The global Accounting business is very large. According to research company IBISworld the 2015 revenue was US$464BN in revenue and growing by 4% per year. Call it $500BN. To put that into perspective, that number is one third of the Australian GDP and 3 times the GDP of New Zealand.
The vast majority of revenue for most Accounting firms is locked up in Audit and Compliance. Another way to put that is the revenue is generated from historical data checking. It’s making sure everything is accounted for, in the correct column and place.
Sadly (and perhaps surprisingly) most of an Accountant’s day in most firms is spent looking at historical data (sometimes more than 1 year old), making sense of it and going back and forth with the client collecting missing pieces of information until they are entirely happy they have received everything.
Than they use software to process the client work, prepare a report, send it to the client and then file it with the government agencies. The outcome of the work is that the client pays more or less tax.
If the client is lucky (it’s rare) a full review is delivered to them with why they have to pay the amount of tax listed, what the numbers mean and how to improve the numbers. This does not happen with most.
That sounds like it is trivialising the work of Accountants. It’s not. There is certainly a lot of ‘human smarts’ needed to make all of that happen.
Of the 1.27M+ firms in the world it is estimated that there are a total of (approx.) 6M people employed in the Accounting profession. It is estimated (from Accountants themselves) that around 70% of their time is spent checking and processing.
That’s a lot of people doing a lot of ‘checking and processing’ work!
The reason there are so many people involved is because of 3 types of inefficient (read archaic) information systems.
- Inefficient systems at the Client side
- Inefficient systems at the Accountants’ side
- Inefficient systems at the Government side
All 3 have paper, scanned documents, hard drive systems and human involvement. All 3 are using very archaic systems to deliver an historical report.
Let’s look at the ‘interest’ of everyone involved.
The business owner / individual is interested in earning more money and improving their lifestyle. They need to make a profit to support their lifestyle and legally they must pay tax. However, they are interested in paying the least amount of tax possible.
The Government is interested in one thing only – tax paid.
They want to make sure that the tax collected at the business end is correctly accounted for and paid on time. They want to make sure that the income earned at the business end is correctly taxed and paid on time. They want to make sure that the payroll paid to employees is correctly paid and the tax is paid on time. Tax, tax tax. They may say they are interested in improving the profitability of the business so the business owner can pay more tax but deep down they just want what is being processed now – accurately and on time. Nothing more nothing less.
The Accountant is the intermediary in the process. They sit between the business owner / individual and they are there to support them. They make money from the client so that’s who they’ll support. Their objective is to check that every deduction is accounted for and to ‘move things around’ and ‘re-structure’ so the client pays the least amount of tax necessary and protects their assets.
So the Accountant is the ‘middle man’ – literally the person in the middle. And just like other ‘middle man industries’ the compliance Accountant could well be sidelined and possibly eliminated.
As an example, we used to go to the travel agent (a real human in an office or shop front) to have our airline ticket booked and processed. They were in the middle between the airline and the passenger. Now we interact directly with the airline online or if we do go through a booking service it’s an online service with limited humans needed. The travel agencies that did not add value have vanished.
And therein is the key point … ‘those that did not add value have vanished.
Take Uber and taxis as another example. Uber adds value in the simplest of ways with an App and by making payment simple. It’s just more convenient. It’s friendlier. It’s more comfortable. It’s often faster and is less expensive. And the driver cares a little more.
And yet, just with those simple changes, Uber disrupts. On a recent trip to London, I learned that revenues in London taxis were down as much as 40%.
The question needs to be asked.
Could the Accounting profession be significantly disrupted? Or more pointedly, will those who don’t add value be doomed …… UNLESS they add more value or quickly find new business models and new ways of delivering services?
The Accounting Profession is centuries old. It has $500BN in revenue employing circa 6M people. Could it be disrupted where 50% – 80% of the current revenue is completely eliminated?
What do you feel?
If you go back to the reasons why there is so much revenue in the Accounting profession – paper, scanned documents, hard drive systems and human involvement – then (if you wanted to disrupt) what you would do is attack these areas thus eliminating the ‘middleman’.
Here’s what I think would need to happen.
- Businesses owners would need to use cloud accounting systems to streamline accounting processing at their end. Happening now at a great speed.
- Point of sale, inventory control, payroll and customer data systems (all in the cloud) would need to all integrate with the accounting system to give a very accurate income statement, cashflow analysis and balance sheet analysis. Happening now.
- Cashflow forecasting is automatic because all of the systems interact with each other and predict the future cashflow. Happening now.
- Manual book keeping (with humans) could be eliminated if every transaction had a barcode or source code so it automatically updated the accounting and other systems. Can happen now.
- To avoid total human interaction cheques and cash would need to be eliminated. All transactions were digital – by card, EFT, BPAY, PayPal or direct debit. Can happen now.
- Paper receipts were eliminated and coding of credit card statements happens automatically. Can happen now.
- The cloud accounting system used ‘digital accountants’ who used artificial intelligence (maybe an offshore human at first) to answer complex accounting questions. Soon.
- The Audit was done automatically by the Accounting system as frequently as required. Predicted.
- Business owners go to a range of ‘chat’ forums / networks to interact with other business owners for experienced based advice. Happening now.
- For complex business advice the business owner uses ‘Ask Alec’ on their smartphone. Alec is a virtual Accountant who is a super computer that uses artificial intelligence (think Siri on the iPhone for business) and can answer any complex question about business. Predicted.
To complete the loop and make sure the Government get’s their appropriate amount of tax they need to upgrade their computer systems as well. The ‘receiving systems’ of the data. All they need to do is take their systems to the cloud so they can seamlessly interact with the business owners systems. In some countries getting built now.
If all these technologies came together then a big part of the professions revenue could be totally sidelined. Maybe even wiped out.
In cloud accounting heavy countries (at the small business end) we’ve seen Accounting firm profits decline in Australia and New Zealand over the past few years. Could this happen to you?
Disruption is real. It’s happening right now. And it’s happening with a faster pace each and every day