Insights from Xero’s Faye Pang on the Resilient Canadian Small Business Sector

Insights from Xero's Faye Pang on the Resilient Canadian Small Business Sector

In our recent interview with Faye Pang, Canada Country Manager at Xero, we delved into the findings of Xero’s State of the Industry Report. The data showcased the resilience and economic health of Canada’s small business sector, especially against the backdrop of inflation and potential interest rate hikes. Interestingly, 70% of small business accountants and bookkeepers have seen revenue growth, with 56% ascribing this rise to a growth in their clientele. This hints at a burgeoning demand for accounting services in Canada, a trend set to shape the months ahead. As the sector evolves, many firms are pivoting to incorporate client advisory services and value-based pricing, reflecting a shift in the accounting landscape and pointing towards significant growth potential. The report also underscores the pivotal role of cloud solutions in fostering flexible work setups and attracting skilled talent. Moving forward, cloud technology’s significance can’t be overstated, but accounting firms should also be attuned to other emerging tech trends. Given these industry shifts, the future looks promising for Canada’s small business advisor sector, though they should be prepared for both the opportunities and challenges that lie ahead.

Faye Pang is the Canada Country Manager for Xero, the global small business platform dedicated to making business beautiful. Prior to joining Xero, Faye helped launch the Uber Eats app in Toronto in December 2015, scaling the business from 80 restaurants on launch day to 20,000 partners by the end of her tenure.

With the recent release of Xero’s State of the Industry Report, what do the findings reveal about the economic health and resilience of Canada’s small business sector, especially in the context of ongoing inflation and potential interest rate hikes?

Xero’s State of the Industry Report reveals that Canada’s small business sector is both resilient and crucial to the country’s economy. The report shows that many of the small business bookkeeping and accounting firms we spoke with reported higher revenues and new clients being added to their portfolios. To us, this says that Canadian small businesses are becoming more sophisticated by engaging with advisors to help them manage and grow their businesses.

A driving factor in the growth of the small business advisory industry is the economic environment. Over the past couple of years, SME owners and operators have had to stay hyper-vigilant and pivot on a moment’s notice, leading many to look to accounting and bookkeeping partners to ensure they’re making the right decisions when it comes to optimizing their cash flow, digitizing their operations, and more. With these new tools and partners supporting their decision-making, Canadian SMEs can continue to navigate the macroeconomic storm.

The report indicates that 70% of small business accountants and bookkeepers experienced revenue growth, with 56% attributing this growth to an increase in clients. What do these trends suggest about the demand for accounting and bookkeeping services in Canada, and how might this demand evolve in the coming months?

It’s exciting to see that the revenue growth and client numbers increased across the board in Canada’s SME bookkeeping and accounting industry. What’s even more exciting is the fact that 70% of the practices we surveyed saw an increase in profits overall.

We see demand for small business advisory continuing to grow over time. Increasingly, small business owners are realizing that they can’t do it all alone, and relying more on professional services to help. We think this is a really good thing because it will enable small business owners to spend more time working on their business, vs. just in it.

What factors are prompting practices to incorporate client advisory services or adopt value-based pricing, and how are these shifts reshaping the offerings of accounting and bookkeeping firms in Canada, especially given their heightened growth potential?

Through this survey, we found that 66% of respondents listed providing clients with confidence as the core reason why they now offer client advisory services. This is in line with our other findings as it confirms that Canada’s small business owners and operators are increasingly looking to advisors for strategic recommendations.

On top of that, value-based pricing models are coming into the picture more as practices move away from billable hours. While charging for billable hours is still the most common method used by the practices surveyed, more organizations are incorporating fixed-fee per time frame or fixed-fee per piece of work as models.

We think this evolution from time-based billable hours to value-based pricing is a natural transition as firms increasingly level up the value they deliver to their clients. By using technology to automate low-value repetitive tasks and analyze vast reams of data quickly, advisors are able to free up time to provide true insights and advice. This is a benefit for the entire SME ecosystem as it means that owners are increasingly working with their accountants and bookkeepers as strategic business partners.

Cloud solutions have been instrumental in supporting flexible working arrangements and attracting talent, as noted in the report. How critical will cloud-based tools be for accounting and bookkeeping firms moving forward, and what other technological trends should these firms be mindful of?

Usage of cloud software is still relatively new in the industry but has increased greatly over the last few years. The practices we spoke with reported that 45% of their workload is now performed using cloud software and more than half have been using cloud-based tools for more than three years. We see the cloud as the future for accounting and bookkeeping professionals.

As for new technologies for firms to pay attention to, AI is firmly on our radar. As AI continues to evolve, practices should aim to understand how this technology can help them automate their business processes. Artificial intelligence is slated to become more widespread across every industry, and the small business accounting and bookkeeping industry should stay on top of it so it can take full advantage of its benefits.

Considering the significant changes observed in the industry, what is the outlook for Canada’s small business advisor industry for the remainder of the year, and what challenges and opportunities should practices prepare for?

The outlook for Canada’s small business advisor industry is positive and will feature even more practices adopting value-based pricing and client advisory services as part of their business. The practices we surveyed that already provide these offerings agree that they benefit both their firms and their client bases as well. This points to the likelihood that there will be additional growth in these areas.

On top of that, cloud adoption is slated to continue to grow as the value of this technology becomes more widely understood across the SME advisor industry. Survey respondents attributed cloud software to key growth metrics like employee retention and improved client satisfaction. It’s important to keep in mind that while there has been an uptick in the number of practices moving to the cloud, we still see a large area of opportunity for the small business accounting and bookkeeping industry to benefit from cloud adoption this year and beyond.

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