After years of steady growth, the market for accounting software in South Africa has matured and flattened out.
Although demand remains fairly robust, the dawn of a new age of accounting practice is here — and future growth is going to be driven by users of online services. That’s according to Steven Cohen, a 22-year veteran of the local accounting software industry and managing director of Softline Pastel whose products make up about 80% of the South African market for accounting and payroll software.
He’s seen it all — from the first clunky computer-based accounting products to the latest hot-shot packages that employ sophisticated technology to crunch numbers. “There’s a lot of talk now about cloud-based or online accounting software and it’s a market we have prepared for but if you look at the numbers, there’s still a fair way to go before it becomes mainstream,” he says.
“About 200 000 businesses use our software and we sell around 2000 new packages a month through retailers and resellers. That represents a more-or-less flat growth trajectory among traditional accounting software users. However there’s a new generation of computer users who wouldn’t dream of loading up or installing programs from a CD or DVD — they’re used to the online world where programs are downloaded over the internet or, increasingly, run remotely over the web.”
This younger market, made up of entrepreneurs and small business owners just starting out, is where software developers are focussing much of their efforts to boost growth. But it’s a slow start. Says Cohen: “We switched on our online accounting services 16 months ago and so far there are just over 1000 small businesses using it. Despite the cool reception we can’t be seen to go to market with nothing and we believe it’s the start of a trend towards online services that will accelerate over time.
“In two to three years, the internet will be as fast as a company’s local area network. It will take five years to migrate 30% of our users from PC-based accounting packages to online-only systems but in ten years we believe about 80% of small business using accounting software will do it via the cloud.
“Today’s generation starting out in business is comfortable with the online world through web-based social networking sites like Facebook and Twitter — they use these services every day. It’s not a huge leap for them to embrace cloud-based services that will help them run their businesses,” he says.
As much as the market for mobile apps has burgeoned since the introduction of smartphones, Cohen says this environment isn’t suited to serious financial activities and people who do use them typically do so to perform simple tasks like checking bank balances and the odd payment or money transfer.
“So the online world is where the future lies but you can’t ignore the huge legacy base of installed financial software on existing PCs. That’s going to be around for a while,” he says. To understand what lies ahead for small businesses and their accounting operations in South Africa, it’s useful to chart the rise of computerised bookkeeping to its progress over the last quarter of a century or so.
Says Cohen: “In the early 1980s IBM released the first of its commercial PCs and by the middle of that decade they were affordable for small companies who embraced their versatility. Accounting was a function they could perform and the first software programs that were able to capitalise on this started to appear.”
They were a far cry from the elegant software that users are familiar with today. While there’s no doubt they were a giant leap forward from paper-based accounting operations in terms of speed, efficiency and automation, they ran on Microsoft’s DOS operating system — a character-based system devoid of all the graphics and simple click mechanisms that typify modern systems and make them so much easier to use.
“The early 1990s saw a huge drive for businesses to computerise their books and accounting software development took place at a frenetic pace. When VAT was introduced in 1991, it was the catalyst that finally removed any reservations people had about moving their accounting operations onto the PC. Just in terms of tracking complicated input and output taxes it was worth the expense and consumers were getting comfortable with moving a growing component of their financial operations into an environment where most functions were automated,” says Cohen.
By the mid-1990s, Microsoft had release version 3.1 of its new Windows operating system for PCs — the first to gain widespread adoption among PC users who loved new features of the graphical operating system that supported colour screens, the use of computer mice and a desktop that could be navigated through clicks.
“That period saw a massive re-write of accounting software programs as they made the transition from DOS to Windows. It was a massive exercise but the new programming tools available to developers meant they could build substantially more powerful and useful programs and this further boosted the uptake of computerised bookkeeping in small businesses.
“The mid-1990s also saw the introduction of another game changer — the commercial internet. Connections were snail-like compared to today’s connectivity options and users had to dial in to service providers to gain access on a pay-as-you-use basis. The introduction of internet banking made computerised bookkeeping even more compelling and as rudimentary as the first services were, they further streamlined business operations by virtually eliminating visits to bank branches for statements and balances. There was not a lot of transactional stuff happening online but the seeds were sown for what would follow,” says Cohen.
By the turn of the century accounting software developers were designing programs that just about anybody could use without the help of an accountant. “During the 1990s it was still okay to have your hand held by an accountant virtually every step of the way when tackling numbers on a PC but that was not good enough and programmers made use of new development tools to produce software that was easy enough for anyone to use on their own. Although these days accounting software is still reasonably support-orientated, much of that is delivered online or over the phone,” he says.
These days accounting software is part of the regular arsenal of tools small business owners use to take care of day-to-day business. There are plenty of off-the-shelf products to choose from — local and international. Cohen says locally-developed financial software is world class and developers are constantly tweaking parameters to make use of advances in computing power and broadband technology.
“We’re positioning ourselves to be ready for online developments which is where the future of accounting software lies. The transition to online-only services will be slow but early adopters are already making headway in this environment.”