Wire in the Blood

Congratulations: you are still here and you have come through one of the worst recessions in living memory, if not the worst.

More may be to come. The recovery is fragile, and this year CA Magazine's accounting software feature is focusing on buying habits during tough times. What, if anything, is driving people to change their systems in a very austere period?

The first surprise, for this writer, was that the market hasn't changed all that much since last year. When looking at market-leading software in the small to medium-size of business arena the word "Sage"comes up almost unbelievably often and it has done since the late 1980s. Even then, this is segmented; the sort of people who'll use the higher-end Sage programs are different from the people who would, a decade ago, have bought something like Sage Instant Accounting off the shelf.

Getting hold of independent research to say who's got a good share of various parts of the market is tricky because there are so many different ways of segmenting it. There are accounts packages, accounts with some sort of e-commerce attached, accounts with links into customer relationship packages – almost everyone can claim leadership in some way.

One company which has put some research out is ClearBooks. After publishing a review of the market it had commissioned from academics at Judge Business School, the company's blog (at www.clearbooks.co.uk) gave the following headline findings:

An estimated two million businesses in the UK use accounting software, but more than two million don't.

UK user number estimates: KashFlow (5,000-6,000) Xero (3,000-4,000) FreeAgent (1,500-2,000).

The big four desktop accounting vendors between them have UK estimated revenues of a little more than £200m and approximately 1m users.

The research also records that "ClearBooks performed favourably against competitors in a usability questionnaire" which betrays something of a vested interest. The other findings sound pretty sensible, although several participants in the research have queried the accuracy of their quotes and figures, which can also be seen on the blog.

The off-the-shelf customer is still very important, with the potential to become a more substantial user in future. Quentin Pain, MD of Accountz, is very active in this area. He started off computerising his own courier company accounts, following the pattern set by Sage when it was a printing company, and has been through several technological iterations since the BBC Micro computer. Later, a company he owned wrote further accounting software. Pain decided, first, that he wouldn't get involved in the DOS world (DOS being the PC software that predated Windows) and later that he didn't want to get stuck in the Windows cul-de-sac (you do wonder whether he was the guy who said the Beatles would never get anywhere too). The solution was to go multiplatform instead.

This approach has proven to be a bit more of an asset in recent years, as Apple computers have become more prevalent. Based on the Java programming language, Pain created the first piece of software that could install on Mac, Linux or PC from the same CD, and has been pushing the system through organisations such as DSGi – the retail group that runs Currys and PC World, among others – over the last couple of years.

The interesting thing is that Accountz has anticipated a lot of the needs of even the smallest business. For example, even for the sole trader it is useful that it's multi-currency, and also caters for different tax regimes in different territories – American sales tax as well as VAT, for example.

"We didn't include multicurrency in the first version but then we found more people talking about it, so we put it in a year ago," says Pain. "Multilingual is also important – you look at the amount of immigrants coming over, even a local dentist near us is Polish, and it's useful to have something in your own language."

At the lower end of the market, and contrary to all the hype, Pain doesn't see much happening with cloud computing (in which applications can be accessed remotely through a network rather than from a local computer or server).

Yes, Google Apps is becoming bigger and of course there are a lot of "software as a service" companies attracting interest, but as recently as a year ago, he says, customer surveys were suggesting the market didn't want to know.

"In the UK people really don't trust their data," he says. "There's a reticence about having your customer list on a server somewhere. You have Data Protection Act and sovereignty issues over where your data is," he explains.

Not everyone has a small to micro business, however. Campbell McLundie is a partner in business technology and consulting for accountant Scott-Moncrieff, providing independent advice on technology to clients. He believes the economy has indeed affected people's spending patterns.

"Almost every substantial organisation we're working for is looking for efficiency," he says. "To be able to achieve this they need a better view of their information. Many organisations have a vast quantity of data but they remain information-poor, so they're looking for a means by which they can get a better perspective on their financial information and also their operational information so they can understand how to do their business in a better way."

Businesses are therefore investing in data extraction tools for the non-financial C-level executive, to enable them to see trends, McLundie observes.

"Tools like Clickview and Sharepoint, which sit on top of traditional management systems, are becoming quite popular," he says. The challenge with a lot of these, however, is that many companies at the medium end suffer from a poor data structure.

Another driver sending clients to review their systems is the increasing need for collaboration. Businesses are looking for partners and to work closely with them.

"Some are looking at the dreaded 'cloud' as a means of achieving that," McLundie says. "There is a healthy scepticism, but some of the technologies have been around for some time and are only now being labelled as cloud."

Companies are looking for ease of access which is a given with cloud technology, but also discipline and control, which is harder work and means working with private clouds rather than public clouds.

"The fact that your information isn't on your own computer doesn't remove your responsibility for what it's used for," McLundie says. This is leading to companies looking for specialists to whom they can outsource their IT; they reach a particular size and start asking themselves whether they really need to have all this data and the management of it themselves.

The names of the players in the market tend not to change much. Sage has already been mentioned; Microsoft, since its acquisitions of Navision and Great Plains over the past few years, is certainly in there and a lot of journalists feel as though we're asked to write an annual story about how SAP is getting into the middle market.

"One of the things we say to clients, although we have Sage on the website, is that we ask them what they're trying to achieve with it," McLundie says. "There are products like Xero with online services for the very small businesses, which are almost a cashbook-based product, allowing people to get access to the cashbook-type functions they need while they're on the road."

Alan Quinn, managing director of Castle Computers, says that finding companies which want to make a significant level of investment in IT has become harder over the last year or so.

"The hot areas are data centre services, definitely," he says. "Some of it's compliance; there are companies being asked by big suppliers like Diageo if they had certain business continuity plans in place."

The other thing sending people back to the consultants is experiencing a "disaster recovery" situation.

Quinn says: "Most people think disaster recovery is going to be from a major thing – a fire in a building et cetera, but it doesn't take that much.

"A company we know had a small leak in the bathroom. The problem was that water went under the floorboards where the electrical cables were so they had to switch off their electricity supply – so suddenly you've got 50 people in an office and no access to the systems."

Financial and reputational risks are seen as high. Requests for backup services have become more frequent, and Quinn is among those who have noticed an increase in interest in private cloud services.

Quinn shares McLundie's view that "business intelligence" is also attracting a lot of interest – anything that extracts data from disparate sources and makes it more comprehensible and useful as information is vital.

Years ago people were investing hundreds of thousands in it, and it's now available for £10k-£15k, he says.

Reporting and refinement is an important element that changes when the laws and statutory requirements change. Shez Hamill of Caseware points to the financial reporting his product does when it's time to produce a set of accounts for Companies House and HMRC.

"Until the last year or so almost our entire market consisted of accountants," he says. "In the last year, whereas a lot of companies would have prepared accounts using Microsoft Excel or Word, the taxman has now said they have to be tagged for XBRL – this has been a major shakeup and it effectively kills Word and Excel as [accounting] tools."

This sort of obligatory shift is important and it makes people change their systems very quickly. But Andrew Birch of audit action tracking and risk management software specialist Symbiant, argues the shift to XBRL simply lent an urgency to problems which had been hurting efficiency for years.

"More often than not, companies use an Excel spreadsheet to log issues and then email them around the company, in the expectation the required action or piece of information will be updated by the relevent person. The reality is that people forget about the email or just plain ignore it."

Unlike a passive spreadsheet, Birch's solution allows actions or particular pieces of information to be assigned to specific individuals. With ownership built into the system, reminders can be sent automatically, and the audit and risk processes lose less time chasing forgotten data.

The next question is who the right supplier(s) might be – a single supplier or a whole range of best-of-breed specialists? Quinn says: "I don't think there's any big sway one way or the other. There are some key competencies that are required around some of these technologies – from Castle's perspective we look to partner people who have the right specialisms. I'd say there's been more partnership in the IT industry recently than ever before."

Austerity or not, things will continue to evolve over the coming years. Quinn notes that people are carrying smartphones more than ever they were before, and this means the prospect of mobile apps becomes more appealing to many companies who might have thought it looked like science fiction before.

Jerry Rihll of Thomson Reuters echoes this: "Devices such as the iPad and the Samsung Galaxy Tab are becoming very interesting." He concedes the iPhone, Android and other intelligent phones are fine for recording time, but stresses that a key requirement for practitioners' is to be able to show clients things on a screen, and they tend not to want to do this on a phone.

"We've demoed our own app; it's a view of our practice management solution," Rihll says. This means your mobile device would always be up to date, as organised as it would be in the office.

The shape of things to come? It could well be. In the meantime there's a lot of work to be done getting value out of all of the data people already have on their systems. The main growth at the moment seems to be in developing tools to extract that data and make it meaningful, whether on a desktop or mobile platform or even restyling it for the authorities.

It looks as though accountants and their technologists are going to see plenty of work for a while yet. 

GUY CLAPPERTON is a freelance business journalist specialising in information technology.

Reasons to consider changing your accounting software package

Your existing system doesn't have functionality you now need, such as multicurrency or multilingual options.

You are ready to make the move into cloud computing, for greater flexibility.

Your existing system does not provide enough up-to-date business intelligence for management purposes.

You need to find better ways to collaborate seamlessly with customers and/or suppliers.

Your existing system falls short in terms of business continuity/disaster recovery, risking damage to profits and reputation.

Regulatory requirements – such as HM Revenue & Customs' move to iXBRL for online tax filing – have changed.

You are looking to make greater use of mobile computing and your existing system will not function on the iPad (or its competitors).