We have all no doubt studiously trawled over the various annual reports available on Accounting Practice performance; earnings per Partner, average spend on IT figures, etc. But what are these figures not showing, what more can be gleaned? Do you compare yourself against your own potential as keenly as you do against your competitor? Accountants are great at measuring what's happened, but not always so good at what could happen, especially within their own business.

Achieving Your Cloud Based Potential

What's the true potential of your firm and the Opportunity Cost of maintaining in-house IT systems, in house IT personnel and in-house "interested parties" - because a Graduate has done a unit or two of IT in their degree, or a Partner or Manager "likes to keep his finger on the pulse"; and just as often the Server 'Enter' key?

Are you making the most of the professional skills you have spent years learning and perfecting? Or do you also like to service your car and change your engine oil during office hours, dabble in a bit of brain surgery on the side - of course not, that would be ridiculous; or get caught up in any one of a dozen other things that can take you away from focusing on your core business? Why would you then leave the "central nervous system" of your business in the hands of anyone other than a trained professional familiar with the niche requirements of Accounting Practices?

Accountants are great at manipulating numbers and I believe a few of them even enjoy it. So let's look at some real numbers from another perspective and see what they can reveal to us about real costs and real opportunities in Cloud computing and your own business.

The New Year

Let's start with a blank page for a New Year. Everyone knows it; we have 365 days available to us per year, but not really. The deductions:

  • 52 weekends – minus 104 days
  • 4 weeks annual leave – minus 20 days
  • Annual sick leave – minus 10 days
  • Public holidays – minus 9 days

That leaves us with 222 days per year to make hay. Working an average 8 hour day, that's a total of 1776 hours available for billing.

However, in a busy Accounting Practice with highly dedicated staff who love working weekends and after hours, get their annual flu shots and lead otherwise healthy lifestyles (!), staff actually work many more hours than this minimum calculation shows. So in reality, your actual billable hours figures are likely to be on the higher side of these and further in your favour.

Assumptions

Let's look a little more closely and include some additional assumptions in here.

  • All employees work an average 8 hour day.
  • An average charge out rate across the company is $160 per hour.
  • Staff productivity holds to a sustainable 85%.

That then provides:

  • Total potential work output of 1,509.6 billable hours per employee (85% productivity from 1776 hours).
  • Total potential revenue of $241,536 per employee ($160 per hour for 1,509.6 hours).

Many firms are able to achieve much higher productivity levels and still many others charge at much higher billable rates. 

What can you do to increase productivity? Do you track and monitor the amount of time lost to computer issues, both in downtime and simply in the amount of time spent dedicated to troubleshooting, investigating new technologies, software vendor discussions and upgrades, etc.? What is your Opportunity Cost in these areas and what could you do with that time in terms of marketing your own business; consulting and value adding to your clients and your business; completing billable client work; attending major industry fact finding events such as ATSA? What potential is your existing IT technology and methodology preventing you from achieving? Have you ever put a dollar figure on it? Many firms do, many don't.

Desktop Hardware

Let's look a little deeper, but not much further, right in front our faces in fact. What are you doing at the desktop level in terms of hardware purchase cost, support and maintenance, capabilities, future upgrading and/or proofing?

What is your spend on desktop hardware? With a design life of 5 to seven years, zero maintenance costs, zero configuration plug and play setup abilities, support for peripheral USB and network devices, including allowances for printer and scanner costs, figures like these are very achievable:

  • Dual screen Thin Client with 3 year support program - $570
  • Dual monitors - $400
  • High speed duplex scanner, average cost per staff member - $500
  • Printer, average cost per staff member - $500

Total: $1,970 across a minimum of 3 years, or $657 per staff member per year. You may notice that anti-virus and other software such as Microsoft Office is not included. Those aspects are now able to be provided by the Cloud environment and are no longer tied to the hardware.

Taking the figures above, which are conservative examples that you are already likely to be ahead of, let's plug in some other real numbers that I have available as a supplier of Cloud services, IT support services, hardware supply and data links.

The below table produces a range of annual costings based on average sized accounting firms, from small to large. Plugging in average numbers for firms of these sizes we can extrapolate very meaningful results for a complete turnkey Cloud solution. Below figures include all aspects of a Cloud based IT solution - setup costs; hardware; core software; service delivery; full system, application and user support with appropriately sized, unlimited throughput data links.

The cost of Cloud computing

(averaged annual figures that will vary slightly depending on individual circumstances)

For small firms where the comparative cost per user is much higher in actual dollar terms, the alternative cost of a dedicated, shared or perhaps even 'distracted' IT resource is typically significantly much higher again. For example, it's not uncommon for us to be told that in a small firm someone will be spending up to 10 hours per week on IT issues. With an available 44.4 working weeks per year, that's 444 hours; or $71,040 at $160 /hour; $60,384 at 85% productivity. Or in other words, even in a worst case scenario and without considering the knock on effects of poorly performing IT on other staff, if you're spending more than 185 hours per year, or 4.18 hours per week on IT - less than an hour per day - you're losing significant amounts of money.

I'm frequently told that when looking at IT costs, Accountants only ever see a line item for an expense. But what would an IT system that relieved you of distractions, delivered stability and on demand availability with full flexibility and all those other Cloud benefits – what would that be worth, what's your measure of your own potential and is it possible to achieve figures of 2% or less as the cost of IT to your business? 

From here let's now look at the much vaunted percentage cost of IT to the business, but this time as a percentage against your potential income rather than your incurred costs.

Again assuming the originally discussed conservative work rate figures, let's now take the previous table's total cost of a Cloud based solution and compare it to the potential income of staff members achieving 85% productivity for an 8 hour day at $160 per hour. 

Cloud Expense as a % of Potential Revenue

These tables don't even go into the various additional savings also achievable with Cloud in areas such as floor space rental, power (typically about 30% off the annual bill), other hardware, software licensing, etc., but it can now be clearly seen that enormous savings are achievable when you realise your potential.

Certainly for larger firms the equation is very attractive and a no brainer in favour of Cloud solutions over on-premises IT. But for even the average sized firm, don't these numbers encourage you to focus more on your potential rather than your costs? What can you do to improve your billable rate? What can you do to improve productivity? How much of your time is lost to unstable and inaccessible IT and how much more of it could you turn into profitable outcomes via appropriately enabling technology?

Now this may all sound well and good I hear you say; "but it's purely hypothetical" and "your productivity number is way too high for us". Ok, so let's go to the industry figures published annually by Business Fitness in their Good Bad & Ugly survey. For 2014 they recorded an average hourly rate of $189 with a productivity figure of 66%. This returns a potential total revenue figure of $221,583.24 per FTE for our available 1776 hours per year. Reproducing the above table with these numbers we now see the following:

Cloud Expense as a % of Industry Average Revenue (Good Bad & Ugly based figures)

How do these numbers measure up against your own figures? 

Are you meeting your potential, via Cloud?

This article is more about questions than answers, because you have the answers. We only have the means of delivering them. We see this sort of dilemma nearly every day and we know many of you experience it. Find your answers, record your data, make better decisions for your business and achieve your potential. That sounds like something an Accountant would say rather than an IT company, but there you have it. 

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Peter Tobin Cloud IT