The last half a decade has seen the use of technology, particularly cloud-based platforms, skyrocket within the world of accounting.
As practices strive for greater efficiencies and deeper insights from the technologies they employ, assessing quantifiable Return on Investment (ROI) is becoming more important.
With so many solutions out there offering similar functions, firms are moving towards systems that focus on a single point of truth – rather than multiple, disjointed legacy systems that combined can create new challenges.
Just like any other investment, the benefits reaped from adopting these technologies should be quantifiable. ROI offers a metric that can help businesses gauge the profitability and efficiency of their investments in accounting technology.
Understanding ROI in Accounting Technology
Return on Investment in the context of accounting technology refers to the financial benefits that a company garners as a result of investing in accounting software, automation tools, and other technological solutions.
It is best calculated by considering the net gain from the investment, divided by the cost of the investment, expressed as a percentage.
The challenge lies in adequately quantifying these benefits and costs, as they often transcend straightforward monetary values and move into other key performance indicators (KPIs) such as time saved, and efficiencies gained. These can be hard to determine as they are sometimes less tangible.
Quantifying the benefits
The benefits of investing in accounting technology can be multifaceted, but these are some of the KPIs that firms often apply when reviewing their approach to technology:
- Time Savings: One of the main advantages of implementing accounting technology is the significant reduction in time spent on manual processes. You can quantify this benefit by determining the value of the hours saved and reallocating this time to more strategic tasks.
- Reduced Errors: Automation reduces the potential for human error in accounting tasks. The cost savings associated with avoiding such mistakes can be estimated by considering the possible financial losses that could result from inaccuracies and regulatory fines.
- Increased Productivity: With technology handling routine tasks, accountants can focus on strategic decision-making, potentially increasing productivity. This can be quantified by assessing the revenue generated from these strategic initiatives.
- Improved decision-making: Accounting technology provides real-time data and insights that can lead to improved business decision-making. Quantifying this benefit can be challenging, but one approach could be to compare the business’s performance before and after the implementation of the technology.
- Greater visibility: Integrating technology into a practice not only helps to streamline processes and workflows, but it also gives leaders greater visibility of where work is getting done and the time taken to complete work. This can be useful for looking at internal efficiencies beyond automation but also provides a useful tool for accountability.
Quantifying the Costs
Calculating the costs of investing in accounting technology is relatively more straightforward. It involves tallying up expenses such as:
- Purchase or Subscription Fees: This includes the upfront cost of purchasing software or ongoing subscription fees for cloud-based services.
- Implementation Costs: These encompass expenses associated with integrating the technology into your existing systems and processes.
- Training Costs: The time and resources spent on training staff to use the new technology should be factored into the overall cost.
- Maintenance Costs: Regular updates, troubleshooting, and technical support costs fall into this category.
Many technology projects have costs loaded onto the front end during the implementation process, which means that getting a clear understanding of true ROI is often best done once onboarding and training are complete.
Waiting and conducting calculations later will give you a clearer idea of the ongoing ROI that your practice can achieve and may help you benchmark different solutions in the future as you grow your technology eco-system.
Once you have quantified both the costs and benefits, calculating ROI involves subtracting the total cost from the total benefits, then dividing that by the total cost, and finally multiplying by 100 to get a percentage:
ROI = [(Total Benefits – Total Cost) / Total Cost] x 100 per cent.
An ROI greater than 0 indicates a positive return, justifying the investment in the technology. However, ROI is just one measure, and it’s essential to consider other factors, such as the strategic fit of the technology with your business objectives.
For example, high-growth businesses, with acquisition plans for the future may find greater value in a product that is easier and more cost-effective to scale.
How FYI is helping
Understanding and quantifying the intangible benefits such as efficiencies gained and time saved can be challenging, but we feel that it is important to be open and transparent about the savings that our platform can achieve.
That is why we have summarised our key ROI with three simple facts:
- 20% – time savings within the first three months
- 2+ hours – saved on every compliance job
- £1.75 or less per user/per day
These KPIs have been determined by working with countless firms in the UK, who have fed back to us on their personal experiences of using our platform.
Our KPIs and ROI, in general, offer a powerful means to evaluate the worthiness of an investment in accounting technology.
By carefully quantifying the costs and benefits, businesses can make more informed decisions, ensuring their investments yield value and support their growth trajectory.
This article is part of our ongoing industry insights column on AccountingWeb. To enjoy more of our latest insights, please visit www.accountingweb.co.uk/fyi-docs