAs? | How Offshoring Is Shaking Up Accounting | The Profession Disrupted: Compliance Commoditized
GoProCPA.comExclusively for PRO Members. Log in here or upgrade to PRO today.

The main reason the government agencies want you to do this task is so you can accurately (or thereabouts) collect the right amount of money for them. The government agencies are not that interested in the accounting profession.

The secondary reason is to check that your clients are complying with their rules. The government is using you as an intermediary. They are outsourcing their job to you.

As a business owner the annual compliance is a necessary evil that we don’t really want to buy or really value. It’s a grudge purchase. We (the business community) don’t like paying for it, we know we have to have it but we just don’t like it. It’s like filling the car up with gasoline. If we could avoid it we would. We can’t.

The old model of compliance work is to send a questionnaire to the clients at year end and then wait. Eventually your client sends in their "stuff" in a variety of formats (paper, scan, email, disk, stick or verbal) and then you make sense of it.

If the information arrived via a file of some sort, the first thing you do is load the USB stick and check the version of their software. You then check the information received versus the information requested. Never the twain shall meet on that one!

Once you realize you do not have the information you requested you go back to the client with an information request (typically by email) and your accountants then wait. And wait and wait and W… A… I… T

There is no priority to send back the missing information. We sort of know the answer to our finances anyway. It’s a grudge purchase so why send it back to you when you want?

Often the communication we get is not very clear when we are requested to send in whatever. We procrastinate sending back the information because it has little value. And often when we do send it back, you then ask for something else. Why couldn’t you have just asked for the complete list in the first place? To make it super easy, why don’t you send your administration person around to collect everything?

So we eventually get everything to you. We sign it off, you file it and the year is done. Next year we do it all over again. Rinse and repeat. Most of an accounting firm’s revenue is in compliance and it’s all about to change.

So what does the future of compliance look like?

There is one word to describe the future of compliance: Commoditized. With a repetitive task, eventually systemization kicks in and after that, commoditization happens. Once a product is commoditized then price pressure and new competition take over. This is what is happening with statutory compliance for individuals and companies.

The reason is simple: cloud accounting software. New technologies at the client’s end make it far more streamlined, accurate and thus efficient. The data received by the accountant is more accurate and better quality. There are fewer errors to make at the client’s end due to the way cloud solutions work. With the data in better shape, that means there is less time needed at the accountant’s end to finalize the work. The software applications also offer reporting that previously only the external accountants would provide – such as consolidated executive summaries with key performance indicator variances, budgeting and cash flow analysis.

I have recently seen new entrants (accountants) to the marketplace who have a very low cost base and are offering 50 to 80 percent reduction on standard compliance work. I am also seeing a growing trend of accountants setting up teams of people in other countries and offering bookkeeping and other accounting services for $10-$20 per hour.

The next phase will be when the cloud-based accounting systems will offer "one-click deposit" to the government agencies. This type of technology will bypass the accountant all together for these functions.

The Australian government has created "standard business reporting" linked into the cloud accounting software. They estimate that 12.5 percent of compliance revenue will be wiped out of the Australian marketplace in the next few years.

The reason all of this is happening is due to social change and technology companies who are fighting to remain relevant. Social change says that people want to access information on their mobile device whenever or wherever they want – including accounting and other key business data. It is hard to do that if all the information is on a hard drive at the office!

Technology companies know this and they are either creating new applications that are Internet-based or they are migrating their current "hard drive" products to be Internet-based. If they do not then they will go the way of the dinosaur as well.

Because the cloud data is more accurate and up to date, the version of the software is always up to date and the reporting functions are more powerful, the "numbers power" is now with your clients in real time. Previously the external accountant had the numbers power. Previously your voodoo magic, hoketry poketry (hands currently waving in mysterious mystic ways) that you did on a set of accounts was the powerful secret sauce.

Now the technology at your client site is the secret sauce!

If you want to remain relevant you need to regain the numbers power.

You need to know what is happening in your client site every day and you need to predict issues and opportunities in advance. You need to be alerted to what is happening so you can react in real time. You can make a massive difference if you have the real-time data pushed to your desktop in a consolidated and simple way.

The accounting robots will come. The apps with answers will come. But they are a few years off yet. Not as far as you think, however.

As an accountant, you cannot stop all of this change. Social change, technology companies and the government are creating this change. You can choose to ignore it or embrace it. Ignore at your peril, I say.