How fast time flies.
Looking back, it seems incredible that it’s been 40 years since the Financial Management Research Centre (FMRC) was established at the University of New England, in Armidale, New South Wales.
The purpose for establishing this unique high level business/academia research centre was to gain a greater understanding of the SME market and then to encourage accountants to provide a broader range of commercial services to complement the SME market requirements.
Some accountants implemented a broader range of services for their clients, but most continued with a high emphasis on the preparation of income tax returns, whilst the preparation of budgets and cash flow forecasts was normally only undertaken if the bank manager requested it.
It was a time when it was difficult for private companies to raise capital because there were no special provisions in the legislation.
Computers had only just started to replace accounting machines in accountant’s offices by the early/mid 1970s and, if you were lucky enough to have one, they were very expensive.
By the mid-seventies, “Hartley” had developed software (HAPAs), which was being utilised in a growing number of accounting firms but primarily to facilitate the preparation of financial accounts for taxation purposes.
With the eighties fast approaching, “Solution 6” emerged to be a major software provider for accounting firms but still the emphasis was on the preparation of Financial Accounts and that too was mainly for tax.
By the late eighties, Section 708 of the Corporations Act had been enacted, enabling private companies to raise capital without having to issue a prospectus. Initially, the upper limit was $1m, but this was later changed to $2m over a 12 month period from a maximum of 20 investors.
In 1989, the Federal Government introduced the Commercialising Emerging Technology (Comet) Grant Program. This program was the first serious attempt to encourage Australian small businesses to commercialise their business ideas. This process was targeted at giving advice and then mentoring the company’s directors how to utilise section 708 of the Corporations Act to raise capital. This process gave some accountants an introduction to assisting SMEs through the preparation of business plans, incorporating budgets and cash flow forecasts. In 2010/11, this grant was upgraded to become the “Accelerating Commercialisation Grant”.
In 2000, GST was introduced.
This gave accountants more work to do, as SMEs were required to lodge Business Activity Statements (a task that many clients passed to their accountant) and to start paying amounts to the ATO on a regular basis.
In 2016, the Australian government announced an intention to introduce legislation to introduce Crowd Sourced Funding Equity Raising to Australia. This legislation was subsequently passed and offered capital raising opportunities of up to $5m in 12 months for companies with turnovers under $25m. The development created opportunities for some accountants, to be further involved in the development of the financial documentation required to raise capital from the public, including preparation of Business Plans, Budgets and Cash Flow Forecasts.
This pleasing development was subsequently followed by legislation for amendments to the Taxation Act to enable small young companies to be able to raise capital as an Early Stage Innovation Company. This process also requires the preparation of Business Plans, Budgets and Cash Flow Forecasts.
Accounting software and software for tax returns is unrecognisable from its predecessors of 40 years ago.
A few years ago, banks started demanding loan applications to be accompanied with “Three-Way Financial Forecasts – Budgets, Cash Flow Forecasts, Projected Balance Sheets” and the key drivers of supporting documentation, that was involved in the preparation of the predictive accounts.
This same process of evolution has been occurring in the United States, where accountants have found that new taxation software was reducing the time they required to complete taxation returns. This led some of these accounting firms to start considering the extra services that they could provide to their SME clients, since they now had “free hours” available for their team members to undertake additional work. Many of the SME clients enthusiastically responded to the invitations that the American accountants extended to them, to have a discussion about what additional services they would like to receive. This led to a growing number of US accountants offering virtual CFO services to their SME clients.
In Australia, the Taxation Commissioner who had been a partner of an accounting firm identified that there was a significant shift occurring in the accounting market. This was because a significant group of taxpayers, who had been utilising the services of accountants and tax agents, would probably not be seeking those services in the near future. Improvements to software now allows some taxpayers to directly lodge their taxation returns with the Taxation Office, with many of those taxpayers no longer inclined to seek help from accountants or tax agents.
This emerging scenario led the Tax Commissioner to give a significant warning to the accountancy industry: “You must understand that if your business model is high-volume, low margin, simple tax returns, your business will not be viable in 3 – 5 years.” Mr Jordan went on to say “Accountants, you should diversify to remain viable for the longer term” and “focus on becoming a brilliant and trusted advisor”.
As we near the end of 2022, we now have very good accounting and tax return software. The three-way financial forecasting software developed by PlanGuru is beyond good, it’s excellent.
What we have today in computer software is chalk and cheese to what was available to the accounting profession 40 years ago.
COVID 19 restrictions significantly affected the arrival of overseas workers and students. This has contributed to a significant talent shortage and impacted on talent attraction and retention for many accountancy firms. As things start to return to normal, business advisory services, like virtual CFOs, grants and capital raising for SMEs will offer interesting and challenging work for accounting team members and, in turn, which will assist in the retention and attraction of talent within these firms.
Last week, ESS BIZTOOLS presented special webinars to discuss many of the issues confronting accounting firms as we approach the start of a new calendar year:
Take the Lead from Uncle Sam
In this webinar, we analysed recent developments in the USA and identified the birth of virtual CFO services being offered to SMEs by USA accountants. Brad Smart, the author of “Selling the Message” and a communications expert, identified techniques that accountants need to use to communicate their new service offering to clients and prospects. This is where an e-Newsletter can be very beneficial for an accounting firm to keep their clients and prospects informed on the new products and services that they are offering.
Getting Started to Deliver Business Advisory Services
This webinar identified the services that could be offered to small SME firms, some of whom may be clients of the accountants that the Tax Commissioner was referring to when he issued his warning of the changes that will be occurring over the next few years. We believe that accountancy firms that are in this category could really benefit by introducing the product packages included within the ESS BIZTOOLS Business Advisory Services Starter Package. Trevor Marchant, Managing Director of Marchant Dallas Consulting and a former Sales Training Manager for Westpac, identified that accounting services are not “bought” by the client they must be “sold” by the accounting firm. He gave some suggestions on strategies to be implemented to improve selling techniques utilised by accounting firms.
Delivering a Wide Range of Commercial Services
In this webinar, we presented an overview of the developments over the past 40 years. Our guest presenter, Amanda Gascoigne FCA from Amanda Gascoigne Consulting, made some interesting comments about how all of these development issues are affecting small accounting firms and sole traders. Amanda indicated that accountants who are likely to be affected by the Tax Commissioner’s comments need to seriously look at the services that they are providing. If you are servicing predominantly the preparation of wage earner tax returns, that market is going to disappear soon. Amanda indicated that you need to be re-establishing your service offering, so that you have a group of SME clients. However, she pointed out that it doesn’t necessarily mean that you need to have large numbers of those clients, if you think about supplying the type of services that have been pioneered in the US for virtual CFO services.
Amanda suggested that accountants need to calculate their operating costs, determine a fee level to charge for a virtual CFO service and then promote that service. She believes accountants should try to attract the number of businesses required to allow that to be a worthwhile service, which will cover the firm’s overhead expenses and generate a reasonable salary for the accountant and a profit that is appropriate for the investment in the business.
We also discussed other services that an accountant, offering a broader range of services to clients, could provide, which included charge-out rate determination for tradies and professionals, debtors days outstanding review, R&D system set up, corporate governance mentoring and advice for the leadership team, securing government grants and many other activities that are included within the ESS BIZTOOLS Advanced Product Package.
There are tremendous opportunities for accountancy firms utilising today’s software and communications technology, to provide a wide range of commercial services to your clients.
ESS BIZTOOLS Black Friday Promotion gives you the opportunity to invest in our professional packages at a lower than normal cost until 12 December 2022.
If you would like to have a 15-minute, no-obligation Zoom meeting to discuss your firm’s requirements, who your clients are and your team members, please do not hesitate to contact us on 1800 232 088.
Peter Towers – Managing Director, ESS BIZTOOLS Pty Ltd