Sunday, July 6, 2014

Is there a blue sky beyond the cloud? / How accountants are reprogramming their roles to meet the challenges of the brave new virtual world / Australia

Sholto MacPherson for In The Black / ITB Digital writes: These days the impact of cloud computing is impossible to ignore. Supermarkets are mining multiple, enormous databases to fine-tune their pricing and stock levels. Retailers are building e-commerce sites in the same warehouse-sized data centres that run the gigantic Amazon.com website. And businesses of all sizes are turning to cloud software which they never need to update, can use from their iPads and smartphones, and costs just a few dollars a month.
Accountants are no less immune from the change sweeping the business world. The bedrock of many practices – steady revenue from tax returns – is looking decidedly shaky as cloud accounting software automates the uploading and coding of bank transactions. Accounting fees for compliance are falling as a result.
The practice of keeping two ledgers, one for the accountant and one for the client, has come under assault from software companies promoting a single ledger approach. Accountant and business owner can now view, manipulate and generate reports from the same set of financial data, at the same time, from different locations.  
Accounting software companies are pushing a new message to accompany the technological change. From Xero toMYOB, the game plan is the same: accountants must do more than crunch the numbers, they need to coach businesses to greater success.
Accountants have always played the role of financial adviser, but a better description of the future of the profession might be business adviser. Firms that have moved early to cloud accounting are already staking out an evolutionary path.
Four years ago Troy Marchant of Robson Partners realised the expectations of his clients were changing dramatically. The Xero partner on the New South Wales’ Central Coast joined a business coaching franchise to develop more business-focused solutions for clients.
“We realised that compliance is becoming more and more streamlined,” Marchant says.
“There is a need for accountants to refashion themselves into more than a number factory because technology is certainly going to be doing a lot of that work in the future.”
But taking a more proactive position felt a little unnatural at first to some of the firm’s members. As Marchant notes: “Most accountants want to be reactive.”
He and his colleagues began meeting clients more regularly, as often as once a month, and found their relationships became much deeper – and more lucrative.

“You’re in the boat with them on their journey, in everything they’re trying to achieve,” Marchant says.
“From a fees point of view you’re getting a really good return on your time because coaching is a value-based proposition, not time and cost.”
Robson Partners is helping its clients win more sales and refine their marketing strategies. It also offers web hosting and is even certified in the cloud app, Salesforce.com, an enterprise-grade sales management program.
The firm has effectively reinvented itself. These days it holds fortnightly workshops in its boardroom for the Central Coast business community on self-managed superannuation, tax and property. More than 1000 people from 600 businesses have attended nearly 80 events in the past four years.
The events funnel new customers into the business and help educate prospective clients on the value of quality financial advice. Although cloud software may mean compliance revenue is under threat, the opportunity and rewards in consulting more than make up for it.
A client who went to one event three years ago recently left his accountant to take advantage of Robson’s virtual CFO service.
“He was paying his accountant A$5000 a year and now he’s at A$25,000 a year. His fee has gone up but he’s getting five times the service,” Marchant says.
An interest in technology is a common thread among accountants engaging in business coaching.
Brisbane-based Karen McDonald CPA spent 10 years in tax and several years in software support and development before setting up her own advisory practice.
Cascade Consulting has a strong contingent of clients from the legal profession. McDonald supports practice management software for law firms as well as handling their compliance. The tech consulting includes setting up document templates and answering queries about accounting software, including trust accounting.
McDonald’s advice for accountants wanting to work as coaches: listen hard to what your clients want.
“There are a lot of accountants who are so caught up with their lodgement programs and what the ATO wants,” McDonald says.
“If I don’t feel I’m adding value then I don’t want to get out of bed in the morning.”
She takes a reading of a new client in the first or second appointment by always holding them at the client’s premises.
“I think that always helps because you can picture who you are talking to. It enables you to walk in their shoes and give them a bit better service,” McDonald says.
McDonald has to exercise care that she doesn’t share too many trade secrets, given that more than 60 per cent of her clients are law firms.
“I’ve got to be very careful because they will all ask how their mates are going down the road. They will often want to know how they stack up and what they can learn. We’ll talk about productivity, billable hours, size of the wages,” she says.
“It’s just a case of learning how to draw similarities without giving too much information about who you’re talking about.”

The solo practitioner challenge

If there are casualties in this business software revolution, then single practitioners are first in line.
“The sole trader guys are really in strife. They do most of the work themselves on the basis that they’re quick and they can get through it,” says Phil Marendaz FCPA ofMarendaz Accountants and Business Consultants, in Melbourne’s north-east.
Marendaz says he believes pricing will become so keen on compliance that within three years an accountant would need to do two and a half times the volume to maintain the same revenue.
“That’s what the efficiency of the cloud is going to do to compliance work,” he asserts.
“Of course [cloud software] is going to be a threat. There are going to be young accountants tumbling out of this profession.”
Marendaz has worked as an accountant for 40 years, starting out as an assistant cost accountant producing standard variable cost journals for the Comalco aluminium smelter in Bell Bay in northern Tasmania. Last year was his fifth year as a sole practitioner, but when he returned from leave in February 2013 he knew he had to refocus the business.
“I have a skill set that’s really good at advising growing businesses, so I wrote two letters on my board, ‘IT’. The future of our practice is predicated on anything to do with the technology side,” he says.
This sole practitioner has automated tax returns by outsourcing bookkeepers to the point where he no longer touches them. Marendaz hasn’t filed a return in over a year.
Marendaz says future practices will be based on the service supply model. He is turning his business into a help desk for clients, 50 per cent of whom are in the cloud. He expects that will grow to 80 per cent within the next nine months.
The business coaching focuses on Marendaz’s personal mission to educate small businesses about the importance of understanding financial concepts such as margins. He believes margin squeeze and not cost control is the biggest challenge facing Australian businesses.
“Small businesses don’t understand the relationship of cost, volume and profit enough and they don’t forecast cash flow,” he says.
Marendaz produces three-monthly forecasts; major clients receive a 30-page board report which he bills at a rate that “a partner should be billing at”.
How much? “I don’t want to say, but I’m targeting mid-tier rates,” Marendaz says.
Alycia Edgar of Business Performance HQ (formerly Coastal Accounting) works with clients around Geelong and on Victoria’s Surf Coast. She notices that business owners switching to cloud software have a different relationship with their accountant.
“Clients loved that they could ring me and no matter where I was I had access to (their accounts] too,” Edgar says.
She began using Saasu in the mid-2000s and now only deals with clients through the cloud. One of the great advantages of cloud software is that version issues are non-existent – everyone is working from the latest (and the same) set of accounts.
Improvements in the user interface in cloud accounting software and the ease of its use encourage clients to ask more questions about the accounting process, Edgar adds. She often pulls up reports and talks through the details by clicking through to specific transactions over the phone. Clients message Edgar through Skype asking how to look up different reports and she sends a link to the help file for that program.
While accounting is always looking rearwards, the time needed to access data has shrunk dramatically and the quality of advice has grown as a result.
“Yes, you’re looking at the last month but you’re doing it on the third day of the next month not three months later,” Edgar explains.
“Rather than saying, you had a bad month, let’s move on, you can say, why has this occurred? Perhaps it’s just a timing issue – they haven’t done their invoicing. Or perhaps they have stopped marketing or someone is ill. But the sooner you can get onto that and fix it, the more likely you aren’t going to repeat that the next month.”
The business software revolution has not only changed relationships between accountants and clients, it has also renovated the internal dynamics of firms.
Tony Hoffman FCPA, director of Hoffman Kelly in Brisbane, employs a bank of 15 bookkeepers to process 2800 tax returns a year. Of more than 1200 clients, 170 are using cloud software such as MYOB AccountRight Live, MYOB Essentials and Xero.
The company employs a dedicated “cloud controller” who talks to clients about the benefits of each program and makes recommendations. Hoffman Kelly has been holding dinner seminars to invite them onto cloud software in part because of the greater efficiency rewards for the practice. The 15 bookkeepers were working at capacity until the firm began moving clients to MYOB. Instead of spending four hours on a client they now spend just one hour, opening up room to add more clients to the service.
Hoffman is looking at a third-party cloud program to give a snapshot of the performance of each client and trigger alerts as problems occur. The firm hopes to offer a proactive monitoring service within the next six months.
Hoffman Kelly has signed up several Sydney-based property developers to MYOB’s cloud software so it can monitor and control transactions from its offices in Brisbane. By using MYOB’s bank feeds, “we can control the accuracy of the Business Activity Statements and the timing of the refunds,” Hoffman says.
The digital revolution will continue apace, ripping holes in the established order in nearly every industry. But these trailblazers have shown that the cloud’s silver lining is real and that lucrative opportunities are waiting for those brave enough to seize them.
Sholto Macpherson is a journalist, presenter and public speaker with 14 years’ experience writing about IT for enterprise and consumer audiences. He is the editor & publisher of  BoxFreeIT,  an independent news site covering cloud software for Australian and New Zealand businesses which launched in July 2011. The site is published by Sholto Macpherson, a business technology journalist in online and print media for over 11 years. BoxFreeIT operates in accordance with the MEAA (Australian Journalists Association) Code of Ethics.
The only Australasian site dedicated to cloud software, BoxFreeIT attracts 30,000 unique visitors a month with a strong following of accountants and bookkepeers exploring cloud accounting programs such as MYOB Essentials and AccountRight Live, Xero, Saasu and Intuit QuickBooks Online, as well as SMEs interested in cloud software.

Posted on 12:55 PM | Categories:

Tax efficient asset allocation

all 4 comments  
[–] aBoglehead 6(6/0)  ago
I can't imagine that the benefit of tax efficient allocation would offset this major tax hit right now.
In your case it's probably not worth it. You might be able to do a little bit of rearranging (if you want to, and transaction costs are sufficiently low) by selling off only those lots that have a capital loss or very small capital gains. However, if the majority of your shares have gained value then it's best to simply keep investing according to your asset allocation,keeping tax efficiency in mind going forward.
[–] lightcloud5 5(5/0)  ago
Admittedly, it can be difficult to move existing assets around (since doing so would trigger capital gains).
Though, at least, you could allocate new investments in accordance with the principles of tax-efficient allocation.
[–] harruin 4(4/0)  ago
In your case, you consider the tax efficient allocation on future contributions.
[–] wijwijwij 4(4/0)  ago * (lasted edited 10 hours ago)
Doing a major readjustment that would trigger a six figure capital gain would seem to be unwise, because that would result in a five-figure cap gain tax amount that could be difficult to come up with in one year. But I don't think you need to entirely give up and only direct future contributions in tax-efficient ways.
I'll tell you what I did a few years ago to reposition some of my asset classes. This may not apply specifically in your case, but it may at least suggest avenues to pursue.
First off, identify what the problem is that you're trying to solve by adjusting your asset location. In my case, I had my 401k entirely invested in stock index funds, and I had bond index fund holdings in a taxable account. I realized after several years that the bond index funds in that location had a significant enough amount of dividends that I was paying taxes on each year. The problem was that I didn't think about that earlier when I was setting up my 401k contributions.
I could have partially "solved" the problem just by making new contributions in my 401k to a bond fund, and not making any new purchases in my bond fund in taxable account. But I really didn't think it was maximally tax-efficient to keep the bond fund in that taxable location.
Next, I identified a procedure to address the problem. It was not an issue to adjust my 401k balance to include a low-cost bond fund. So I knew that once I got rid of bonds in my taxable account, I had plenty of leeway to have an equivalent amount in my 401k. The issue was that selling my bond index fund would incur gains.
In my case, liquidating my entire bond index fund led to cap gains of $14,600. That's a five-figure amount, not a six-figure amount, but still was a lot to me. If I had simply done that, I would have owed cap gains tax on that amount. Probably something like $2190 more in taxes than I expected.
Instead, I offset this with some strategic sales of stock index funds where I knew I had losses. This is an example of tax-loss harvesting. In order to have losses to offset the gain from the bond sales, I used "specific identification" method for choosing which past shares I had bought in one of my stock index funds. I ended up identifying 7 lots (specific purchases on specific dates). This was back before the cost basis record-keeping rules changed. Since I hold my taxable stuff at Vanguard, I had to communicate before the sale via electronic message and then follow up with them via mail to communicate the shares I was intending on selling. They sent me back a confirmation letter (much later) basically repeating what I had told them. (Nowadays, for "covered shares" purchased more recently, Vanguard has mechanisms in place for doing this more smoothly, I trust. But for "noncovered shares" it is still a bit of a pain to explicitly use the specific share id method.)
By selling so I had a loss of $16,900, I was able to offset the gain of $14,600, ending up with a net loss of $2,300 that was under the $3000 loss threshold allowable. This was reported using Schedule D.
After this was done, I had my records backing up my specific share ID, which I need to keep. Also, the cost basis figures that Vanguard gives me, which are based on average cost, are meaningless now for this particular fund, because my new cost basis is my old cost basis minus the cost basis of the particular shares I sold. So I have to keep track of that myself.
I then did an exchange in my 401k so some of my funds there became invested in exactly the same bond fund I had sold at a gain from my taxable account, since my 401k actually offered it. (Note: There is no wash-sale rule to worry about for buying a fund that you sold at a gain. However, there is a wash-sale rule to worry about when you do tax-loss harvesting. In my case, I had to make sure not to rebuy the stock index fund I sold shares at a loss from for a certain period of time. So, I actually had to turn off automatic reinvestment of dividends for that fund!)
The result was I got my bond fund into my tax-advantaged space, without incurring an onerous tax bill. It just requires a little extra record-keeping to maintain the specific share id information related to the stock fund that I did tax-loss harvesting from.
I'm not sure if you're willing to look at using losses to offset gains in this specific way, or even whether the amount of gains you seem to expect could be offset by losses. But it may be worth at least seeing if harvesting losses might at least do something to moderate the capital gain to a manageable tax amount.
One additional benefit to this, for me, was that it has now meant that I have fewer dividends to pay taxes on each year. This has turned out to be useful this past year, when I stopped working and wanted to keep my income in a very low bracket for purposes of Obamacare. If I still had my bond fund where it was, I suspect the unearned income they produce could very likely tip me into a place where I wouldn't get credits for premiums. This isn't why I did it in the first place but has been a good consequence.
Another idea, I suppose, might be to wait until such time as you may fall into a 10% or 15% bracket, if you ever think that could be the case in early retirement. During those years, you could reposition taxable funds into tax-advantaged more easily when the amounts you sell generate gains that have 0% cap gains rate, i.e. they keep your income within the 15% bracket. But from the figures you gave in OP and the fact that you're only in your 40s, I suspect perhaps even this is unlikely, as you have quite a nest egg built up.
I do think it's worth giving this topic some thought, rather than immediately concluding that what you currently have as asset location is something you have to live with. Certainly adjusting future contributions to stop doing inefficient location is a good idea, but don't rule out doing some selling in your taxable account if you can do it in a way that isn't too costly. (You might have to think about this across a couple of years, so you don't jump into an even higher tax bracket that could increase cap gains tax rate even higher than it is for you now.)
Posted on 8:32 AM | Categories:

Xero boss focuses on growth

Richard Meadows for the Manawatu Standard writes: Xero New Zealand managing director Victoria Crone is experiencing culture shock - but in a good way. After two-and-a-half months at the cloud accounting software firm, she reckons she's got her feet firmly under the desk.
"It's a really exciting place to work," says Crone. "People want to create really big things, and things that make a difference."
Crone has spent most of her career in the telco industry, clocking up 18 years at Telecom and sister company Chorus, most recently as general manager of marketing and sales.
Over the second half of that period, many telcos have seen revenues fall away, often eroded by disruptive online start-ups.
Moving from an arguably sunset industry to a growth company hungry to take on the world is a sudden shift in gears.
"The big [first impression] that strikes me is the energy levels of people," says Crone. "The second one is the boldness of the vision."
The lack of negativity is refreshing, too.
Telcos are magnets for bad press. Take Telecom's series of gaffes and controversial "Spark" rebranding, Chorus's challenging financial position, or the usual litany of service-related complaints.
Even the upbeat Gigatown competition, which Crone spearheaded at Chorus, managed to attract plenty of sniping from the sidelines.
By contrast, Xero is the undisputed darling of the local tech sector.
"In my travels around New Zealand talking to customers and partners, the feedback is overwhelmingly positive," says Crone.
Her diplomatic explanation of the difference between her former and current employers is that Xero is in a "different phase of its cycle".
"The big focus is growth. We're typically growing 80 per cent year-on-year."
Xero's full-year operating revenue to March was $70.1 million. The company has since calculated an annualised revenue figure of $100m, based on monthly subscription income for May.
Crone says that puts it in the same league as the big, global software-as-a-service companies.
The word passed down from founder and chief executive Rod Drury is that "the journey from $100m to $1 billion is well within our reach".
"There's a long way to go yet," says Crone. "We haven't maxed out, or even close to it."
While typically seen as bent on global domination, Xero still has plenty of room to grow in New Zealand.
Crone says there are about 105,000 local customers, which represents a 20-25 per cent market share.
Of the total 780 Xero staff, roughly 300 are New Zealand-based.
Staff numbers across the business are expected to almost double over the next year or so, with as many as 10-20 new recruits coming on board every week.
It's a big challenge for the HR department, especially with a skills shortage of local developers.
"We're having to look into the UK," says Crone. "That'll take two, three, four years for that supply to come through."
Already Xero's modest Auckland offices in Parnell are groaning under the weight of a growing army of IT professionals.
Staff glued intently to the computers in the open-plan office are dressed casually in everything from cardigans to polo shirts, with many shades of skin on display, and a reasonable proportion of women.
"[There are] definitely a lot more younger people, which I think contributes to the level of energy around here - not to say that older people can't be energetic!" says Crone.
"But there's a certain ambition and energy that comes with people in their mid 20s and late 20s wanting to conquer the world."
Every two weeks Drury hosts a company-wide meeting to outline the latest news or big win.
"That's the way we keep everyone on the same page," says Crone. "There's a real trusting culture. He'll share board content - no one's leaked it yet."
Every employee has stock in the company, which means there's a vested interest in pulling together.
Company faithful will have enjoyed the share price's astronomical ascent from less than $5 this time in 2012, to peak at almost $45 earlier this year.
The elephant in the room is the stock's huge slump below $26 in recent weeks, which has dominated headlines.
But there's no giant ticker on the Parnell office wall, surrounded by grief-racked employees.
Crone says it's business as usual.
"We're a tech stock, so we are going to be volatile."
The constant attention on the share price has been useful for growing awareness of Xero as a company, she says.
But as might be expected from a former marketing executive, she wants to change the focus to the "great stuff" the company is achieving.
The main focus is always "continuing to build the most beautiful software in the market", says Crone, effortlessly reciting the company tagline.
There are several other projects under way. Some are customer-driven and some come from within, with staff frequently spit-balling ideas through business social network Yammer.
Small business's biggest problem is that they're time-poor, says Crone.
Most of the company's efforts are aimed at making a seamless marketplace for businesses to get billed and get paid as fast as possible.
"We're working with the likes of Vodafone and Fonterra to say, ‘do you want to invoice directly into the platform'," says Crone.
Ultimately even the likes of loan applications or tax returns could be automated based on the information stored on the platform, with a simple "click to submit".
"We're also well under way in terms of discussion with banks," says Crone.
Both ASB and TSB already support so-called "next-gen" banking, which makes direct feeds from Xero accessible through internet banking.
Kiwibank is also streamlining services for its business customers.
With more and more partners being plumbed directly into the platform, there's a veritable fire hose of payments data streaming in and out.
Crone says about $16.6b worth of invoices and almost $10b of bills go through each year.
While many companies would drool over such a treasure trove of valuable data, Crone claims there are no direct plans to monetise the database.
"This is about everybody winning, not just about Xero winning," she says.
Rather than charging for analytics or reports, they will be offered free as a way of adding value for customers.
Businesses will be able to benchmark themselves against others in similar industries, regions, or even countries.
The first insights report, which looked at the average time it took for small businesses to get paid, came out a couple of months ago.
"That's just the tip of the iceberg in terms of the info we can access on the health of small businesses," says Crone.
Xero has also launched Smartlists, a free tool for businesses which don't have dedicated customer relationship management software.
It turns the accounting platform into a search engine, allowing business owners to find and target existing customers.
"What this enables them to do is pick out, say, the customers who bought boots over $200, make a list, and then go and target them for this season's boots," Crone explains.
Little does the New Zealand business community know, Xero is using it as a giant petri dish.
New ideas are tested and proven locally before they're rolled out in other markets.
"It is much easier to do this sort of development in New Zealand because we are smaller, we are nimble," says Crone.
The key overseas markets - Australia, the UK and the US - are similar enough that most concepts translate, although not always perfectly.
Crone is also responsible for the "rest of world" portfolio, a hodge-podge of 178 countries with paying customers outside of the four main markets.
She says there's good year-on-year growth in sales, with the aim to get specific countries big enough to justify having their own presence.
"Canada, Singapore, Ireland and South Africa would be the next big four, and potentially Japan," says Crone.
While Drury remains the big cheese, Crone says she's been given "loads" of autonomy to do her thing.
The pair speak formally on a fortnightly basis, but are in touch every second day or so, regardless of where in the world the roving chief executive might be.
Crone says the use of cloud technology within the company enables her to be flexible around her own hectic lifestyle too.
"It doesn't matter where I am," she says.
"I was in Rotorua at an underwater hockey tournament for my daughter, and there were a couple of things I urgently needed to do - I [could] access everything and do it there."
Crone is a believer in work-life balance, and says her two daughters - aged nine and 14 - play an important role in her life.
"Particularly when I don't have my kids, I'll tend to work longer hours, and put in some harder yards then to get on top of things," she says.
"When I do have my kids I'll try and work more sensible hours and fit in with them."
Crone's partner, Telecom digital ventures boss Rod Snodgrass, has his own brood to look after.
The pressures of two high-powered executive lifestyles can be tough, says Crone, but at least they're able to talk about work more than they could when she was at Chorus.
Crone lives one minute across the road from the Parnell office.
However, she's got a weekend bolthole nestled among the native bush and black sand beaches of Muriwai, which is "good for the kids in terms of a bit of normal New Zealand".
She's also a keen multi-sport athlete, so some of her limited downtime will be spent training for several events in the year ahead.
A half-Ironman involves six gruelling hours of running, cycling and swimming, but Crone is thinking about taking on the full.
One of the toughest things she's ever done was the Abel Tasman Coastal Classic, a gruelling 36-kilometre trail run.
"I blistered about an hour into it. So I couldn't walk for a week after."
Conquering endurance events is as much about mind-games as physical strength, she says.
As Xero keeps pushing to take on the world, her hardcore hobby could prove to be good preparation for the trials and tribulations that surely lie ahead.
"I find the sports incredibly great for your mental toughness," says Crone. "Doing a half-Ironman - a day in the office is easy after that."
XERO BY THE NUMBERS
80 per cent year-on-year growth
$100 million in annualised subscription revenue
$35.5 million loss posted for the year to March
800 per cent increase in share price between July 2012 and March 2014
42 per cent slump in shares over the past three months
780 staff, expected to double over the next year
300,000 customers in 182 countries 
Posted on 8:18 AM | Categories: