The VAR 100: The tipping point for the cloud has finally arrived

Are you tired of hearing about the cloud yet? While accountants at the forefront of tech-enabled services find the cloud old news, many of their clients are the ones lagging behind — but the value-added reseller firms in this year’s top 100 list have found more clients than ever asking about cloud and software-as-a-service options. (To see this year's VAR 100, click here.)

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The reasons for clients lagging behind, and now perhaps catching up, are manifold. First, accounting firms and VARs are finding increased benefits in verticalization and niching up. Some of these specialized verticals can naturally lag behind in technology just by virtue of context. For instance, e-commerce and tech startup businesses won’t find themselves behind the curve in tech adoption, but the food and beverage industry might take a longer time to adopt new technology.

“The desire to move to the cloud is finally being realized” at Ledgerwood Associates Inc., a Sage Intacct provider based in Scottsdale, Arizona. “As a whole, the construction industry is a technology laggard, and the resistance to updating legacy systems is diminishing.”

Over time, most industries will catch up with moving into the cloud — as the cloud becomes more globalized, it will be unavoidable. Some industries will just take a little more time.

Secondly, when some clients start adopting, it pushes other clients to jump on the bandwagon as they hear testimonials about how they transformed certain businesses. One barrier to entry for tech adoption is risk and cost. Once a business has examples to look at, they can learn from their mistakes, or see that adoption is not as expensive or cumbersome as they once thought, and come around.

“We have seen an increase in the push to the cloud,” said Michigander VAR Alta Vista Technology. “As a result, our clients who are not yet on the cloud have begun to plan for the future. We are actively helping these clients build their roadmap to the cloud.”

Once clients realize that entering the cloud is synonymous with the future of their business, that becomes a significant driver.

Finally, more clients are realizing (or accepting) that the cloud is actually secure. VARs have a lot to do with educating businesses about cloud security, especially in regards to handing off the cost and risk of cybersecurity from in-house servers to cloud technology vendors.

Using data from Microsoft, Kentucky-based TrinSoft LLC noted, “We have reached a tipping point around cloud adoption. Fifty-two percent of organizations are confident that cloud apps are as secure as premises-based apps, up from 40 percent a year ago.”

Dean Dorton, another Kentucky-based firm, noted the adaptability of cloud systems that can more quickly integrate newly developing technologies like artificial intelligence without cumbersome updates: “One of the biggest changes we have seen in the last year with our clients is the growing desire for more simplistic, yet robust and automated processes in order to accomplish their organization’s bigger strategic goals. We are seeing a decline in the need for inflexible legacy accounting solutions and a stronger demand for modern, cloud-centric and AI-geared solutions with capabilities to scale with a company’s growth and connect with all their other systems.”

RSM, the top firm on Accounting Today’s VAR 100 list this year, has to contend with a large number of clients straddling the line between on-premise and cloud platforms as they migrate.

“Integration technologies have become more capable, more affordable, and less brittle,” RSM reported. “This, combined with an overall labor shortage, is driving clients to integrate nearly all their business systems. Our software partner applications provide anchor points for these integrations, but our teams building these integrations are connecting a wide variety of cloud, on-premise, and home-grown applications.”

Challenges

But with increased cloud adoption come challenges. It can’t be sugar-coated: A shift to a more subscription-based revenue stream can be a hit to cashflow — that is, until a firm adjusts to the new way of doing business.

It’s a conversation that comes up a lot these days at professional and user conferences in the accounting world: how to switch from hourly to value-based billing. The bottom line is that adjustment takes time. Subscription- and value-based revenue certainly changes the pattern of a fiscal year for a firm, but with adjustment, that can level out.

“The subscription model has changed our cash flow considerably,” Phoenix firm Silverware Inc. reported. “Further, users are interested in lower-cost implementations. We thus have to change our delivery model to provide tools which the clients can onboard themselves.”

Talent continues to be another pain point for VARs as they find themselves growing due to increased cloud adoption.

“Organizations are shifting to the cloud at an unprecedented pace.” Texas firm AcctTwo Shared Services reported. “Demand continues to be strong so, as has always been the case, finding great talent in a low employment economy can be challenging. If you are looking, we are hiring!”

The Bureau of Labor Statistics lists the unemployment rate for the accounting and financial sector at 2.2 percent, well below the overall national unemployment rate of 4.9 percent. In addition, employment of accountants and auditors is projected to grow 11 percent from 2014 to 2024, faster than the national average. Employment of computer and information technology occupations is projected to grow 13 percent during the same time period.

VARs sit at the intersection between two skill areas — accounting and technology — that are in very high demand and growing at a fast pace. The numbers from the BLS suggest recruitment and retention will continue to be a challenge for at least the next five years. It’s an employee’s market: Once an employee is in-house, firms would be wise to invest effort and money into providing them benefits over and above the financial so they won’t easily be tempted to leave.

Fourlane, a virtual firm, noted that hiring is still its biggest issue. “Finding staff with a creative mindset that goes beyond accounting and other technical skills proves harder in a tight recruitment market. Finding people who want to do right by the client without needing a process of what that means is difficult,” the firm reported. “We definitely have 80 percent of our business processes documented; however, when you are a consultant or sell consulting services, you can't grab every scenario.”

Opportunity

Apart from the growth and education opportunities the cloud presents, VARs are finding significant opportunity in business analytics and the capabilities artificial intelligence and machine learning are already realizing.

Cargas Systems, a Pennsylvania firm that provides Microsoft Dynamics products, among others, noted that Microsoft Dynamics 365 Business Central (formerly Dynamics Navision) presents an opportunity as consumers educate themselves about the product, which manages a business end-to-end while providing AI-based insights and analytics.

Additionally, “We also see huge potential in the evolution of business intelligence tools and the application of artificial intelligence and machine learning to accounting and ERP software,” Cargas reported. “Sage Intacct and Microsoft continue to build new AI and ML capabilities into their products, and Microsoft’s Power BI application offers a level of business intelligence we haven’t seen before.”

As mentioned above, VARs are also noticing the value of niching up. Minnesota’s Boyer & Associates, for instance, said that nonprofits and the lower end of the MS Business Central market are providing growth opportunities for the firm: “Many of our local competitors focus only on the largest clients. We see opportunity in the lower and middle parts of the market.”

Silverware is seeing the new and rapidly growing opportunity in the cannabis market, with the substance becoming legal to varying degrees state by state. “We have developed a vertical specialty in the cannabis industry, with a version of NAV/Business Central called Silver Leaf CBC. We see great opportunity in this industry,” the firm reported.

The cannabis industry is heavily regulated, and still cash-only (which will remain the case until the drug is federally legalized and FDIC-insured banks can serve the industry). Therefore, new tools, such as Business Central, that leverage AI and machine learning are well-positioned to help businesses that have to track every minor movement of the product, and is auditable.

A focus on security

Chicago-based RSM, which has 90 locations providing Microsoft, Sage Intacct, Oracle Netsuite products and more, notes the regulatory and compliance pressures businesses are under these days. Along with the rise of cybersecurity threats, come increased privacy regulations: “Regulatory compliance and new accounting standards have become greater needs for both clients and new prospects,” the firm reported. “On top of typical industry compliance requirements such as those in food, alcoholic beverages, and life sciences, clients now have concerns about data privacy regulations such as Europe’s General Data Protection Regulation and the California Consumer Privacy Act. Middle market companies are also increasingly concerned with finding efficient ways to comply with ASC606, revenue from customer contracts, and ASC842, lease accounting. This has changed the topic of conversations from just processing transactions to how and where data is stored, security of applications and surrounding infrastructure, and reporting capabilities to meet new requirements.”

ArcherPoint Inc., of Duluth, Georgia, said that cybersecurity is its biggest concern right now, saying it has a heightened focus on security, and highlighted the need for better tools and education to combat online threats.

With several recent high-profile software platform security events in the accounting technology space, the increased concern is warranted — VARs especially should be investigating how to protect themselves and their clients better; hiring consultants to help them to that end; and creating action plans in the event of a cyber event. After all, according to most experts, it’s no longer a question of if, but when and attack will happen.

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