Accounting firms need to make radical changes in the face of new technologies and other trends sweeping the profession — but they also need to manage those changes carefully, according to technology thought leader Randy Johnston, the co-founder and principal at K2.
“Most firms can only handle about one project per functional area in the firm per year,” Johnston told attendees at the annual XCM Xchange user conference, held in Nashville, Tennessee, this week. “So many of the failed implementations we see weren’t properly project-managed — and we expect firms to have to manage changes in several major areas over the next several years.”
He suggested staggering new initiatives, so that firms or functional areas are only actively engaged in implementing one at time -- but are also planning the next initiative at the same time, so they can get up and running on it much more quickly after the first initiative is completed.
In terms of technology solution implementations, he specifically warned firms not to dive in before solutions are fully baked. “Don’t give in to FOMO from vendors — AI, for instance, is not ready yet,” Johnston said. “You should sandbox and validate vendor claims before you move a technology into your firm.”
The consequences of not planning changes adequately, and of biting off more than a firm can chew, can be devastating. “One of the saddest stories I’ve seen this year is a $5 million firm that I think is probably going to fail because they jumped too quickly into next-generation technologies, all at once, and couldn’t manage it,” he said.
Johnston also touched on a handful of specific areas where accounting firms should be thinking about change — or not:
- Processes and workflow. “Process refinement and automation may be the next biggest thing,” he suggested. “Work on your workflow and optimize your processes in the best way possible.” One key warning sign? “If accountants are rekeying data, you have a broken process,” he said. “Figure out how to get data into your systems without keying them, then move to RPA, then more data analytics, then more intelligent automation.”
- Specialization. “So many of the things accountants do can now be replaced by a Google search,” Johnston said, adding that automation and artificial intelligence will continue to reduce or eliminate much current work. Noting that K2 has identified as many as 30 different specialized areas of practice for firms to explore, he said, “If you start thinking of your firm as a verticalized service provider, you’ll be able to take it much farther.” As just two examples of areas to explore, he noted that family office services are both lucrative and a natural fit for accountants, while many of firms’ small-business firms could use help getting loans. “Over 50 percent of businesses that go for loans are rejected first-time out,” he explained. “There are tools you can bring to help. You can help clients build the right deal to get a loan.”
- New roles. As firms grow, they should be thinking about adding internal specialties, and diversifying beyond just accountants and generalized admin staff. “If your firm is 75 people or above, you need to be looking at new roles, like data scientists, IT audit specialists, project managers — project management has really come of age — training coordinators, and marketing and HR specialists,” he said.
- Audit. “This is a terrible year for firms to make much change in audit tools — there is so much going on in that area, if I was an equity partner, I wouldn’t make any changes there,” he warned, citing the ongoing development of the American Institute of CPAs’ Dynamic Audit Solution, and the rush of vendors moving to develop other tools for auditors as reasons to wait.
More trends in the field
In his introductory remarks to the conference, XCM CEO Mike Sabbatis, spoke about a number of trends in the accounting profession that chimed with the topics Johnston discussed, starting with client accounting services.
“Client write-up got sexy again a few years back as CAS,” he said. “At one end of the continuum, client accounting is bookkeeping, and at the other end, it’s outsourced CFO work — and you have everything in between. It’s a critical area for the profession.”
He reported that XCM has seen a 47 percent increase in requests to use its workflow products in CAS, and that about 50 percent of their firms are providing some form of CAS, while companies that outsource CAS to accounting firms see a 28 percent increase in profits.
The growing profile of CAS is emblematic of the widening range of activities firms are getting involved in. “Services continue to expand,” Sabbatis said. “If you look at the revenue figures, there’s still a lot of tax and accounting, but we’re seeing more and more in consulting and CAS, cybersecurity and so on. These niche areas are an important part of your growth plan.”
He also discussed the greater use of data: “Analytics is pervasive everywhere we look — in health care, technology, the financial industry, and at XCM,” he said. “We’re moving from gathering data on processes, to producing standard reports, to creating useful visualizations and benchmarking, to predictive analytics. How do you use analytics to drive more productivity in your business?”
Sabbatis also suggested that it was early days for artificial intelligence in accounting: “In terms of AI, we haven’t really seen anything in the profession that’s knocking it out of the park — but soon it will be embedded in just about every product and program you use going forward.”
