Shakeup in small business accounting

by Tony Novak, CPA, MBA, MT     updated April 29, 2015

In case anyone hasn't already noticed, the small business accounting industry is going through a period of dramatic transformation. The changes in the industry emerging in first part of 2015 are arguably more significant than the evolution of the industry over the past decade. The value to the end user - the small business owner and employees - is remarkably improved. Consider these five big trends:

#1. Product Choice

The proliferation of accounting products and platforms is overwhelming. In January 2015 a CPA writing for Forbes magazine reported that there were more than 60 products available. While researching this article in March 2015 I compiled a list of more than 200 multifunction accounting products and many more that provide single functions. The list includes names like QuickBooks, MYOB, Sage, Freshbooks, Vend, Xero, Jurnal, Cloudbooks, Peachtree, Kashoo, LessAccounting, Outright, Wave Accounting, FreeAgent, Yendo, FinancialForce, NetSuite, Intacct Financials, Zoho Books, and many more. If we also consider integrated products like Client Relationship Manager (CRM) options, the list grows much larger.

I've only had the opportunity to use perhaps a dozen of these products for various specialized situations and it seems unlikely that many accountants would have much wider exposure in this rapidly growing field. There are simply too many choices changing at a fast pace to even fully evaluate and compare the options.

To help deal with the this complexity, I think it still makes sense to start with a consideration that 80% to 90% of the small business accounting market is one product. QuickBooks remains, by a wide margin, the benchmark to which all the other accounting systems are compared. Intuit, the company that offers QuickBooks, recently adapted a change of positioning strategy by opening up the software code to make QuickBooks a platform for the  development of many spinoff products by third party innovators. The future of small business accounting software is integration and innovation, not locked in proprietary software. That open code strategy, in my opinion, is likely to lock in QuickBooks dominance for the foreseeable future.  Until and unless a reason to look beyond the benchmark product we should focus discussions there.

#2. Pricing

Prices are low and dropping further. QuickBooks just implemented a new pricing policy where the highest monthly price for its "Plus" product is $20 per month when purchased through a ProAdvisor. That's a 50% discount over the retail price. That discount pricing is for the life of the product, not a promotional offer as accounting software firms have offered in the past. Others Intuit products with fewer features are priced at even lower rates. Other accounting firms offer discounts not listed in this article. It certainly seems that price is no longer an obstacle or barrier to the industry.

#3. Migration from Desktop to Online

We see the switch from desktop-based software to cloud-based services in all areas of technology. Accounting is no exception but the industry is simply late to join the trend. We will see millions of firms making the switch over the next few years.

This article does not cover the many advantages of hosted accounting services. Yet it is important to recognize that some older professionals have not been so quick to join the conversion bandwagon. I mean no disrespect for the value of diversity of professional opinion, but market forces dictate that this attitude will soon disappear just like the dinosaurs.

#4. Integration of data

No longer do we enter a new client's contact information on our cell phone, for example, and then duplicate the effort on our business accounting system or tax software. Applications are integrated to share data and automatically update. Most of my small business clients use industry specific software as their primary tool in running day-to-day business operations. The accounting system taps into the primary management software. Sales, management, accounting and electronic tax reporting processes all merge into a flowing work process.

#5. Remote service providers

In the past small businesses hired a bookkeeper or accountant in their own local community. There is simply no reason to limit your resources based on geography. Accounting is now an online service. Off-site workers are the new standard. It is likely that a firm can gain access to more expertise and better value simply by expanding the pool of available talent.

Along with this change, we see a shift toward value-based accounting pricing. Today's providers don't charge on an hourly basis since this antiquated billing system has no bearing on the value the accounting service adds to their client. Business owners are now empowered to control accounting costs in ways that were never before possible.

Relationship, experience, credentials, training, security, screening and monitoring are all just as important to hiring an accounting service provider as ever before. The real change we see happening now in all professional fields is that we interact more frequently with providers online and less frequently on a face-to-face basis.

To help small businesses consider the changing technology I offer a flat rate mini consultation that can be used to explore the options, consider the details of conversion and plan a strategic approach to gaining the most value from the firm's investment of time and resources into an accounting system.

There is generally no obligation to use other accounting services to get the discounts mentioned in this article, but realize that the intent of this offer is to enable the associated firms to promote additional accounting services to their existing customers.