Yet those businesses that are still waiting to make the change often can become fixated on paper-based bookkeeping.

Desktop and paper-based accounting might seem convenient at first, but the cost will be higher in the long term. It affects not only productivity and accuracy, but also uses up unnecessary human resources. 

As a business expands, proportionally more staff will be needed to handle paper-based accounting. For example, if an accounting firm takes on 10 new small to medium-sized enterprises as clients, it must hire one extra person to take on the added workload.

Digitalisation saves both time and labour and also reduces the risk of human errors. It also simplifies data access and analysis and offers transparency regarding company expenses, earnings and business prospects. 

Knowing exactly where the money goes will help business owners and their advisers to better allocate resources.

Hong Kong accounting outlook

The advent of cloud accounting technology means that accounting firms can now use it to scale up in a cost-effective manner. 

Automating data-heavy tasks such as data entry and reconciliation will give accountants more time to focus on expanding their business through new customer acquisitions, upselling and offering more complex advisory services.

Pacesetters and practice types

Pacesetters are seen as accounting professionals who leverage cloud technology in their digitally-led practices. They have the ability to evolve their role from that of an accountant to a business adviser who can address their clients’ varying financial situations and offer customised solutions. 

In Xero’s report, pacesetters are defined as “the top 15 per cent of firms with high growth and revenue relative to practices of similar years in business”.

Accounting practices generally provide two types of services: compliance services and advisory services. 

Compliance services, which are required by law and a must for any company – particularly those in the financial sector – help companies operate within the framework of their local regulators' requirements, ensuring that no laws are broken. 

Non-compliance at any stage of the accounting process leads to legal and financial action against accounting practices, professionals and clients.

Advisory services are optional for companies, and involve helping clients look toward the future by enhancing their decision making and business performance through the use of their historical data. From here, the advisory type changes to either repeatable or complex services.

Top 5 takeaways from report

Xero’s report was compiled after a survey of 146 accounting and bookkeeping practices operating in Hong Kong.

So, what are the 5 main takeaways from its detailed findings.

1. Pacesetters earn more advisory revenues

Across the board, pacesetters have consistently recorded stronger performances compared with regular practices that have not fully embraced technology.

In the past 12 months, pacesetters experienced a 25.1 per cent growth rate for average revenue compared with a 10.3 per cent rise for other practices. 

As accountants evolve into business advisers, data also revealed that pacesetters have more successfully transitioned into their new role, bringing in 130 per cent more advisory revenue, of about HK$616,000 (US$78,000), compared with regular firms’ revenue of about HK$264,000.

Pacesetters led the pack by leveraging technology to deliver more advisory services and, in general, reduce the average amount of time needed to serve one client by about 50 per cent (from 518 hours to 249 hours). 

These industry leaders have adopted technology to improve productivity and efficiency such as data automation (48 per cent compared with 25 per cent at regular firms) and for practice management (78 per cent against 52 per cent at regular firms).

The growth in revenue underscores the direct and added value of technology adoption in accounting. 

Signing up more clients and expanding service offerings before everyone else is not enough anymore. Automating accounting and management tasks gets more done – and earns more for pacesetters. 

2. Technology drives complex advisory services

As accounting firms expand further into advisory services with increasing complexity, technology adoption has been a key factor in accelerating and enabling this transition. 

Xero’s survey reveals that accounting firms that focus on complex advisory services tend to have the highest app usage rate at 82 per cent, with 50 per cent of them now considering adding new apps, or choosing them to replace their existing apps, in 2020 to remain competitive. 

App usage drives analytical work such as financial forecasting, budgeting and reporting, which helps accountants derive meaning from historical data to offer deeper business insights to their clients. 

Most importantly, pacesetters are clearly not resting on their laurels, where half of the surveyed accountants are keeping an eye on new technology that they can adopt in the new year.

3. Compliance services generate significant revenues

Despite the shift towards advisory services, compliance work remains highly relevant and profitable, netting the most significant share of average revenues compared with other service types. 

Compliance services generate an average of HK$55.1 million (US$7 million) compared with HK$22.4 million (US$2.8 million) for complex advisory services.   

Not surprisingly, accounting and bookkeeping remains the most sought-after key compliance service among small business clients. 

Business owners still regard compliance as a non-negotiable expense, so demand for this accounting service will always be high.

4. Accountants serve as small business advisers

Accountants are transitioning to roles beyond compliance services, such as auditing, and are getting increasingly involved with helping small business clients make critical business decisions.

This is evident as accounting firms that focus on repeatable advisory services generate average revenues of HK$1.25 million per month, of which the most in-demand services are tax advisory (39.2 per cent), forecasting, budgeting, cash flow and business planning (31.8 per cent), and start-up mentoring, assistance and business development (17.7 per cent). 

This trend will only increase in 2020 and beyond as small business owners navigate the economic downturn.

5. Cloud adoption picks up speed

A growing number of Hong Kong accounting firms are making their practices digital-first to stay competitive in an increasingly challenging market.

However, the main question they face is which automation app they can – and should – use given the array of business apps available. 

Nevertheless, the desire to upskill and adopt technology remains the common thread in the report’s findings, as 30 per cent to 50 per cent of the accounting firms expressed the intention to try new apps or replace their existing ones by 2020.