The importance of data analytics in accounting
Rapid technological evolutions have changed the data analysis game for the accounting industry.
The accounting field must realise how people access data has changed permanently, not to mention how a range of transactional tasks can now be automated.
Understanding why accounting data analytics matters for decision-making is easy but taking that next step and relying on a data-driven approach to run your entire practice and guide your clients' businesses is a lofty but achievable goal to work towards.
Accounting professionals can get a leg-up on the competition by breaking away from traditional measures and adopting valuable data management and analytics solutions to streamline operations.
For more about the future of accounting, check out our article: How emerging technologies in accounting can build a better practice.
The types of data analytics in accounting
Here, we will explore the four key types of accounting data analytics in depth: descriptive, diagnostic, predictive and prescriptive.
While the former two represent what's happening right now (explaining the what and the why), the latter deal with the future, forecasting what might happen and making recommendations.
With a firmer understanding of how these different uses of data analytics in the accounting profession can be applied to your practice's decision-making, you'll be able to derive more valuable insights from every piece of data you collect.
Descriptive analytics: "What happened?"
Descriptive analytics provide insights from the past by analysing raw data from various sources.
While they can inform whether something is correct or incorrect, on the whole, they offer low data complexity, low business value and no exceptional value-adds to the business.
- Useful for accountants: Includes traditional reporting such as monthly report packs, standard list reporting such as workflow to-do lists, and staff utilisation reporting.
- Useful for your clients: Reporting to clients on annual accounts or tax returns
Diagnostic analytics: "Why did this happen?"
Also, focusing on the past, diagnostic analytics define the cause and effect' of why something happened. They can help you identify patterns and relationships in the data. With this information, you can elevate your data visualisations, dashboards, scorecards and KPIs. Diagnostic analytics offer increased data complexity and business value compared to descriptive analytics.
- Useful for accountants: Monitoring changes in data; variance/trend analyses (such as budgets from previous years).
- Useful for your clients: Alerting based on variance indicators.
Predictive analytics: "What will happen, when, and why?"
Predictive analytics provide value by telling you what is likely to happen. Consider it as something like 'what-if analysis. By integrating data from various sources, predictive analytics can illuminate future trends and deliver sophisticated analysis with machine learning or deep learning.
- Useful for accountants: Determining trends and predicting future outcomes.
- Useful for your clients: Gives you authority as a trusted advisor. Provides alerts about the potential impact of future changes.
Prescriptive analytics: "What should we do about it?"
Finally, prescriptive analytics help you understand what action to take to reach an objective or eliminate a future problem. With the help of AI, continual learning and prediction models can deliver insights on actions you should take to boost performance or mitigate risks. While the data complexity is high, so is the business value it provides.
- Useful for accountants: Use predictions to recommend actions; more thoughtful decision-making.
- Useful for your clients: More robust partnership between accountants and their clients
The challenges of data analytics in accounting
As with any significant change to your firm, problems will need solving. Here are some of the critical considerations for your accounting practice when implementing new accounting data analytics software:
Lack of a defined use case aligned with business goals
Nothing is driving your project forward without a defined business case, and your potentially game-changing data will remain relatively useless.
Lack of adequate resources, processes and tools
It is rare for a practice to have defined processes, tools and methodology to perform advanced data analytics. This often leads to many spinning wheels trying to set up new techniques, wasted time and effort, and ultimately abandoned initiatives.
Large data sets spread across the firm
Most practices collect data in varying ways that need to be unified in their approach to data management. When it comes time to analyse the data, the amount of data found can be so overwhelming that it's a struggle even to know where to start.
Poor user adoption
The technology behind a data analytics solution has no inherent value – the people make it a success.
How to solve issues in data analytics for accounting firms
Start with business goals first
A critical first step to a successful data analytics initiative is clearly defining how it will impact a strategic business.
Utilise proper resources, processes and tools
Cloud-based data management and analytics software is accessible to accounting practices. However, the missing pieces are often the methodology, process and people with the expertise to identify gaps and roll out the right strategy.
Consolidate data into one central source of truth
Data needs to live somewhere (e.g., in a data warehouse) that fits your practice's needs and budget. To analyse data, you first must integrate disparate data sources into cloud storage with the capacity to store and maintain it, then provide the proper context to analyse the data for business use.
Implement a strategic change-management plan
Adopting an analytics mindset is achieved by gaining buy-in and commitment from a diverse workforce, no matter their level of tech-savviness. Organisations must prioritise their people in their plans to innovate and, therefore, support change.
Accounting data analytics benefits
Here are a few reasons accounting data analytics, though implementing data management and analytics software, is essential for your practice's operational and strategic growth.
Increased practice efficiencies
Data management and analytics tools will slash the time spent analysing data from disparate databases and creating reports.
One of the comprehensive aspects of this software is that client information is housed in one data warehouse, providing tax accountants, bookkeepers and auditors alike with a helicopter view that makes it easier to access and manage their data and eliminates the need to log into each client instance.
You'll also experience the convenience of a report delivered straight to your inbox showing changes in account balances.
More strategic decision-making
It's easy to imagine that data visualisation through a fully customisable dashboard populated with the most up-to-date data available would significantly impact your strategic business decision-making capabilities.
Using accounting practice data management and analytics means you'll have the accounting practice data you need. When you need it, it can revolutionise how your firm's accountants make decisions. They'll be working faster and more accurately, both for their practice and their clients.
No more will your practice experience 'can I get back to you with that information' calls or emails with all your data just a few clicks away.
For more information on instant data and insights from accounting practice management software, visit our page: Accounting practice reporting and insights.
Quicker access to big data
Data management and analytics software extract data from various sources and then analyse it according to the user's needs. From this data, accounting practice reports can be created. A single source of truth (SSOT) business intelligence (BI) dashboard will make data analysis more accessible and intuitive.
A better client experience
A data management platform will connect to all major small business accounting applications via API to collect, store and prepare data for analysis in a data warehouse.
If you're an established practice owner or looking to buy a new one, you will have all your client data available with the click of a button. There's no denying the faster data analysis offered by data management and analytics software can profoundly impact your client's experience and satisfaction.
Data management and analytic tools will help you be more proactive and provide business improvement advice. This would amount to a significant increase in client service and financial impacts to uplift your practice.
For a deeper look at the client experience, check out our blog: Mastering client relationships for accounting practices.
Data analytics: in summary
Now that you've read our article, you should better understand the role of data analytics for accountancy, as well as some of the challenges that every accountant must face in implementing new software to take their accounting data analytics one step further.
We've also explained how business intelligence tools, such as data management and accounting software, are great investment opportunities that can help move the profession forward.
Learn more about accounting practice data management and analytics software and how it will give you powerful data analytics to shape decisions across your practice.
ZAP Data Hub is a centralised data analytics platform that helps accounting practices save valuable time, manage by exception and create more proactive ways to leverage data analytics in your firm.
Download our brochure to learn more about ZAP Data Hub, or book a no-obligation demo today.