It seems that the Cloud Accounting marketplace has suffered yet another loss of CEO with Stephen Kelly of Sage stepping out of his role with immediate effect although remaining with Sage until May next year.
This announcement follows the loss of Phil Sayers as CEO at Clear Books, Rod Drury stepping down as CEO at Xero and Brad Smith who will step down as CEO of Intuit in December.
Could this be a sign that all is not well in Cloud Accounting?
Sage were always late to the game with Sage One. They ramped up their marketing effort this year with roadshows galore. Did they pay off?
Clear Books seemed to have stalled in user number growth over the last few years despite inward investment funds being available. A quick dabble at the top with an external CEO wasn’t given long enough to bed in before a Fouracre was brought back in to head up the business.
Xero’s increasing user base continues to impress. Now would be a good time to see operating profits although the loss for 2018 was only $27m NZD (down 60% on 2017) with cumulative losses of $334m NZD.
Like Sage, Intuit have been throwing money at advertising although the voiceover on the US TV ad is less than convincing for the UK market. Worldwide QBO has well over 2 million users.
Market in the UK
Cloud Ecommerce Accounting Service has been around for some time now ….. 10 years plus for some. So clear signs of the “size of the prize” should be there by now.
Do the subscriber numbers versus profit stack up?
Typically as an accountant I like to focus on profit. No matter how many users or subscribers a product has, long term there needs to be profit. Otherwise it’s just an expensive hobby for investors and not a business.
Of course subscriber numbers can bring value outside of the initial business idea or opportunity. You’ve only to look at Money Saving Expert to see how that model can stack up. Will we see the leveraging of supplier numbers from within the existing suppliers or from an external source buying into the model purely for that purpose?
Presumably that’s exactly what RBS are doing with FreeAgent.
Delay in Making Tax Digital
But what of the UK marketplace ….. did the Cloud Accounting suppliers expect a substantial increase in subscriber numbers with the initial threatened and over optimistic Making Tax Digital timescales? Were forecasts prepared on that basis? Did staff numbers increase in ramp up for the roll out of Making Tax Digital to the brunt of the market being the one person limited companies and sole trader businesses? Has the substantially scaled down VAT Making Tax Digital scope limited the uptake by new clients of Cloud Accounting systems?
Size of the UK prize
The number of small businesses in the UK has increased by a substantial 64% since 2000 taking the total number to 5.7 million. 96% of these have less than 10 employees with the lions share (4.3 million) being owner managed or personal businesses i.e. one person providing their own services to end customers. Many of these businesses are unincorporated with the rest operating under a limited company structure.
Such businesses have very straight forward accounting needs usually comprising ins and outs with a few year end adjustments. If properly encouraged, the majority of business transactions will occur through the business bank account meaning that the feed or download of bank statements makes the bookkeeping repetitive with rules being remembered and applied based upon patterns.
These businesses don’t need much functionality in their accounting system; in fact the less the better as making systems too complicated causes confusion and unwillingness to engage with accounting solutions.
Complexity v Pricing
Whilst attractive price propositions may be out there for this market, all too often the pricing is for a limited period with a higher, less attractive price, kicking in after a few months – a bit like a broadband offer where the loyal customer gets penalised for staying.
Worse is the fact that the lower price is for a solution based upon the full system sometimes with some features turned off. All too often the system is just too feature rich for what the end user with simple needs and a lack of time wants, needs or can get their head around.
Would the user be better off with less functionality in a system at an affordable price?
My experience over the last 11 years shows that many in this space just need
- bank statement load
- out of pocket expenses posting
- simple reporting on a dashboard
Have Cloud Accounting systems become too complex for the many of the 4.3 million one person businesses?
Is it time to compartmentalise the market and have systems suitable for the user base?
Would more users subscribe to a lower priced, easier to use, less function rich system?
Cloud Bank Accounting
Well I guess we’ll soon find out the answer to that last question with the emergence of the next generation of systems …. Cloud Bank Accounting.
I have to declare an interest here ….. over the summer I agreed to join the Advisory Board at Coconut (https://getcoconut.com).
Coconut is just what I’ve been waiting for – a product that we’ll try to get as many of our clients using. Why?
Very simply it does the bookkeeping for us and by us I mean both the client and accountant. How?
By applying machine learning algorithms that learn through customers’ actions it allocates costs and income to the relevant tax category with increasing accuracy. It’s like the bookkeeping fairy. It also allows the user to capture the receipt which (when the accountants version is available) you’ll be able to see if you have any queries.
Of course you or the client can amend the allocation if needed – so no need to panic.
The sexy (if I may use that word) thing is that, in the sole trader version, Coconut consolidates the costs into the same headings as on the Self Employed Self Assessment Tax Return. The limited company version is due out later this year as is invoicing. These two things will, in my opinion, radically change the contractor, freelancer and personal business accounting space.
How can accountancy fees be in excess of £100 per month when the bookkeeping has been done? With the bank account and invoicing just what else will a one person business need?
Do you still need an accountant?
But what about us I hear you shout?
If like us the majority of your work comes from limited companies and sole traders with more complex needs or those with little time to do the accounting work themselves then why would you be worried.
Yes your services will need a review and refresh to incorporate the new Cloud Bank Accounting offering. This should be no bad thing as Cloud Bank Accounting brings you much closer to the client with the immediacy of transactions available.
If you’re a bit confused by Cloud Bank Accounting and cannot see the opportunity then watch this space as Coconut have asked me to put together an Accountants Education and Accountants Accreditation Programme part of which will include ways of working with clients in this new Cloud Bank Accounting space.
The Accreditation Programme will also provide accountants with Coconut clients who want to sign up to specific Coconut accountancy services. That’s converted clients with no cost of sales for those accountants who have successfully joined the Coconut Accreditation Programme.
So rather than take work away from accountants, forward thinking Coconut is looking forward to working with accountants to provide Coconut customers with an end-to-end user experience.
What about Cloud Accounting?
For me the biggest question is what about the current cloud accounting systems?
I’m already moving into the world where the bank account does the bookkeeping and the Cloud Bank Accounting supplier is providing the accountant with new clients.
Need I say more?