Accounting’s biggest disruptors and how to stay relevant in the age of AI

Welcome back to Big Trends in Small Biz, a biweekly newsletter bringing you the news, tips and trends from the experts to help you with your business. Click subscribe above to be notified of future editions, and follow the hashtag #LinkedInSmallBusiness to join the conversation.

Machine learning and how it is changing careers and companies has been at the forefront of conversation in the business world. Those concerns were on full display at accounting software firm Xero’s conference in San Diego where disruption and staying relevant took centerstage: panels focused on everything from applying accounting practices to cryptocurrencies to switching one’s focus toward becoming an advisor and adding further value to clients.

Xero launched in New Zealand in 2006 as an entirely cloud-based accounting platform and has been steadily entering other markets, becoming a dominant player in Australia, the United Kingdom and Canada. It set its sights on the U.S. market in 2011, taking on Intuit, the maker of Quickbooks. While Intuit remains the main player in the United States, Xero is beginning to make some headway. I sat down with Xero CEO Steve Vamos and Ben Richmond, vice president of business growth for the Americas, to discuss how they plan on competing with Intuit, what the future of accounting looks like and how firms can stay relevant in the age of AI. 

Below are the excerpts from our conversation.

What do you see as the main differences in the accounting world between the different markets Xero operates in?

SV: The markets we are in that are most mature in the cloud accounting context are Australia, New Zealand and the UK. If you look at the Americas, there are many different markets. Canada is like Australia and New Zealand: It has a high penetration of accountants, a concentrated banking sector and similar compliance requirements on small businesses. The U.S. is different—it’s many countries in one, really. What we’re doing in this part of the world is focusing on particular parts of the U.S. market where we think market entry makes more sense but the drivers are similar. Accountant and bookkeeper penetration rates in the U.S. are about 33 and 35 percent versus 70 and 80 percent in other markets. The banking sector in North America is not the most progressive, and compliance is not driven by the national government as much as it is in other markets. But we still see phenomenal market opportunities with accountants and bookkeepers filing tax returns and dealing with sales tax and other issues that we’ve solved in other markets.

What markets in the Americas are you looking at going after first? 

BR: We support the whole U.S. but we are dialing down to key geographies. If you use Denver as an example, we’ve partnered with the Small Business Development Center and have people on the partner side of our business who are building momentum, relationships and communities. It’s helpful to work on this in a tight geography instead of creating these communities across the U.S. at once.

How do you plan on competing with Intuit in the U.S. market?

SV: Competition actually helps because the more Intuit and others talk about cloud accounting and the more they start to create energy around it is actually good for us. Competition is not that big of an issue—you watch them and learn from them and respect what they do. At this stage, this is not a head-to-head fight. In terms of what we’re doing day-to-day, we’re not fighting over every client right now. That might happen but it’s now how I would characterize the marketplace. We don’t necessarily knock into each other.

What overall trends are you seeing in the accounting space? What is going to be the biggest disruptor?

SV: Cloud itself is the big disrupter because small business people are busy. They don’t have time to install servers and application software. All of a sudden the small business and their businesses are increasingly connected in the cloud, and with that comes disruption in financial services and how to get access to capital. What’s going on in the U.K. with open banking is an interesting view of where the world is heading, and Australia and New Zealand are not far behind. In the Americas, it will be really interesting to see where the disruption comes from.

Another is the notion of governments and compliance. What we're seeing is single-touch payments in Australia and payday filing in New Zealand where essentially as soon as you pay your staff you have to report to the government who and what amount you paid. It’s really a movement by the government to understand the flow of cash and capital in the economy and make sure they’re getting their fair share. Those big trends will be here to stay. They're at different stages of maturity in different markets around the world, but we think the enabler is the cloud.

BR: One thing I’m seeing as a big challenge in the U.S. accounting space is succession because there is a large volume of baby boomers approaching retirement. A lot of the firms we’re working with are worried about how to position their practice both growing new people up through the firm to take it over or ultimately selling.

In your keynote, you included the figure that cloud adoption around the world is at 20 percent. Adoption is central to your business model, so how do you plan on increasing that rate? 

SV: The primary focus has been on developing that advisor channel from the accountants to the clients or the small business. New Zealand has a higher adoption rate and that’s because we’re adding small business customer sessions to our roadshows, and we bring in customers to talk to each other about the things that they can do on the cloud. The accountant or bookkeeper isn’t always there to answer questions or provide that advice so we’re encouraging small businesses to understand all the potential of the platform. A lot of that is just us doing a better job of marketing features within Xero. For example, getting paid faster. We want to make it more obvious to a small business’ clients that they can pay an invoice directly through Xero through the payment option. It’s all there but it’s about marketing and driving usage of those features. 

Fear about AI and how it’ll impact the accounting industry has consistently come up in my conversations with small business owners. What do you see as the best way for a business owner to prepare for potential changes coming down the pipeline?

SV: Right now a lot of our partners are concerned about how to make the move from compliance to advisor. That’s already been happening on Xero for quite some time. A lot of people who have heavily invested in the platform have actually experienced that where the grind work was removed, they spend time on the advisory side and have great stats on the value of making that transition to the firm. I appreciate their fear, but we have to show them the pathway forward.

BR: They have to think about skill sets and how to take the workplace they have today and develop it. Many of those changes come from people who just wanted more time back and now feel they are more efficient and in control of the business. Traditionally in accounting, the partner was the one who had all the interactions with the clients and everyone else was at the back office. Now we’re seeing that type of engagement drop down to graduates who are having advisory conversations with clients, which is making the whole profession much more exciting than it was. I think it's the golden age of advisory and think we can do way more now for small businesses than we traditionally ever could. They trust us but we never had the opportunity to fully capitalize on that trust until now, and I think AI is going to help with that.

Business owners, how has your firm changed over the years? Are you making the shift from spending time on tax compliance to acting as an advisor for your clients? What trends do you see taking place and how are you capitalizing on them? Let me know in the comments below.