In this week’s accounting news roundup: how tax season could be extended by 5 weeks, the latest QuickBooks updates and problems with new usage limits, Louisiana gave out $26 million in extra tax refunds by accident, why you need to be concerned about tech companies offshoring your client data, Canopy laid off 40% of its workforce, and more
- 00:08 -- We got some reviews! Please do us a favor and give us a review on iTunes.
- 02:08 -- Might tax season be extended to make up for the partial Federal government shutdown? Two house Democrats have introduced a bill to extend the tax-filing deadline by 5 weeks.
- 03:51 -- Now you can track your team’s labor costs in QuickBooks Projects.
- 05:08 -- New limits in QuickBooks Online are causing some angst for ProAdvisors. Research from APQC suggests that Intuit set the limit on accounts in the Chart of Accounts too low. Also, the messaging by Intuit as to why they implemented limits seems rather disingenuous.
- 11:54 -- The State of Louisiana accidentally double refunded about 66,000 taxpayers, resulting in about $26 million in overpayments the state is working to claw back.
- 14:25 -- Speaking of problems caused by software, those Boeing 737s might be crashing due to a delayed software update.
- 17:05 -- Why is Blake so concerned about Botkeeper and the failure of many tech startups serving the accounting profession to disclose the offshoring of client data? Because as a listener pointed out, the Internal Revenue Code forbids disclosure of tax return information, which could include bookkeeping data, to anyone outside the firm without express written consent. There are even potential criminal penalties.
- 22:51 -- Is Gappify another Botkeeper? The firm claims to have built an AI bot called “Alan,” but it looks like they’ve got accountants in Manila doing the same work.
- 25:34 -- According to a survey from London venture capital firm MMC, 40 percent of European startups that are classified as AI companies don’t actually use artificial intelligence in a way that is “material” to their businesses.
- 29:02 -- Canopy, the tax practice management software developer, laid off nearly half its staff, despite just a few months ago expanding into a huge new headquarters while saying it planned to double in size. Here’s the post by the CEO and founder, Kurt Avarell, on LinkedIn.
- 32:13 -- David recommends anyone following the Canopy story read The Hard Thing About Hard Things, by Ben Horowitz.
- 33:50 -- A fun and enlightening conversation ensued on Twitter after Accounting Today published an article called “Why is your firm worth less than you think?” that makes no mention of technology. "Partners at CPA firms are often surprised to find out that the recommended value for their owner’s interest is less than their notions of what the practice would be worth in a sale." Here's why a firm may be worth less than you think. https://t.co/NS5Ld3V1pT— Accounting Today (@AccountingToday)
Get in Touch
Blake Oliver: Welcome to The Cloud Accounting Podcast. I'm Blake Oliver-
David Leary: And I'm David Leary. Blake, I heard we got some reviews, and I only know this because I don't have an iPhone, so I make my daughter check every morning, when we drive to school, on her iPhone, the reviews. I think we got three this week, and you get to read 'em.
Blake Oliver: Yeah, it's funny. You can't see iTunes reviews unless you have an Apple device, or you download iTunes for your PC, which I hear you don't wanna do that.
David Leary: As a service [00:00:30] to our listeners, if you read the reviews for all the people that don't have iTunes, like me, now you get to hear what the reviews are.
Blake Oliver: Yes. We got three reviews. Thank you so much to our listeners. We got a review from mm n cali: "What a great podcast. Fine for staying up to date on all things accounting. I especially have appreciated the accounting-app-news updates. Keep those coming." Thank you so much for listening.
Another review from rdxb1: "Blake and David do an amazing job informing the listeners of changes in the accounting industry, with the latest [00:01:00] technology, and the podcast is produced very well." Oh, well, thank you for noticing! Finally, we got a review from zolli125: "Blake and David do a great job keeping up on the news and have a great discussion every week." Thanks, Zolli, for listening.
I have one more. I can't forget Caleb Jenkins gave us a review, back in February. He said, "If you only have time for one podcast to listen to, I wholeheartedly recommend The Cloud Accounting Podcast by David Leary, and Blake Oliver. They cover the best news in the accounting profession each week, and they do it in a very engaging mechanism."
Thank [00:01:30] you, Caleb, and thank you everyone else who left a review. If you wanna leave a review, go to iTunes. Give us five stars, or however many stars you think we're worth. David, where else can people leave reviews?
David Leary: Facebook. You can go to our Facebook page, and you can leave a rating there. They've kind of buried it, now. It used to be top, and center on Facebook. They're always moving it around ... You can go there, and find, and leave a review there. I think you can leave a review on Spotify now. I'm not positive.
Blake Oliver: The reason we ask you to do that is because these services use the reviews to [00:02:00] determine if they're gonna recommend us to other accountants. If you wanna help us spread the good word about cloud accounting, give us a review, and we'll read it on the air. With that, David, I think we got some follow-up from a story last week, right?
David Leary: Yes. Last week I reported that there was two lobbying groups for taxpayers. They were lobbying to have a 30-day extension for the tax deadline-
Blake Oliver: Tax season. Oh, wow ...
David Leary: Tax season, and we kinda loosely joked, like, oh, that's gonna ... Accountants better cancel their vacations, and things like that. Well, this may not be [00:02:30] such a joke anymore. Officially, a pair of House Democrats have introduced a bill to extend the tax deadline until May 20.
Blake Oliver: Oh, no.
David Leary: This is a real news story now. It's not just ... It's a real possibility that's on the table now. It's no longer a recommendation.
Blake Oliver: Buy that trip insurance, if you've got a trip booked in April, or May. Why should they have to suffer because the government couldn't get its act together?
David Leary: As part of this bill, do they give bonuses to accountants that work more? It'll be interesting to see where this goes. Did it say, were they ... Was it bipartisan? Pair [00:03:00] of House Democrats ... Okay.
Blake Oliver: This is kinda partisan, right, because they're blaming the Republicans for the shutdown. I doubt the Republicans in Congress will support this, because then, that would admit the shutdown that caused the problem right. So we'll see. My guess is it doesn't go anywhere.
David Leary: Some things are kind of somewhat illogical. Their argument is ... They're contending that the extra five weeks would help ensure taxpayers have online tools they need to file the returns electronically, to avoid last year's breakdown, which was one day. [00:03:30]
Blake Oliver: Yeah, one of the issues you brought up was the fact that the IRS wasn't answering most of the phone calls they got, well, definitely during the shutdown, but even after. They were still behind. They were answering like 40 percent of their calls, or something?
David Leary: Yeah. Ultimately, it's still the perfect storm - new tax-law changes that have never been in place before, combined with a lack of IRS staff to answer the questions. Extending this deadline maybe just creates another storm.
Blake Oliver: With that, why don't we turn to some software updates. QuickBooks has an update, right?
David Leary: Projects has gotten deeper, if that's the right word I [00:04:00] wanna use for that. Projects is for customer jobs. You're doing a project work for individual customers. You can track that and get a P&L by each customer job. Now, it'll do your team's labor costs, as well.
Blake Oliver: Got it.
David Leary: Tying back through TSheets and tying back through Intuit payroll. That's a big add to the project's feature.
Blake Oliver: Just to make sure I'm clear, because I haven't used it, myself, Projects is a separate area in QuickBooks Online, so stuff that I used to use classes for, I could now use Projects to track. Is that the idea?
David Leary: Yeah. Like in the QuickBooks Desktop [00:04:30] days, you'd have customers, and you'd have sub-jobs, and you'd put everything into sub-jobs. That could also get messy, too, because you might have ... Maybe you're a T-shirt print shop, and you have a returning customer that comes over, and over again, and gets different kinds of custom things printed. All the sudden, you have like a 100 sub-jobs underneath that customer. That's kinda weird, when really these are truly projects, individual projects you're doing, that you wanna track; especially if they're big- they get to be bigger projects, right?
Blake Oliver: Mm-hmm.
David Leary: You wanna get a separate P&L for those, and then you don't have to use a class to do those.
Blake Oliver: Right. Okay. Got [00:05:00] it. Well-
David Leary: Which is important now, because you don't wanna use your classes, because if you use too many, you're forced to upgrade to QBO Advanced.
Blake Oliver: Oh, yeah, and we should talk about that. It was interesting, I connected two stories in our last two episodes that I thought were unrelated but ended up being very relevant. Let me go back in time. Two episodes ago, we talked-
David Leary: Do you have a sound effect for that?
Blake Oliver: Yes ...
David Leary: Okay, we go back in time ...
Blake Oliver: Right, we're going back in time. We talked about the limits, the new limits that Intuit has put into [00:05:30] QuickBooks Online for anyone who's not on their new Advanced plan, which is relatively expensive. I think the list price is $150. You can get it discounted for something like 80 or 90 bucks, but that's way more than QuickBooks Plus, or whatever, the $30- to $60-a-month plan that people are used to paying for, right?
David Leary: Yep.
Blake Oliver: They put in these new usage limits that never used to be there in the lower-tiered plans that limit the number of classes you can have to 40. That was something that you were bumping up [00:06:00] against, David, because you were using classes to track all of your events that you are doing for your new company, that sorta thing?
David Leary: Yeah, conferences, and-
Blake Oliver: Yeah. You don't wanna use a customer for that, because it's not a customer; it's a project. You were using classes, and you got stuck, because now you can only have 40. Well, in addition to that limit, and actually, I think it's 40 for combined classes, and locations. Am I right on that? I can't remember.
David Leary: Yes. Yes [cross talk]
Blake Oliver: -that could really limit you. Then, you are limited [00:06:30] to 200 accounts in your chart of accounts, which are 250-
David Leary: I see where you're going. Yeah, because where we had the episode we talked about the limits, and then, in a different episode, following that episode, you talked about the number of average accounts in the chart of accounts.
Blake Oliver: ... We talked about the limits, and, at the time, I was like 250 in the chart of accounts, no big deal. Most people aren't gonna have that many, right? Well, I ran into a chart from APQC, a benchmarking not-for-profit that surveys [00:07:00] businesses of all sizes, all over the country.
They came out with a stat last month about how many accounts the average company has in their chart of accounts. Most businesses in this country have more than 200 in their chart of accounts; something like at least 75 percent, if not more than that. I don't have the chart in front of me, but I think it was the top 25 percent of businesses had 250 or fewer, and the other 75 percent had more than that, up to thousands, even.
This [00:07:30] is a problem, because there are lots of businesses now that are exceeding this chart-of-accounts limitation, but they don't really need all the so-called advanced features in QuickBooks Online Advanced, which up to this point, really only include 25 billable users.
I looked at my own chart of accounts - my personal file - and I had something like over 200. I'm wondering who came up with this limit. Probably not an accountant is my guess. There's been a lot of chatter on Facebook groups that I'm in, [00:08:00] QuickBooks Facebook groups, where people are really upset about this, and some of them are moving completely off of QuickBooks Online, and back to Desktop because of it.
David Leary: Yeah, that's the ironic thing in this. I've seen some of these comments in these threads on Facebook, and even on Twitter, it was discussed a little bit, in QBO Chat, yesterday. It's almost backfiring. The whole point of these limits in the new QuickBooks Advanced is to get people off of QuickBooks Desktop Enterprise into the cloud. Get them on QBO, and, obviously, to compete for other enterprise products. It [00:08:30] feels like these limits are just ... They're just not rolled out properly. It's putting a bad taste in people's mouths.
Blake Oliver: Yeah.
David Leary: I also get why they're doing it, because you're gonna move people from $40 subscriptions to $99 subscriptions-
Blake Oliver: Yeah, but ...
David Leary: -it makes sense, from a math perspective; from an Intuit boardroom perspective, it makes a lotta sense.
Blake Oliver: I guess so, but it's not gonna help them converting people from Desktop to Online, that's for sure.
David Leary: It gives the Desktop people another excuse not to move to cloud.
Blake Oliver: It would really, really annoy me, if I were a ProAdvisor, and I had moved everyone from [00:09:00] Desktop, to cloud, to Online, when there weren't any limits, and now, suddenly, they're putting limits on me, after the fact? I feel like, at the very least, this should have been for new customers only. To put it in retroactively is bad business practices. That would piss me off.
The rationale for adding these limits on their official QuickBooks page is really disingenuous, if you ask me. I'll read it to you, okay? Under, "Why are we adding limits?" it says, "Our goal is to make [00:09:30] sure that your product meets your needs. Usage limits help ensure that, as your business grows, you're using the version of QuickBooks that has all the tools you need to get deeper insights, save time, and be more productive."
David Leary: That's marketing speak ... Yeah, that's marketing speak, for sure, but that actually came up in the QBO Chat, yesterday, as well ... Apparently, there's some grandfathering, but even that's confused, because somebody said, "Oh, you just ... If you're grandfathered in, you're grandfathered in," and somebody else said, "Oh, no, if you've already exceeded it, it's okay, but [00:10:00] you just can't add extras [cross talk] If you have 48 classes, this goes implemented, you can't add class 49.
Blake Oliver: You can't do anything. Yeah, that's stupid. What a mess. I think the thing that makes it worse is the fact that QuickBooks Online was rolled out, or QuickBooks Online Advanced was rolled out with really not much that actually differentiated it from any of the other plans. At first, all you got was more than five users; you got up to 25 simultaneous users, which like, "Okay, big whoop!" Most businesses don't need 25 simultaneous [00:10:30] users in QuickBooks, even if they're on Desktop.
They added in Smart Reporting powered by Fathom, so you get a free Fathom subscription, worth $39 a month. Okay, great ... If I already wanted Fathom, I'd probably already have it, right? Then, they have, now, custom user permissions. They still haven't really done anything that makes it like QuickBooks Enterprise, which is what I assume QuickBooks Online Advanced is supposed to be: the new online version of Enterprise.
David Leary: This is not a strategy that Intuit hasn't used before. It was there with Desktop, but the limits [00:11:00] were ridiculous. I think, if you had ... If your limit was like 9,999 customers, and then, once you ... If you needed 10,000 customers, you had to move to QuickBooks Enterprise. You literally had to have some major numbers to do that.
It feels like these numbers are just too low, based on the average number of chart of accounts for most businesses in America. A schmuck business like me, that's teeny-teeny-teeny ... I have 40 classes. The numbers just feel too low. They just feel way too low for what everybody [00:11:30] would generally say is an enterprise. I just find it really ironic that it's just giving fodder to the Desktop lovers, more reasons not to move to the cloud, which is just [cross talk]
Blake Oliver: That's what makes me sad, too, right? We're a podcast about cloud accounting, and here is the biggest player in the space giving people a reason not to switch.
David Leary: Another crutch. Ah, yes. Hopefully, it'll stop soon. One of these days.
Blake Oliver: All right, what's next?
David Leary: Back to taxes, I guess. Louisiana is working to recover $26 million in [00:12:00] improper tax refunds.
Blake Oliver: What happened?
David Leary: Jacques Berry is a spokesman for the Division of Administration, which oversees the state's technology office. Berry blamed a computer-system error for the mistake, which paid 66,000 taxpayers twice for the refunds they were owed.
Blake Oliver: Wow.
David Leary: My gut says this is not a computer-system error. My gut is that somebody ran a process to kick off the refunds, and then somebody else walked by, and, "Did the process get done?" "I don't know." "Hit send ..." and [00:12:30] they sent the same thing ... This is kind of like a batch of ACH transactions. Now, they did say that they figured it out, and because it's almost all ACH, they were going to go, and pull it out of people's accounts.
Blake Oliver: Sorry to interrupt, but, what if ... You know how when you are putting in your credit card to pay for something; you're supposed to just click once?
David Leary: Yes.
Blake Oliver: If you click twice, you might get charged twice ... What if that's what happened here? Somebody was running the batch, and they clicked "Process" and they didn't think that it worked, and [00:13:00] they just clicked it again. To me, it's human error, but it's also software error, because the software should not let you run the same batch twice in such close sequence.
David Leary: Especially for the important thing like that.
Blake Oliver: Right.
David Leary: The money going out, usually you wanna have, "This was ran already once today. Are you sure you want to run this batch a second time?" ... It just goes back to wasn't the IRS sending out ... They had no control over million-dollar checks that were going out. Apparently, these tax agents have no [00:13:30] control over the money leaving, now.
Blake Oliver: In one of our previous episodes, I don't remember which one, recently, we talked about how the IRS internal controls only flag tax refunds over a ridiculous amount of money; it's like $2 million. There was this guy who decided to defraud the IRS. He said that he had paid a million dollars, or something like a million dollars in taxes, and he only had $20,000 of income. They sent him a check for $980,000 or [00:14:00] something like that, automatically. Who is running internal controls? I mean, there just aren't any at these tax agencies.
David Leary: It makes you wonder ... Can you just send an email that said, "I paid my taxes," and they'll say, "Okay, he paid ..." They don't actually have any control to see if he paid, or not-
Blake Oliver: This is because we have a self-reporting system. It relies on people being honest, and when they aren't ... I don't know, we don't ... Our system can't handle it. Anyway, I have something related to this, David; this actually made me think of something.
David Leary: Okay.
Blake Oliver: I don't know, have you been following the news [00:14:30] about the Boeing 737 Max that crashed?
David Leary: Yeah, so there's the two crashes. Some countries wanna ground it, and then, finally, The States wanted to ground it.
Blake Oliver: There was an Indonesian, I believe ... Indonesian Airlines flight that crashed a few months ago; then, recently, the same plane crashed in similar- somewhat similar circumstances, in Ethiopia; Ethiopian Airlines, which is - I didn't know this - a world-class airline. This would be like, imagine if a Delta plane crashed, here in [00:15:00] the US.
I started reading about it last night, because I was wondering, is there something wrong with the planes, because the US has now grounded all the planes, too. Everywhere in the world, they're all grounded. Apparently, there was a software update that was due in December that had been promised by Boeing to the pilots, and they were running late on it. They had pushed it out to April.
I have a horrible suspicion that it was a bug in the software [00:15:30] in the plane that caused both of those planes to go down. I don't know that but based on the circumstances around this update that they'd been asking for, that wasn't done, it's possible that that a software bug literally caused a plane to crash.
David Leary: I think I remember hearing something about something changed in the auto pilot-
Blake Oliver: Well, yeah, these planes are so automated now, when they take off, the pilot doesn't touch anything, most of the time. They're just watching, and monitoring. If something goes wrong, like if there's a bug, and the [00:16:00] plane goes outta control, they don't have a lotta time to react.
Anyway, the reason this is related is because I think so much of our lives now is run by software, right? Not in our profession, but in the world at large. If we can't keep control over this software, then it literally will kill people, or it will give them millions of dollars of refunds that they shouldn't have had. It's a fascinating ,and terrible, tragic situation [00:16:30] that could have been prevented by a software update being delivered on time.
David Leary: I think the original part of it is there was a change of behavior that maybe wasn't ... They didn't communicate it out, so, pilots discovered some weird- Acceleration's not the right term here. but there was some acceleration problem, if you wanna call it that, but pilots ... The plane wasn't acting the way they expected it to act, because it wasn't communicated to them that, "Hey, there's a behavior change in the plane."
Blake Oliver: Right, right.
David Leary: Even if there's a software that goes out without [00:17:00] a bug, how do you stay on top of the communications, and know what the changes are?
Blake Oliver: Anyway, getting back to accounting, I wanted to talk about something really exciting, David - the Internal Revenue Code.
David Leary: Everybody can hit "Skip 30 seconds" if you want, right now-
Blake Oliver: No, no, no, wait, wait [cross talk] hear me out, before you skip, okay?
David Leary: Got it, got it. Okay.
Blake Oliver: Before you skip, let me tell you what I'm talking about. I'm talking about I.R.C. Section 7216. The reason I got into this ... I'm not a tax person, so I very rarely read the I.R.C., other than [00:17:30] to pass the CPA exam. A listener was following the Botkeeper story.
If you're a new listener, highly recommend you go back, and check out the Botkeeper episodes that we did recently, all about my concerns. David, you have these concerns, too, right, about confidential client information being sent potentially offshore, without being disclosed, and software companies needing to be disclosing this to CPAs if they are, in fact, using offshore labor. Don't wanna get too much into that, but I wanna talk [00:18:00] about this law.
This listener, he was listening to the Botkeeper story. and he said, "Well, you know, there's a really good reason to be concerned about this, as a CPA, and it's because in the I.R.C. Section 7216, there are actual criminal penalties for disclosing tax-return information, information used in connection with preparing a tax return, to anyone - anyone, anywhere - without getting permission, explicit permission, from your clients to do so. The penalties [00:18:30] are potentially really stiff, and this is not something that is often enforced; it's a law that was written back in 1971, but it's still on the books, and it could still be applied.
Just to give you an idea of this, if you are convicted for disclosing tax-return information without permission, improperly - it has to be reckless, and intentional - you can be fined not more than $1,000, or imprisoned not more than one year, or both, for each violation. Each [00:19:00] client - up to a year in prison. There's also a civil penalty under a different I.R. C. Section, 6713, of $250 per incident that doesn't require that the disclosure be knowing, or reckless.
Just in case you think that you might not be subject to this, because you don't prepare tax returns, tax-return information, under the code, is all the information tax-return preparers obtained from tax payers, or other sources, in any form, or manner that is used to prepare tax returns, or is obtained in connection with the preparation [00:19:30] of returns, which, I'm not a lawyer, but to me, the QuickBooks file, the accounting data, is part of that, right? You can't prepare a tax return without your trial balance, without your general ledger, can you?
This is why accounting-software companies need to understand the strict disclosure requirements around client information, and where it goes. Accounting firms have to be upfront with their clients and get their explicit permission to send this information to anyone else, [00:20:00] and especially, if it's going offshore.
David Leary: That's the big disconnect. Software companies, and apps don't have to disclose it to their customers, but accountants, and CPAs need to disclose it to their clients. That's the disconnect. At some level, yes, any of you software developers that are listening, take note, but, another level, any of you CPAs, and accountants that are out there, you have to be asking these questions.
Blake Oliver: For anyone who's interested in reading more, [00:20:30] there is a link to the IRS Frequently Asked Questions page that I used to figure out what this all means in our show notes. One more thing I forgot to add: there is an explicit provision about offshore labor in the law that says if the other tax-return preparer is located out of the United States, or any territory, or possession of the United States, the taxpayer must agree, and sign a form consenting to the disclosure.
David Leary: You said that this was all written in 1971?
Blake Oliver: Yeah.
David Leary: I wonder what drove this. People just don't invent these laws, [00:21:00] and start making them up. Usually, there's a ... Something took place that caused somebody to write this law.
Blake Oliver: To me, it makes sense. Tax-return information, as we all know, is very personal, and private. Donald Trump doesn't want his tax returns to be seen by the American public, right? I don't want my tax returns to be out there for anyone to review. I think it's legit. I should know if I'm ... If you're my tax preparer, David, and I give you my social security number, and all my personal information, and my financial information, you should have to get my permission to go, and disclose [00:21:30] that to anyone else outside of your firm.
David Leary: Yeah, because, in theory, the basic trust ... Your realistic expectation, as a client, is, "Hey, I just gave it to you, in your office, and your employees."
Blake Oliver: Yes, exactly.
David Leary: There's logic there. Okay.
Blake Oliver: It's completely reasonable. That's why companies like Botkeeper that talk a big game about using AI, and artificial intelligence, and your data never leaving the United States ... They sell [00:22:00] this service to CPA firms, but then, they actually have an office in The Philippines. They say that the office in The Philippines only does admin work.
Well, if you have a CPA firm that doesn't know about this, and apparently, there are a number of them who didn't, then they have shipped confidential client information, tax-return information, offshore, and they are at risk of criminal penalty; at least civil penalties, and not just under the I.R.C., but also many states. California, [00:22:30] for instance, prohibit this, unless you get written permission. That's my rant for today on that topic.
David Leary: I think you mentioned you came across another ... The reason it's important is that now that this is in your Google search radar, you're getting ... There's another company that's kinda similar, with a robot, or something.
Blake Oliver: Yes! This is not ... I'm not just on a mission to destroy a company, okay? To me, this is a much bigger issue than Botkeeper. I think that this is actually a [00:23:00] problem potentially with many companies in this space that handle client information on behalf of accountants. I was surfing the internet yesterday, literally yesterday, and I came across a site called Gappify.com - G-A-P-P-I-F-Y dot com - and I thought to myself, "The bots are multiplying," because the way Gappify sells itself is "bots for accountants, by accountants." It's this company that claims to have created a bot. They [00:23:30] give their bot a name. It's Alan. They say that, "Alan automates manual repetitive tasks and can be deployed in days (not months)."
They talk about how you add Alan as a user in your system. You have a short meeting with a Gappify CPA, who then configures Alan, so that Alan can do all your tasks for you. The tasks that Alan does, there are three areas. It's accounts payables, like vendor set-up, and on-boarding, answering vendor-payment inquiries, open [00:24:00] PO accrual, and maintenance. They do accounts receivables, such as collections follow-up, and escalations, and then, general-ledger stuff, such as recording, and estimated accruals, and handling re-classes, and all this stuff. Now, David, does this sound like stuff that an AI can actually do today, given the current state of AI?
David Leary: Not fully. I think it's that robotic process-automation stuff, right? They're gonna work with you to ... Somebody has to customize this, and do this, but it feels like ... Looking at some of their videos, they only do some A/R collections. [00:24:30]
Blake Oliver: Right, but ...
David Leary: That's all I could tell that they do, actually. They say they do all this other stuff, but, as far as I can tell, it's just A/R collections work. They're sending out emails to tell people to wait.
Blake Oliver: Yeah, and we know there are automated systems for doing collections, but, even in the video ... I watched this video. They do have a NetSuite collections demo, where they plug into NetSuite. It looks like a human is controlling the cursor. I don't see ... I don't see the bots. There's no video showing the bots.
I actually did a LinkedIn search, because I was like, "No, they can't be ... Are they using ... Do they have an [00:25:00] office in The Philippines?" Yep, they've got people in Manila. They even have a job posting on their website - they're less sneaky than Botkeeper was - where they're hiring for accounting administration in Manila. They say they are looking for a detail-oriented accountant to manage Gappify's accounts-payable, accounts-receivable, and payroll functions. Why would they need to hire a person to do that, if Alan, the bot, does it? I don't think Alan is real.
David Leary: Got it. Which I think there was even an article I saw on Twitter - something about Europe AI companies, [00:25:30] like 40 percent have no AI at all.
Blake Oliver: Oh, I'm so glad you brought this up. Yeah, this was a big story this week, and I almost forgot about it. 40 percent, according to a report ... 40 percent of AI startups in Europe don't actually use AI.
David Leary: This is The Verge reporting this, which is really super-mainstream tech [cross talk]
Blake Oliver: Tech journalism, yeah. The survey they're citing was done by a VC firm called the NMC. NMC studied [00:26:00] something like 2,830 AI start-ups in 13 EU countries, and said that 40 percent of them ... In 40 percent of the cases. they could find no mention of evidence of AI.
To me ... I don't know, I haven't dug into the study. but that's like me going to Gappify, or Botkeeper, and looking for videos. I'm like, "Okay, show me the bots. Show me the bots," and there's no videos of any bots. There's no evidence that there are actually any bots, and, in all likelihood, it's just human beings, also known as Mechanical Turks - Go [00:26:30] look that up on Wikipedia. It's fascinating - doing the work, and these companies are selling it as AI. It's a humongous scandal. I think it will be.
David Leary: Yeah, European start-ups, but eventually, it'll be US start-ups in some similar article. It'll be interesting to see who's going to investigate this deeper.
Blake Oliver: If 40 percent of European AI startups are fake AI, then what do you think it is in the US? I would imagine it's 40 percent. It's not like we're more ethical in the tech world than in Europe. If [00:27:00] anything, potentially less, because there's less regulation.
I hope that somebody digs into this, and figures out what is really going on, because I think there is a lot of shady activity going on. Yeah, so what? If you're not handling confidential information, then, okay, fine, go have your fun, and buyer beware; but when it's CPA firms that you're serving, and this is confidential client information - social-security numbers, tax-return information, general-ledger information, customer lists, vendor lists, you [00:27:30] gotta be careful with that. There must be standards.
David Leary: I have a question, and I don't have a ton of knowledge of the Big Four, but I do understand the Big Four. They're gigantic, and they have employees all over the world.
Blake Oliver: Yeah.
David Leary: Are they really good about disclosing, like, "Hey, you know, this week, somebody over here might be looking at your data, and they're in a different country." Are they really good about that, or is it just kind of like people just assume they must do that, because they're just the Big Four?
Blake Oliver: Well, for them, it's different, because ... Let's say you're KPMG. They have an office ... They have multiple [00:28:00] offices in India, where they do this sorta work, and it's them. It's not like they're offshoring it to a third-party provider.
David Leary: Okay, so this only matters if it's third-party not [cross talk]
Blake Oliver: Yeah, it's your firm ... I don't know the legal of it, because obviously, it's different entities, and whatnot, but the key is it's not that it's wrong to disclose this stuff to third parties, and it's not wrong to offshore it. That's not the problem here. The problem is when you do it, and you don't tell your clients, and you don't get their explicit permission to do it. That is when you are at risk of civil, and criminal penalties. Companies [00:28:30] that don't disclose the offshoring to the CPA firms they serve are putting them at serious risk.
David Leary: All right, so, accountants, and bookkeepers, that's the lesson - you have to be aware of this, and ask this question to every [cross talk]
Blake Oliver: I think we have to, because we can't trust them.
David Leary: Not just apps, any services you sign up for that could touch your client data. Even, I would argue, if you're doing marketing automation, and other ... Maybe it's not direct client data, but I could see this umbrella being tossed out there as kinda big, if there's [00:29:00] any P2 information getting out there. I guess some other news ... Let's see, what else do we have here?
Blake Oliver: You had some news about Canopy.
David Leary: Yes, Canopy. Canopy makes software for tax accountants. I think they have about 30,000 ... I don't know if it's accountants, or firms that use it-
Blake Oliver: It's practice-management software, right?
David Leary: They manage, yes, your client workflows.
Blake Oliver: Got it.
David Leary: They started out, I think, a little niche. It only handled one use case, and then, it kinda got into a bunch of other use cases. Then, they were gonna actually start [00:29:30] doing tax-prep- true tax-prep work. They were gonna build that and roll that out.
Blake Oliver: Actual, not just practice-management software, but actual software to process tax returns.
David Leary: Exactly. You'd never have to leave their app kinda thing [cross talk].
Blake Oliver: Got it. That'd be great.
David Leary: They've been growing ... Up to this point, they've been growing really well. I've not used their software, but I'm in this space; you see them, and I'm like, "Oh, Canopy's doing pretty good. They keep growing ..." Even in January, they announced that they moved into their new headquarters in Utah. They were gonna double their workforce. This [00:30:00] is January. This is what? 45 days ago? This week, they laid off half of their staff; 40 percent of their staff.
Blake Oliver: Wow. Wait ... They leased this big office space. They obviously think they're gonna keep growing ... How many square foot was it- feet? It was like 60,000 square feet, or something, or more than that? It's a lot.
David Leary: Yeah, there's a good article on Accounting Today that's pretty deep about it.
Blake Oliver: Then they had to lay off ... You know what this sounds to me like? It sounds like they were overly [00:30:30] ambitious with their hiring, and then, the growth just didn't keep up with that, and they had to scale back.
David Leary: I think I saw on-.
Blake Oliver: Most of the layoffs were in sales, and marketing, I think.
David Leary: That's what I saw, as well. I think somebody said it was 85 percent of the sales staff, possibly, got laid off. It's interesting, because Accounting Today has a quote from Glassdoor, where somebody was saying that ... A former employee was saying, "If they didn't spend so much money on the new building, and ping-pong tables, and all that, this [00:31:00] could've been forecasted properly ..." et cetera, et cetera.
The response of employees that were laid off on LinkedIn is overwhelmingly supportive of Canopy. It's actually kind of amazing of how ... Even the Utah tech community has pulled together. Other apps are like, "Hey, we're hiring. Anybody that was at Canopy, if you're looking for a job ..." It's very, very impressive, the way this was handled.
Blake Oliver: That's good, because you don't want 81 people leaving your company, and being really pissed off. That's [00:31:30] for sure.
David Leary: Yeah.
Blake Oliver: We went through, at FloQast, something similar. Thankfully not nearly as extensive as that, but we did over-hire last year, in our sales team, and then we restructured how we wanted to handle our sales. It meant that a good number of people we didn't need anymore, unfortunately. We had to lay off, I think it was like 20 people. They all landed okay. We took care of them.
It's just one of those things [00:32:00] in the world of start-ups, where it's really hard to forecast your growth. I would say to any accountants that are listening that are using Canopy, don't worry too much about this, because it's not that unusual, and I'm sure they'll be fine.
David Leary: Yeah. I saw this Saturday morning, I think; it came through on LinkedIn. Their CEO and founder, Kurt Avarell, he had a post; talked about how it was a heart-wrenching hour to do it, but he was soul-searching for like 36 hours. It's been a very, very rough week for him. It reminds [00:32:30] me of a book that I highly recommend for anybody, even in their own accounting firms. It's called "The Hard Thing About Hard Things."
Blake Oliver: "The Hard Thing About Hard Things"?
David Leary: Yeah, Building a business ... There's no easy answers. Ben Horowitz, who wrote that book, he's actually part of Andreessen Horowitz. You guys have probably heard of that [cross talk]
Blake Oliver: Oh, yeah, famous guy ...
David Leary: Famous investors, VC investors. He talks a lot about where he's had to lay off half his staff, and these growth things ... Because of that, it [00:33:00] made me more understanding to what goes through ... How hard of a decision that is for a founder of a business, or CEO of a business that has to lay off people like that. When I saw the founder of Canopy's post on LinkedIn, it reminded me of that book.
I recommended everybody grab that book, and then definitely look up Kurt Avarell's LinkedIn, and read his post, because it's ... It's shocking, because I don't think anybody saw this coming. They were literally ... 45 days ago, they had plans to double their staff. Something [00:33:30] definitely did not go as planned. It's not very clear what that is. Sometimes, you see the numbers going bad, and you have to make a call like this to survive. Hopefully, that's the play for Canopy, because people spoke very highly of Canopy.
Yeah, it's definitely better than just running right off a cliff, which does happen at some start-ups, unfortunately, and they just shut the doors. Let's hope they succeed. I've got one more story here- are we ended on a good note? I feel like this episode's been a little heavy.
Blake Oliver: I don't know about that, because this title of this article [00:34:00] in Accounting Today is called, "Why Is Your Firm Worth Less Than You Think?"
David Leary: Oh, that one ...
Blake Oliver: Yeah. This was a story that I saw on Accounting Today, and they tweeted it out. I clicked through; I read the story. It's by two guys who run a firm called Transition Advisors. They're probably brokers, I imagine, given that name - brokers of CPA firms. They give, in this article, four reasons why you may not get the 1.25 times annual [00:34:30] revenues that you think you're gonna get for your firm, when you sell it. The thing that struck me is that they didn't mention technology at all. Not a single mention of if you're a desktop-based practice that's using paper, and pencil, and calculators, you might not be able to get as much as you think for your firm. No ... They didn't mention ... It didn't even come up. I pointed that out on Twitter, and we had a little fun chatting about it.
David Leary: I think the Twitter thread [00:35:00] was actually more interesting than the article. You came out, and said, "Hey, maybe it's really 80 cents on the dollar, because you just have a desktop-based practice." I kind of followed you up. I'm like, "I think it's like 25 cents on the dollar." Then, the amazing thing is how many forward-thinking cloud accountants, like, Brent Forbush, Allen Douglass came out. They're talking about how, "I'm not even gonna pay you that much, because I'm just gonna steal your A&B clients with some Facebook marketing ads." It's how fast it went from you thinking ... That article's like, "You'll get [00:35:30] 80 cents a dollar," and you're like, "By the time the article's done, people are not gonna buy these firms at all. Your value might be zero."
Blake Oliver: Brent Forbush, he said, "Talked to an old-school firm. Wanted 1.25, 100-percent cash up front. I had to walk out holding a serious face. Nothing is selling for over 1, and less, with 100-percent cash up front." Allen said, "Five years ago, traditional firms were paying 70 cents on the dollar, on average," and he said that, "Today, knowing what we know about the state of [00:36:00] traditional firms, you'd be a sucker to pay 25 cents."
Blake Oliver: Allen made a really good point, actually. He said that it only costs 20 cents on the dollar to acquire a dollar of revenue, if you use good online marketing. For me to get a client that is, I don't know, $10,000 a year in revenue, I'd probably spend $2,000 on sales, and marketing to get them, and that checks in with my gut. I think that's probably accurate, so, why would I ever go, and acquire a firm? Why wouldn't I just ... Unless I really needed to grow fast, why wouldn't I just spend the money on sales, and marketing, [00:36:30] and steal the clients?
David Leary: You'll steal their A&B clients, because they're gonna try to find new accountants anyways, because they don't wanna stay with this firm that's gonna be sold. Basically, all that's left is somebody's gonna come to buy your C clients, which means they're only gonna pay 10 cents a client on the dollar. The comment thread that happened on Twitter about this article is actually better than the article, so we probably should include the comment thread, as well.
Blake Oliver: I think a lot of firm owners who are not listening to this podcast are gonna be in for a rude awakening, when they do go to try, and sell their firm.
David Leary: I think Amanda Aguillard really [00:37:00] summarized it well: "Buyers these days are paying for processes and tech-savvy staff. Not clients." If you don't have good processes, and tech-savvy staff, nobody's gonna buy you. They don't want your clients, because they can steal your clients.
Blake Oliver: Jason Deshayes, he said that he considered doing an acquisition last year but realized that the effort to try and fix up the firm was not worth the cost financially, or emotionally. It's a lot of effort to merge into a firm or merge a firm into yours. Those people, the staff, aren't gonna ... Will you have to train them [00:37:30] all? I don't wanna do that.
David Leary: That's the state of the industry this week. We'll see what news comes our way next week. If somebody has a lighter story that would be fun for us to talk about, like get a little laughs on the podcast, how would they get that to us?
Blake Oliver: Well, you can tweet at me. I'm @BlakeTOliver, and I wanna hear your good stories, and I also wanna hear all the dirt you got for me, because, as somebody said, "We are the TMZ of accounting," here on The Cloud Accounting Podcast."
David Leary: Hopefully not that. That's what Going Concern is, right?
Blake Oliver: Going Concern can [00:38:00] have that label ... What about you, David?
David Leary: You can get a hold of me at @DavidLeary. Everybody can like our Facebook page. Just look for Cloud Accounting Podcast on Facebook. Hopefully, we're gonna start doing some more of those Facebook Lives like we did before. It's a good way to get good engagement with the community.
Blake Oliver: As we said at the beginning of this episode, please do us a solid, and leave us a review. We will read your review on the air.
David Leary: Yeah, those things do matter. They're important to us.
Blake Oliver: See you next week.
David Leary: Everybody have a good [00:38:30] St. Patrick's Day. Later. Bye.
Blake Oliver: Bye.