What is the difference between a traditional accounting firm and a cloud-based accounting firm?
When you boil it all down, the only real difference involves location. In a cloud-firm, the software, data, staff and clients can all be located “somewhere else.” That sounds simple, bu the impact is big and getting bigger over time.
Salability and Cloud Accounting Firms
In the last few years, we’ve had the privilege of selling several cloud accounting firms. Here are a few observations we’ve made based on our early experience:
- They were able to scale quickly. This may be more of a function of the founder of these firms, but this has been a very noticeable trait of the cloud accounting firms we’ve sold. Most of the founders have been sales-oriented CPAs that we would also characterize as “early adopters.” Although, these founders were great at business development, the systems were certainly not a bottle-neck to growth.
- Demand has been higher for these CPA firms for a few different reasons.
- Interest in technology. There was a curiosity factor which makes sense. Why invent a mousetrap when you can buy one?
- Ease of “rolling up.” With files and data in the cloud and the ability of a team to work remotely, a lot of our buyers were already cloud-based accounting firms. They were either looking for a new geographical footprint, or were looking to acquire to achieve the scale they were targeting. From an acquisition standpoint, these CPA firms are a bit easier to integrate into an existing firm. One of our buyers was actually headquartered in Japan.
- Satellite locations. A couple of our cloud accounting practices for sale have been in rural areas. Since most of the clients had already been working remotely with their accountant via the cloud, moving these clients to a nearby city was relatively seamless. For rural CPA practice owners that want to exit from their firms in the next few years, this could be game-changing strategy to enlarge their potential number of buyers. In fact, the technology could make the difference between being able to sell, and having to walk-away.
- Cloud firms sell for higher multiples. All things being equal, by enlarging the number of potential buyers, the cloud accounting firms we’ve sold have been able to fetch higher selling prices, sell faster, and for better terms than their traditional equivalents.
Making the switch from a traditional firm to a cloud-based accounting firm is not all that complicated…as long as you give yourself adequate time.
In fact, Poe Group Advisors has done it…and we didn’t’ even know that’s what we were doing. It all started when we moved our CRM into the cloud over 10 years ago.
There is a lot of industry buzz about cloud-based accounting firms, but the fundamentals are very much the same. Practices still need knowledgeable staff and great clients in order to thrive. Good technology just improves an already good business.
So, what’s the crucial difference? Cloud systems do a better job of allowing practices to automate processes while doing more for clients because of the superior quality of tools available on SAAS platforms; and as mentioned, Cloud based accounting firms are more saleable and scalable.
For a deeper dive on the ability to automate processes, listen to our podcast with Blake Oliver.
Evolution not revolution
We have yet to see a 100% pure cloud-based firm. We find that firms fall somewhere on a continuum. Gradually, all firms are going to be cloud-based. It will likely happen slowly for most. That was our experience. The driver for us was that we knew we had to serve clients all over North America. In our niche, we couldn’t survive otherwise. We naturally gravitated toward easy-to-use SAAS platforms that made collaborating from afar easier for our clients. Then, we found a really good team member who happened to work in a different city, so we had to find the best tools to collaborate virtually as a team. Perhaps the biggest change needed to evolve is just being open to the possibility of going after different markets and/or staff who are not local? This is a slight change in mindset that can make all the difference.
What are the key future opportunities offered by going to the cloud?
The software and solutions are only going to get better. The improvements will likely accelerate and the ability to niche will also accelerate within the industry. The opportunity to increase efficiency through automation and to therefore better utilize talent from anywhere are major advantages of these tools. This will give cloud-based accounting firms a considerable and growing competitive advantage.
What software won’t do
Cloud-based applications aren’t magically going to make your practice more profitable. You still have to lead and make good basic business decisions like hiring, pricing and client selection. Your clients and staff are still human after all. Leadership and management skills are still essential. Scaling a service-based business will have many of the same challenges. If the basics aren’t right, it will show up on the bottom line.
In summary-it’s not magic and it’s really not that hard to start making the switch. The key is to start somewhere…but that’s the key to making any change isn’t it?
What are some key, initial steps to making the switch from a traditional firm to a cloud-based accounting firm?
Below are 3 that we believe are absolutely key to making the switch successful. If you’d like to hear a first-hand account from a firm who’s actually done it, you can listen to our podcast with Tate Henshaw.
- Someone on the leadership team has to “own” the project and drive the technology changes in the firm. It takes time and persistence. Without a strong driver, there is a tendency to default back to the status quo.
- Start with an incubator audience. This can be a handful of select existing clients or clients that are brand new to the firm. This allows the firm to get to know the new technology and to get essential practice with clients to work out the kinks before widespread adoption. Another advantage to starting small is that it allows a few team members to learn the new systems, and then be able to teach others later in the transition.
- Get the staff to “buy in.” Learning new software systems can be painful for staff. It’s human nature to want to stick with what you know and what seems more efficient. One of the interesting points Tate made on our podcast together was how the “selling point” of the new systems for them was the potential for working from home and avoiding Atlanta traffic. The staff really liked that idea!
About Brannon Poe: Brannon is the founder of Poe Group Advisors and has been facilitating successful accounting practice transitions throughout the US and Canada since 2003. Brannon started his career in public accounting as an auditor with Ernst & Young before working for several years in auditing and tax preparation for the regional firm of Elliott, Davis & Company. He is the author of “Accountant’s Flight Plan: Best Practices for Today’s Firms” (published by the AICPA and CPA Canada), “On Your Own: How to Start Your Own CPA Firm,” as well as multiple blogs and the “Accountant’s Flight Plan” podcast.
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Click below to watch our video on buying and maximizing the value of a CPA firm