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Automating my practice: The story of a journey to accounting efficiency - Case study

Della Hudson, Consultant, Author of The Numbers Business, and former owner of Hudson Accountants Ltd shares her experience of automation as a start-up owner.

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After a career in industry and working for other accountancy practices, I set up on my own in 2009 so that I could work flexibly around my family. Originally it was just me, working part-time from my kitchen table. Gradually I grew the practice to a team of eight, working in modern offices above a Domino’s Pizza. But in the beginning, as a part-time start-up, I had no money to invest in the emerging products that would bring me efficiencies.

The downside of automation

I began my practice with just Excel and the clunky HMRC website. At that time, the main names in automation seemed so expensive. They were fully integrated, but they would supposedly save me more hours than I was working as a solo practitioner. This suggested the products were designed for bigger firms and were irrelevant to me.

In the meantime I had to manually set up and update everything annually for changing regulations, and just hope that I hadn’t missed anything. I was so relieved when I was able to invest in my first bit of software.

I gradually added one small piece of software at a time, as and when I could afford it. Because my hours were limited I focused on maximising my profits per hour rather than total profits. With hindsight I wished that I’d just bitten the bullet and invested 12 months earlier, because the software changed my habits as I became more confident in the savings generated. Automation became a no-brainer for me, but I presume it isn’t always so clear-cut for many accountants.

How the savings broke down

Xero broke even on time in the first month when setting up rules for the automatic bank feeds. In month two it halved time and, from month three onwards it was down to a quarter of the time compared with manual bank entry on older software. For a low monthly fee we could service four times the income.

Receipt Bank broke even at 16 invoices per month, compared with manual entry by a junior member of staff. This was before allowing for any mistakes they might make while typing, compared with the accuracy of the optical character recognition.

Using Signable software to sign accounts and tax returns electronically meant that these were turned around in a matter of minutes and probably saved us about a week, not to mention the hassle of chasing.

We carried out similar time/cost comparisons for all the input software that we introduced. Some software was great but didn’t provide enough benefits for clients below a certain size or for our small firm as a whole, so it wasn’t for us.

Quality improvements

Although we had to pay for all software used in-house (we increased new fees to include it where possible) the time saving was immense. We were able to offer fixed-fee book-keeping for small clients at a reasonable rate.

Receipt Bank allows clients to take a photograph of their receipts and invoices before they get lost or faded. This meant that we captured more costs, as well as more accurate information. As Receipt Bank relies on clients taking a photo of receipts with a smartphone, even our older clients could do it, so it was simple to get most clients to use it.

The nature of our business was changed by this software. The benefits of carrying out monthly book-keeping for clients in-house were enormous:

  • The data was correctly accounted for.
  • The data was up to date and the bank was regularly reconciled.
  • Regular contact with the client improved the quality of the relationship and made them comfortable dealing with someone other than me.
  • Regular contact with the client and their data sometimes led to spotting opportunities for additional work (but not as often as the accounting gurus and thought leaders would lead us to believe).
  • With good quality data available promptly, the year-end accounts production process was much slicker, so there was a time/money saving for us here too.
  • The practice and our clients were well positioned for whatever Making Tax Digital (MTD) might bring

Making Tax Digital

Book-keeping completed in Excel would still require additional conversion software for MTD. It seemed daft to pay for software just to remain compliant when a little more investment could produce all sorts of benefits for the client and for us. So we used the stick of MTD compliance to encourage our clients to move their businesses forward. Some clients thanked us for sorting out the MTD problem for them.

Improvements in our service

With data input all but eliminated, we were able to focus on services that added real value for clients. These included:

  • Useful quarterly report templates for book-keeping clients showing a few key figures, including a rough tax calculation as well as profit available for dividends. This meant we didn’t have the year-end problem of overdrawn directors’ loan accounts.
  • It only took a few additional reconciliations and journals to produce a management accounts pack from the standard Xero templates and Spotlight Reporting software. This was done by a junior, with comments added by a more experienced accountant. We were able to sell this for a reasonable fee for clients who could benefit from it.
  • It was viable to offer a free trial of management accounts reports for clients we felt could benefit.
  • Once we were providing regular management information, we were able to add on all sorts of advisory and coaching services.

Xero software also acted as the finance hub to a vast array of business add-ons. We developed the business to integrate these for the benefit of our clients. The technology was key to our business growth, and easily allowed us to differentiate ourselves with forward-thinking clients.

The main areas for software implementation were:

  • Accounts production (VT);
  • Tax returns and calculations (Taxcalc);
  • Workflow management, that is, ensuring that you don’t miss deadlines (Logical Office);
  • Bookkeeping (Xero/Receipt Bank); and
  • Payroll and CIS (Moneysoft).

Additional areas for the smooth running of the business included:

  • Online signatures (Signable);
  • Online data storage or processing (Various); and
  • Word processing, spreadsheets, presentations, emails (Microsoft Office suite).

Additional software that could be helpful:

  • Management accounts information (Spotlight);
  • Optical character recognition for uploading paper or PDF bank statements (when clients can’t manage to send you a comma-separated values (CSV) file or similar); and
  • Various add-ons to speed up bookkeeping entry.

Planning your future practice automation

If you’re thinking of retiring, it definitely pays to get your business as automated and independent as possible.

Due to a change in personal circumstances, I decided to sell my practice last year. This was at least 10 years earlier than I originally intended, and I didn’t have time to prepare it the way we would advise clients to do. In spite of this, because of the high level of automation and the low dependency on me as an individual, I found that I was able to agree a price that I later discovered was 32% above average. I now advise accountants on how to do this for themselves, as it really does pay off.

Tips for success

Here are some things to think about ahead of your practice automation journey that may help you to do it well:

  • Think of automation as an investment rather than a cost.
  • Any time savings due to automation will be increased the more clients you have.
  • Invest in training and setting up your software properly to get the most out of it.
  • Consider what support and training you and your clients will get from the software company.
  • Security is vital – but the professionals can do it better than us, so bring in outside help.