Looking beyond the books

Vendor Accent

Business software is creating new opportunities for SMBs and their trusted advisers—accountancy firms, says Srinivas Rao.

Traditionally, the business software choices have been limited for SMBs. A typical SMB would run an off-the-shelf accounting and financial reporting package and deploy separate software to handle areas such as payroll or sales management. The benefits offered by the sophisticated, integrated company-wide Enterprise Resource Planning (ERP) systems used by big businesses were, quite simply, out of reach. The level of investment required was unaffordable. Also, SMBs felt that they did not need the functionality that these systems offer. Today, the situation is changing.

From the top end of the business software market, ERP vendors have introduced versions of their business management systems designed specifically for SMBs. At the same time, companies selling standalone accounting products have started adding new areas of functionality. For the first time, SMBs have the opportunity to deploy sophisticated business software solutions that offer more than accounting and financial reporting, and provide capabilities for managing the entire business from sales to fulfilment. As business competition intensifies while changes to the compliance and regulatory framework put the accuracy of business information under more intense scrutiny, the case for such investment is more compelling than ever.

SMBs that make the transition to this powerful new breed of software will be able to pursue new opportunities and achieve new competitive advantage—but only if advised how to best do it. They need to be reassured that they are not buying into a system that will be expensive to implement, difficult to use, and complex to maintain. In choosing their software solutions from the variety of offerings in the market, they need advice on how to balance their long-term needs for innovative, growth-driving solutions with their near-term needs for a quick return on investment, low cost of ownership and minimal disruption to current operations.

Accountancy firms are in an excellent position to advise clients on these questions. Many are already performing this role. They have moved beyond advising on the choice of accounting and financial reporting packages. In doing so, they are developing new revenue streams from consulting, advisory and project management roles. They are combining their core financial skills with a reputation for integrity and independence to find new ways of providing value.

Regulations expose limitations of existing systems

The software needs of SMBs are changing. With the complexity and global reach of today’s business environment, SMBs are under pressure to monitor their processes and financial performance even more closely. Since 2002, the introduction of stricter accounting and corporate governance requirements is intensifying the challenge.

The need to comply with the Sarbanes-Oxley Act and adhere to International Financial Reporting Standards is forcing companies to reconsider their approach to business software. Organisations of all sizes are under pressure to provide greater transparency, timeliness and accuracy in reporting and managerial control.

The new solutions that are becoming available to SMBs make this possible. Such companies can be forgiven for treating vendor claims with caution. Surveys suggest that SMBs are frequently disappointed by limitations with the existing financial and accounting software. A study released in 2005 by PMP Research found that only 25 percent of companies feel that their software has completely met their objectives.

Achieving benefits

The traditional SMB approach to software investment means they end up with a mix of packages and fragmented silos of information, says David Reynolds of the Independent Association of Accountants Information Technology Consultants (IAAITC). “There are some nice accounting solutions around, but they are just accounting solutions, not total business solutions,” he says.

“Today, there is no reason why small businesses should not have software solutions that are integrated and running off a single database,” points out Reynolds. “The market has been that way for a long time at the enterprise level, but we are now seeing the same types of product become available for smaller businesses.”

The need for such systems is clear. Facing greater competition, SMBs have a critical need to optimise business processes, cut operational costs, and improve customer acquisition and retention. Success depends on having the ability to keep pace with rapidly changing customer and industry demands, the agility to seize new opportunities and the flexibility to achieve sustainable business growth.

SMBs need help to find their way through the plethora of solutions available, creating clear consulting and advisory opportunities for accountancy firms.

New value, traditional skills

Accountancy practices that work with SMBs derive much of their revenue from traditional revenue streams such as preparing the annual accounts, creating internal management accounts and completing tax returns. This work is still useful and remunerative, but the most profitable firms are those that provide the best proactive advisory services. Increasingly, the ability to advise on the selection and implementation of integrated business management software—beyond the traditional accounting package—will offer valuable sources of revenue and client value.

A report published in 2003 by an ICAEW task force looking for ways to guide firms on practice development identified a growing polarisation among firms advising SMBs. Some were running faster to stand still, while an upper quartile of profitable firms were pulling away from the rest.

The firms that were thriving were finding ways to move beyond the traditional service offering, with significant growth in three main areas: human resource consultancy, financial systems administration, and IT consultancy. Accountancy firms have retained their position as the most trusted adviser to business, but the nature of that advice has changed.

“With the general decline in compliance work, accountancy firms have to find other sources of revenue. A lot of them see IT consultancy as a way forward,” says Reynolds. “Because IT touches so many parts of a business today, it makes sense that the accountant, as the most trusted adviser, should be able to understand IT issues and should be able to give advice on them to any size of business.”

Others cite compliance work as a ‘grudge purchase’ and less rewarding to customers than consulting advice, which helps boost profitability. Small accountancy firms that lack resources to provide the level of IT advice that their clients need typically stop with a standalone financial package, overlooking a good opportunity to provide useful counsel about solutions that are on the market.

The author is Director, Sales, SMB, SAP India and he can be reached at srinivas.rao.a@sap.com