IFAC’s Small and Medium Practices Advisory Group (SMPAG) met recently and discussed challenges for small firms embracing digitalization, recent trends and tools that are being used in practice, digital marketing strategies, and the opportunities available for small firms to flourish. The SMPAG considered digitalization from a broad perspective, including the challenges to digital adoption, how SMPs can implement new software, how digitization may provide new services to clients, and how to leverage technology to make processes more efficient.
There is a range of factors impacting small firms’ adoption of technology, including:
- Culture/mindset to embrace change – For some firms, digitalization and more broadly, changing old habits or adopting new ideas, causes alarm. Some firms find resistance from the firm’s leadership on its strategic direction or encounter resistance from employees. Other firms might be complacent, having the view that if their clients are not digital there’s no need for them to evolve, especially if they are close to retirement or looking to sell their practice.
- Knowledge and competence level – Individuals’ digital expertise can range from those who are not particularly digitally savvy to those that have a good level of knowledge but would still benefit from instruction and support. Practitioners can lack the necessary skills and training to assess different, inherently complex software products and technology and determine whether those tools fit the needs of their practice. For example, practitioners may struggle to decide between best-of-breed software, which performs a single function very well, but which may lack integration or communication with other products, compared to an all-in-one software option that has everything but might not do certain things very well.
- Level of resources and array of technology options – There are an overwhelming number of technology products available in the marketplace to support digitalization of practice management and services. These include products for audit, tax, financial accounting, payroll, and consulting. One of the challenges for practitioners is deciding where to start and finding the time and resources to research all the options.
- Firm size – A firm that only has one or two partners is less likely to have somebody that will push for transformation or champion implementing change.
- Costs – Acquisition and maintenance expenses can be very high and prohibitive, especially in countries that rely on imported software products and are significantly impacted by foreign exchange rates. In addition to financial constraints there are other considerations making cost a pain point: pushing back deadlines, adding new work to staff, changes in clients’ needs and IT errors during the process, amongst others.
- Jurisdictional issues – Some countries have difficulties due to fundamental infrastructure challenges, such as frequent electricity outages. In addition, during busy seasons, servers can overload, resulting in significant delays. On the other hand, there are often loans and subsidies offered by governments and public bodies to help SMEs to finance digitization projects.
Initial Steps on the Digitization Journey
The IFAC ‘Practice Transformation Action Plan – A Road Map to the Future’ highlighted that fundamental to the success of all future firms will be embracing technology developments to improve practice efficiencies, enhance how clients are serviced, and expand the range of services provided. The plan covers five initiatives for small firms to successfully adopt and embed technology:
- Conduct an Environmental Scan
- Align with the Long-Term Strategy & Formulate a Realistic Implementation Plan
- Adopt the Cloud
- Involve Clients in Technology Decisions
- Identify and Support an Internal Technology Champion
It’s important for the firm’s leadership to all be on the same page. Investing in technology can require both a digital transformation strategy which aligns with the firm’s business goals, as well as a cultural need for change management to make the transition a success. Identifying an individual to lead and drive the process is important. If the size of the firm means there is limited in-house IT expertise, it can be worthwhile to work with external consultants who are experts in digital transformation. It is also critical to line up required resources, financial or otherwise, to back up the implementation plan.
A first step is to research and analyse the firm’s current internal processes to identify outdated systems that need improvements before exploring external products. If a firm is not doing anything digitally (e.g., time and process management or billing), it will have more of a challenge in embracing new software or getting clients and staff to buy into the journey.
A small firm could have great numbers – for example, high income per partner and large realization rates and margins – but if the firm is not digitized, or on the cloud, it will struggle to attract and retain staff and to support the clients’ needs. The data available to monitor practice efficiencies, such as client retention, and the timeframe for delivering engagements provide new information to aid strategic decisions, as well as a better understanding of what KPIs can be changed through introducing digital processes.
One useful initial step for firms is the movement of clients away from the more traditional accounting software packages to ones that are cloud-based, which can integrate clients’ data. A second step is to take stock of all the products available and determine which one the practice wants to move forward with.
Initial questions for firm leadership to consider include:
- Do you have a digital transformation strategy?
- Do you know why you are replacing legacy systems and manual processes with a new digital approach?
- Do you have a plan to implement advanced and complex systems?
- Are you ready to properly migrate your existing system to a new one?
- Do you know what areas of the firm need upgrades?
- Do you understand your client’s needs, including pain points or friction areas in the firm’s service offerings or products?
- Is there a plan to provide comprehensive training to employees to help them understand what the changes are and how they can be more proficient with new tools?
A key advantage of small firms is their size, which allows them to be agile and flexible in choosing products. The IFAC Guide to Practice Management includes a dedicated technology module covering new and emerging technologies, developing a technology strategy, hardware and software options, and technology risks. There are also multiple resources to guide the decision-making process. For example, for helpful tips please see 5 Steps to Consider When Making Technology Investments.
As indicated in Insights on Small Firm Specialization with an Enhanced Focus on Business Advisory Services, an increasing number of practitioners are now also utilizing technology and data analytics to provide valuable insights to clients and provide a basis for new advisory services. As the firm enhances its technology knowledge, it can become a trusted advisor in the field and recommend different software or tools to clients. It may also introduce new advisory service offerings, such as digital transformation and cyber security.
Common Tools & Software Applications
Professional accountancy organizations (PAOs) are actively supporting their members in this space (e.g. see As Digitalization Takes Hold, Here’s How PAOs Can Support Small Practices), including through facilitating access to specific software providers, as well as producing guides to help members evaluate options and better service their clients’ needs (e.g. see SAICA Accounts Production and Accounting Software Guide for Practitioners).
SMPAG members provided details on different applications being used in practice, which are listed below.
*** Disclaimer: Please note this inventory list does not represent any endorsement of a product - no sponsorship was obtained, and it is not intended to be comprehensive. It is included purely to illustrate some of the potential options available to small firms. These may also not be available in all countries.
Practice Management Tools
- Acumatica – cloud ERP
- CCH – tax, accounting, workflow and firm management solutions
- Ignition – online proposals, automated engagement letters and payments
- Iris Practice Engine –billing, time tracking, and client information database
- Karbon – onboarding and enterprise solution
- Office Tools – accounting practice management software
- Thompson Reuters – accounting firm workflow solutions
Audit Engagement or Workpaper Products
- ASD Auditor – cloud-based digital audit solution
- Caseware – cloud and desktop audit, financial reporting, and analytics
- Inflo (can also be used as a document exchange portal between client and firm)
- CCH – tax, accounting, workflow, and firm management solutions
- Thompson Reuters – accounting and auditing software and guidance
Supplemental Audit Tools (Efficiency, Analytical, etc.)
- MindBridge – financial risk discovery and anomaly detection
- Data Snipper – audit platform within excel that improves the speed and quality of an audit
- Caseware IDEA – data analysis
- TeamMate Analytics – data analysis for audits
- Validis – on-demand access to standardized financial data
Accounting & Payroll
- Sage – cash flow, invoicing, payments, banking, inventory management, job costing, payroll, and reporting
- Xero – bill pay expense tracking, banking, project tracking, payroll, bank reconciliations, data capture, file storage, reporting, multi-currency, purchase orders, quotes, sales tax, and fixed asset tracking
- BrightPay – payroll software
- Intuit QuickBooks – income and expense tracking, mileage tracking, manage cash flow and invoicing, run reports, manage 1099 contractors, track sales tax, enter time, track inventory, and manage employee expenses
Digital Filing Storage System
- Doc.It – electronic Document Storage and Document Management System. Also has workflow management for each engagement for each client.
- iManage – document storage – e-mails Word, Excel
Business Advisory Services
- Codat – connects to customers’ financial data
- Fathom – takes clients data and aids analysis and trends
- Profit Cents – financial analysis and comparison with different industry sectors and sizes
- Spotlight Reporting – financial reporting, forecasting and KPI tracking
Digital Marketing Strategies
Today, it’s generally agreed that small firms need a digital marketing strategy to reach potential and existing clients online. This goes beyond just having a company website. A multi-dimensional digital marketing strategy can cover the use of email, social media, messaging platforms, blogs and search engine optimization. Some firms are using customer relationship management (CRM) and automated workflow concepts such as Hubspot CRM, Salesforce, and Sage CRM.
However, local codes of ethics in some countries may restrict the use of marketing by accounting firms, including sending unsolicited proposals to potential new clients. The level of activity can also depend on whether the firm is looking to grow, either by attracting new clients or recruiting staff.
Whilst traditional marketing methods such as personal networking and word of mouth referrals for new clients are still very prevalent, the SMPAG provided multiple insights on innovative approaches to digital marketing. They advise digital marketing newcomers to:
- Consider a digital strategy that provides an opportunity to reach a broader audience as part of the overall marketing mix for the firm.
- Consider the objectives of what is being communicated. Information could be segregated between clients and recruiting, as the channels will be different (e.g., use LinkedIn to communicate business information to clients and Instagram for attracting talent).
- Adopt a client-centric digital marketing approach, which can help identify clients’ constantly evolving needs and expectations.
- Utilize young professionals within the firm, particularly for social media.
- Use social media proactively and reactively (e.g., target people or clients on LinkedIn not just when there is a marketing push, but consistently so that when marketing events occur, audiences are already engaged).
- Use Google Analytics, which can provide useful metrics on the number of visits and searches the firm’s website is achieving and enable tracking of competitor firms.
- Use search engine optimization (SEO) to obtain more visibility.
- Use external marketing companies not just for campaigns, but also to identify topics for blogs and interviewing staff for videos. This can be more efficient and produces high-quality content.
- Creative competitions can motivate staff engagement and participation. (For example, prizes for staff who get above 500 connections on LinkedIn.)
- Digital marketing can be a great way to demonstrate that the firm is active and has expertise in different service areas – it provides a way to highlight unique specialisms.
In a world where the pace of change seems to move faster than ever, considering a digital strategy has become critical to many firms’ success. Digital transformation also became essential for some firms as they navigated a world of social distancing during the pandemic. While it may seem daunting to enter this brave new digital world, there are a lot of resources available to firms to assist in the process.
IFAC has a dedicated practice transformation webpage featuring articles, resources and thought leadership on leveraging technology. A new podcast series features innovative practitioners sharing their stories on embracing digitization and investing in technology.