As I was driving to the gym the other day. This thought popped into my mind. 'How many accountants will be out of business by 2017? Now you might think 'how random' is that? However as I mentioned in my column 'How to improve cash flow during January' with my love affair with software, it's about time to start investigating and writing about using online accounting software.

My thoughts continued. 'If I were an accountant, not technology oriented, nor open to redesigning what I do in my business, I'd be in a load of trouble'. Technology has changed the whole paradigm; the institution of accounting as well as the role of the accountant. If an accountant has not made any changes since 2006, well they can look at a near future akin to what happened to the photo imaging industry. The music industry. The telecommunication industry.

Just like Apple completely revolutionised the way we communicate, Xero was the innovation lead to changing accounting software. They brought in daily bank feeds, easy to use cloud based software as a service (as opposed to complicated desk top software that needs regular manual updates). Being cloud based introduced collaboration between accountants and their clients as well as for some, a transfer of duties and finally to be more useful, Xero opened the software to network partners. Are you thinking 'So what'?

Accounting software doesn't have the profile phones or computers do. Accounting software doesn't touch every individual. It's almost invisible. Yet it touches Every. Single. Business. Xero is in its adolescence. However the impact of change it's brought is significant.


Like Apple, what has Xero done besides changing an institution? Revolution. Evolution. Devolution. Diminution. Distribution.

Let me explain through conversations I've had with a few in the industry.

Revolution. Definition: A drastic and far-reaching change in ways of thinking and behaving.

Peter Mc Carrol, Business Express Accounting feels one of the ways Xero revolutionised accounting is with their daily bank feed. 'Before Xero, banking statement feeds were monthly'. Why is this so important?

The clients are more in control of their business than before and can make better decisions. When they used to reconcile by month, or didn't have data easily available they made decisions on hunches. Gut feelings. The hunch view is always rosier than reality.

In the past, reconciliations were weekly (big companies) monthly and on paper, with a ruler working line by line. This is matching bank deposits to income and payments to expenses. The accounting system wouldn't let you proceed to the next month until the current is finished off. For small businesses reconciliations were time consuming and in the too hard basket - normally handed to the accountant at the end of the year which was a nightmare for the accountant.

Matthew Biddick of Robert Purchas & Assoc has a similar viewpoint 'I really like what Xero has done for the accounting practice and profession. Xero has opened all sorts of collaboration with clients, as well as new avenues for Accountants.

It allows you to become a proactive instead of a reactive accountant. A reactive accountant waits until information is dumped in one's lap in July. Being proactive we can log onto Xero and look at our clients' dashboard and see the number of unresolved transactions they have. Knowing their business, you can tell if they're one, two days behind in reconciling or more. It allows you to see if they're struggling and offer a hand and avert problems before they develop too deeply.

Evolution. Definition: A process in which something passes by degrees to a different stage (especially a more advanced or mature stage)

Peter McCarrol says Xero has changed the game by being accessible anywhere with multiple users simultaneously. It used to be I'd get the wholly crap phone call. Panicked clients that did something wrong in data entry and couldn't fix it. In the past with desktop versions of software, they would have to make a backup and email it to me (dangerous) for review of the problem. Or I would need to get a software program that would allow me to take over their desktop to try to find the problem. Both time consuming.

Now with Xero I log in simultaneously with my client and fix the problem. I then say 'refresh your screen', and my client sees magic - it's fixed."

Matthew Biddick has used the online collaboration to change his business focus. 'I am developing the practice to where I am a virtual CFO to 10 large international companies. With Xero incorporating payroll in Australia, I can work with Australian firms without knowing intricate details of their tax legislation - Xero takes care of that.

One of the features, Spotlight reporting enables me to consolidate the results from several trading entities to see the true financial picture. Sitting at my desk in Christchurch, I can be online with the Atlanta head office of one of our clients, McKesson Pharmaceutical group. With Spotlight, we can see in one currency the combined results of their international businesses in New Zealand, Australia, Canada and the UK. That report would have taken 2 hours working in Excel in the past. It is four minutes with Xero.'

Devolution. Definition: The delegation of authority

Peter McCarrol continues 'what an accountant does now depends on the relationship. I council my clients to do as much as they can on Xero - the day to day data entry. Entering invoices, suppliers bills. Reconciliation of bank statements. Allocating or coding expenses/invoices.

Matthew Biddick believes a big difference is that business owners now have the power of knowledge. With the daily banking reconciliation, businesses know instantly who has not paid instead of waiting for months end or in two months. They can be more proactive on true debtors.

Diminution. Definition: The act of decreasing or reducing something.

Gayle Buchannan Number Nurses has found that many day to day activities that used to take an hour, now automated with Xero take 15 minutes. 75% less time. One of her clients was able to replace a $400 per week office manager with a virtual bookkeeper using Xero at only $100 per week. Further, many of her bookkeeping peers have been able to more than treble their customer client base from their ability to work more effectively from the automation Xero brings to their business.

I asked Peter, 'with the client being able to do so much of the accounting work themselves, isn't there the potential for your firm to lose revenue?' Peters response was 'it takes an accountant from being a tax return preparer to a business partner. The tax return becomes a by-product of the relationship.

Distribution. Definition: The act of distributing or spreading or apportioning.

Like the Apple store is filled with apps to enhance your phone and tablet, Xero has opened its doors to third party applications.

Peter McCarrol thinks it's smart that instead of Xero trying to be all things to all people and becoming a behemoth, there is a library of 350 network partners that integrate with and extend the accounting software. For example debt chasing modules like These software services send automatic reminders to customers that their invoices are almost due to past due. You can set your message text, timing and frequency. Another Vend is a retail point of sale system that can run off a tablet. It records sales, inventory, the normal lot. Then when it's reconciled at the end of day, the data feeds into Xero for inventory reconciliation and banking.

Institution. Definition: A custom that for a long time has been an important feature of some group or society.

What do you think? As technology progresses and small businesses become comfortable with cloud software (after all, how many are using Google, Facebook, Microsoft Office 365, Twitter, LinkedIn, Dropbox) will cloud become the new institution for accounting?