Are you ready to become a virtual CFO?

The accounting profession is going through some major changes.

Small businesses now have so much choice when it comes to selecting an accounting practice, that ordinary services like compliance, tax preparation and basic bookkeeping have become commoditised. In fact, there’s so little differentiation in the crowded market that the value of these services is being driven down. 

According to the latest Xero Accounting and Bookkeeping Industry report, among Singapore accounting firms, compliance services still make up the majority of practice revenues (73%) compared with revenues for advisory services (27%).

While the demand for compliance services is unlikely to abate any time soon in Singapore, the research shows that margins for compliance-only practices are lower since most business owners see them as necessary expenses.

In contrast, the revenue opportunity is highest among advisory services as businesses place greater value in financial advice that will help them grow their organisation. 

This represents a major opportunity for Singapore accounting firms to grow their advisory services. In other words, going beyond compliance and bookkeeping to become a trusted financial and business advisor to small business clients will help any accountant step up to the role of virtual CFO.

The rise of the virtual CFO
The virtual CFO is a fairly new concept.

It’s a way for small businesses to get CFO support that they wouldn’t have been able to afford previously. On the flipside, it is a route for accountants to transition from providing simple bookkeeping services to become trusted advisors to the businesses they work with.  

Services provided will differ from firm to firm, but generally includes monitoring the financial health and well-being of a business, offering financial insight and guidance on all company decisions and issues and providing back-office functions such as managing accounts ledgers, depending on the client and their needs. 

Having access to a virtual CFO can be a big benefit for a small business. Most of them are not able to afford a CFO on a full-time basis. That’s a problem because many small businesses fail within the first three years, often for financial reasons. With an accounting professional acting as their virtual CFO, they could keep their financial goals and realities clearly in sight.

It pays to make the transition
While advisory services are typically optional for clients, Xero research found that they offer the most direct path for advisors to help clients grow their business. 

In fact, in the last 12 months, repeatable advisory firms out-earned compliance firms by an average of almost S$80,000 and complex advisory firms out-earned them by an average of almost S$20,000. This highlights the monetary value that clients place on advisory services provided by trusted accounting partners, or virtual CFOs.

Meanwhile, accountants in Hong Kong are transitioning beyond compliance services at a much faster rate than their Singapore counterparts. Repeatable advisory practices made the most revenue in Hong Kong in the last 12 months.

The best new accounting assistant: AI and machine learning
AI and machine learning are quickly changing how accounting practices in Singapore operate. Crucially, they are empowering accountants to transition to the role of virtual CFO.

For example, using data and advanced statistical methods, accountants have access to AI-powered cash flow forecasting tools on cloud accounting platforms. This means that firms can reduce the amount of time spent on administrative and repetitive tasks so they can focus on the complex advisory services that deliver greater value add to the client and revenue for themselves. 

Complex advisory practices are increasingly using data automation apps. This is expected to grow further, to 35% in 2020 - up from 30% this year. As AI-powered automation solutions reduce the number of hours firms spend on simple manual tasks, more time can be allocated to provide more sophisticated and valuable advisory services.

Furthermore, apps powered by AI and machine learning are more commonplace in pacesetting practices. Pacesetting practices are those that make up the top 15% of the market and boast high growth and revenue rates, serving as a benchmark for other firms. 

According to the Xero research, 67% of pacesetting firms use data automation apps while only 34% of average practices do. This reinforces the value of AI and machine learning in supporting efficient and profitable firms. 

Evolve the relationship
Many small businesses don’t even know that their accountant or bookkeeper can do more than just compliance and tax work. 

This doesn’t mean they don’t need the services of a virtual CFO.

While some clients will still choose basic services, over time, accountants can offer added value by providing useful insights. As the client grows to know and trust their accountant, the advantage of working with them in an advisory capacity will become more clear. 

From a practical standpoint, packaging services into bundles will help. That way, the terms of service are clear, and clients can easily migrate upwards when they are ready to do so. 

Finally, a virtual CFO has to stay close to their clients’ business. While other aspects of the business may benefit from being digitised, regular in-person conversations with clients help to surface important insights into their business, industry landscape and the challenges faced. With an understanding of all of the above, an accountant is in a better position to provide informed financial advice that adds real value.

You can lead the charge
While the majority of Singapore accounting practices still view compliance work as their bread and butter, it is encouraging to see that 86% of firms plan to invest more time and resources in advisory solutions in 2020. 

Singapore’s accounting industry is gearing up to move from crunching numbers to become trusted advisors who surface insights to transform a business. Rather than getting left behind, make sure that you and your accounting practice are leading the charge.

About the author
Kevin Fitzgerald is managing director, Asia at Xero.