“Accounting has struggled to stay relevant in the software space. It hasn’t seen those big gains you’d expect in a profession as straightforward as ours. The debits and credits have been around for 500 years. That hasn’t changed much. But software has a long way to go before it brings huge technical advantages to our profession.”
– Adam Riches, CEO & Co-Founder of Netgain.
Today, I’m speaking with Adam Riches, CEO & Co-Founder of Netgain. He has a deep understanding of accounting history and its impact on businesses and regions.
Before Netgain, he was part of the Strategic Initiatives team and the Finance Center of Excellence at NetSuite. He also served as the controller for publicly traded mining companies in Denver. Adam began his career as an auditor with Ernst & Young. He is a CPA with a master’s degree in accountancy from the Marriott School of Management at Brigham Young University.
In this episode, we discuss. . .
– The new lease accounting standards IFRS 16 and ASC 842 and how Netgain helps clients navigate the complexities
– How Netgain automates lease data extraction from contracts using AI to save accountants time
– The challenges of managing cash flow visibility and bank reconciliations for businesses are highlighted
– How Netgain’s tools, like its close module, help speed up the month-end close process and improve data quality
– The history of accounting software development is examined, from mainframes to Excel, and how Netgain aims to continue innovating
– Potential applications of AI in accounting are explored, such as automating bookkeeping tasks and catching previously overlooked errors
Scroll down for a full transcript
Welcome to the accounting apps podcast. How’s your week been?
Adam:
Hello, Heather. It’s a pleasure to be on my week has been fabulous. We were here in the Sydney area and it’s been kind of heads down working for a couple of months and so but we just took a short vacation to New Zealand and so it has been a wonderful week. We’ve got back yesterday.
Heather:
New Zealand is a lovely place, especially at this time of the year. So it’s lovely that you got to go across there. So I wanted to briefly ask you, you seem to have loved accounting from a very young age.
When did you start your accounting journey? When did accounting spark you as a youngster?
Adam:
It’s funny that you asked this question. I always thought it was in college when I was studying different topics. I was always fascinated with business and I knew that accounting was the language of business. But I looked back, my mom had put together a photo album and I have an accounting certificate from my eighth year of school where I took an accounting class and was able to pass and get my certificate. So I guess earlier than college it’s always kind of been there. But it’s always been the logic. I liked the structure, the format and the you know, there’s the right and wrong the balance of the debits and credits of accounting that always just seemed to strike a chord with me that I fell in love with.
Heather:
That was what I liked: the balance and the tranquility of accounting. Thank you for sharing that with us, Adam.
What is your perspective of how accounting software has been developing over perhaps the past decade or so?
Adam:
It’s interesting. There’s a big movement, especially if we look over the last like 10 years. There’s some great solutions that have really, you know, risen to the call of the needs of the accounting profession. And especially with the movement to cloud based, you know, software as a service model. I think we’ve seen some some benefits of that. I think if we go back further it’s kind of a interesting question, because I think it’s all relative, right? I think we have seen gains. I think it’s been good over the last decade. But I think if you compare it to, like the logistics side of the world, right where, you know, you can now track a tube of toothpaste as it comes up the street and is delivered to your house. I think there’s been you know, professions that have had huge gains through technology over the last 20 or 30 or 40 years. And I think Accounting has absolutely not been one of those. I think we’ve been kind of left behind, you know. The minor exception are of some of the gains we’ve had over the last decade. Accounting really hit its stride with the mainframe computers in the 50s and 60s, and then with the advent of ERP, it’s kind of off the shelf accounting software that were familiar with it the you know, the precursor was MRP. I think with that evolution into the business operations and away from the core accounting. We’ve kind of struggled to stay relevant in the software space and have not seen those big gains that you would have expected in a profession that quite frankly, is as straightforward as ours, right? The debits and credits like this has been around for…our methodology has been around for 500 years. And that hasn’t changed much and so but I do think the software has a long way to go before. It really you know, brings these huge technical advantages to our profession.
Heather:
Thank you.
How do you see the changes in accounting and the accounting processes impacting the way that organisations manage their finances?
Adam:
So it’s interesting because we were at the core, I think, you know, accounting is the Language of Business. And so we fit right into the core of that. I think a challenge that a lot of accounts have dealt with you know, especially recently we’ve seen a decline in the in the overall number of people going into accounting. We’ve seen you know, CPAs that are leaving the profession. Technology’s not keeping up and so the big band aid that we’re all very familiar with, we’re all experts on is Excel right? And so we plug the gap with Excel and we just work longer hours to get you know, this the same job done that needs to be done. And so unfortunately, a lot of that it takes us away from being able to step back and look at the bigger picture of the business. So what we hope to do is really bring a lot of that automation back into the profession so that the accountants the ones that are closest to the data, can step back and really have a much bigger role in the management the operations of the business and be a key partner instead of having to worry about getting all of the details correct and accurate. And of course with the long hours and with Excel, there are errors that slip through and and so it’s kind of blocked us box us into a spot where I think we can add a lot more value with the right tools.
Heather:
I saw a website and it said, if you’ve got too many Excel spreadsheets running your business, you need to talk to me, which I thought was a nice way of explaining it to the end user.
What was the gap that you saw in the market that led to the creation of Netgain?
Adam:
So it was I was at NetSuite and you know, I was there and I was close to the to the product team and you know, they would advise our group there you know, from time to time on different product decisions. And so I was close with the product team and I brought up this new lease accounting standard that had happened, you know, kind of a big event for us accountants that happened internationally and to happen, you know, of course the US had to go their own different route but but IFRS you know, adopted the standard IFRS 16. And in the US it was a slightly modified version, but a lot of overlap between the two, which was ASC 842. And then, of course here in Australia, there’s a AASB 16, which is, you know, very similar to IFRS. 16. But this all came about the announcement was made in 2016. I remember the very spot I was in when when the FASB announced in the US and the International Accounting Standards Board announced it internationally. It was very exciting. It came out and it was you know, accounting for leases was very basic before. Tt’s so basic that it caused, you know, this off balance sheet financing a lot of problems with these big companies in the early 2000s where, you know, there was a lot of fraud happening and this this off balance sheet financing themes seem to be kind of core across all these, you know, big scandals that were happening. And so it was very basic and easy to do. And then of course, the accounting standards boards. The pendulum swung 180 degrees in the opposite direction and it became very complex. And so with this complexity, the idea was obviously there’s a tool that’s needed. Excel, maybe for one or two leases, you could get it to work but like with the disclosures and all these additional requirements that came along with it, especially around modifications that this would require a tool and so I went to NetSuite to see if, you know, we could build it internally and, and unfortunately, I don’t think they had the appetite for it at that time. You know, the new rev rec standards had just come out and were being implemented. So anyway, I figured it was evident that the only way to really get this built was to break off from NetSuite and build it on our own. So me and a few other partners broke off and we formed Netgain. That was back in 2018. So we’re we’re just closing in on our sixth year of business here. So we started with the lease accounting tool is very niche. And then over time, we created, you know, adjacent products with the lease accounting tool, there’s your right of use asset and then there’s your lease liability. The right of use asset is very similar to a fixed asset and so we added a fixed asset module and then have gone very deep that way we added a loan module which is very similar to the lease liability and built a module there for borrowers and for lenders and then we’ve got a close tool that helps manage the month end close process for for different businesses. So we started with lease accounting and then have evolved over the years adding tools over time.
Heather:
Excellent.
How does Netgain help clients navigate the challenges that came about through these latest changes in the accounting standards?
Adam:
Yes, it’s interesting. We’ve seen some pretty gnarly spreadsheets where people have been able to manage this and built in macros and some tools they try to get it to work in Excel and we’ve taken those spreadsheets and then plugged them into the system. Yeah, so there’s things like the different types of modifications that you can have to a lease. Like you can change the rate you know, your incremental borrowing rate on the lease, you can change the term of the lease, you can change the payment, you can negotiate with the landlord and have a payment structure change right and all of these are simple on the surface and they would have been very easy under the old standard. But now they create what’s called a lease modification and the standards, but there are different types of lease modifications and they have a different impact on the remainder, you know the life of how you account for that lease. And so these modifications create a huge amount of complexity and so much in fact that in the US when COVID hit, there was a lot of lease concessions that were granted again, the landlord giving you a month free of rent and you know, middle of COVID is great and it helps benefit the business but like it, it creates chaos on the lease accounting front, because now it triggers a modification. So a lot of these small adjustments to a lease contract can now you know, in a sit with the help of a system or you know, you can just make the minor tweaks in the system and then the system takes over and reruns all this stuff. So it really is the deep end of accounting for you know, even the most experienced chartered accountants or CPAs or controllers that had been doing this for decades. It’s a new standard. And our view is rather than you know, have these you know, individuals focus and become experts on lease accounting, just get the tool and like and instead of thinking about what type of modification am I running and what is the standard say about that. They can do this system helps take that and automate. It makes it you know, very transparent and clear for the auditors when they show up to see what happened.
Heather:
It’s interesting. I was having coffee with a tax specialist the other day and she spent said she was spending hours trying to figure out something. I was like, is that the really the best use of your time? Surely there are other ways that that can be figured out those sort of tax specialities. Sometimes it is through a solution and having the framework of working through a solution to get it out. You’re here in Australia at the moment.
You’ve introduced Netgain to the Australian accounting profession, what has been the industry’s response?
Adam:
It’s interesting. So we almost from the early days, Australia adopted the standard you know, very early across public and private companies. And so this is no longer kind of a new thing here in Australia. It’s relatively new still in the US. But we’ve had customers here since 2019. And so we’ve had a strong kind of growing customer base, we’ve had a strong partner community, and I you know. But our sales team, our support team, our product team have always all been in the in the US. So this expansion really, it really formalises what we’ve already been able to accomplish here. We’ve been traveling down here and meeting with customers over the years. But the response has been, you know, and I’m now personally dealing with the time change and the localisation differences and like some of the frustration that comes with having to deal with, you know, an organisation that’s halfway around the world. So we’re excited to be able to provide more support to those existing customers that we have and those partners that have been with us from the very early days. So the response has been very positive. I think it’s been kind of a finally like, finally you’re getting boots on the ground here. So I think it’d be done it differently if I’d have done it years ago. But it’s been very positive and it’s exciting to be here personally, and, and to feel that, you know, the very vibrant economy and the activity that’s happening and meeting with a lot of our customers and those partners. So, been good to be here on the ground in person to experience Australia.
Heather:
You clearly have a love for accounting. Accounting as a global language and it’s interesting to see it interpreted and absorbed and the nuances that evolve when you go to different countries. Because, wherever you are, and whatever you’re doing, you’re in your own bubble. When you come here and like oh, the way they’re doing things, etc, is all sort of nuanced, slightly different.
Adam:
In our solutions, and that’s what really, we’re in kind of this magical era. When I graduated, I graduated, you know, in 2005 with my master’s degree and I wrote my you know, my thesis was, you know, from I took this course it was really interested in international accounting course. I wrote my thesis paper for that course on the globalisation of an accounting standard. So back at that time, for those of us that are older, there were maybe over 100 accounting standards at the time. Like everybody had their own standards and everybody thought, you know, are different cultural values were kind of imposed on the accounting standards. So there are different things that were important to different cultures and around the world. And so, I mean, my assessment on that paper was there is no way that we are going to adopt a global accounting standard. And so it’s been amazing to see how the world has converged around IFRS and a single accounting standard. You know, of course the US again, it has to be different. But like there, there’s this big focus on on converging the two standards as well, which is where we get the lease accounting. I mean, that’s a good example. Rev REC is another good example of the convergence of those standards. So for the first time in history, when we solve these accounting problems, we’re not solving problems for the US or solving a different problem for Australia or solving a different problem for India. These are global problems that we’re now able to solve with a single solution. And so some of these markets that have been neglected now have access to world class tools that wouldn’t have worked for them in the past. And so we’re in a very unique time in history with this convergence of accounting standards. And so when we solve these new problems, we build our tools. We don’t build them with a US centric like perspective. We’re absolutely thinking about solving these globally. And you know, the nuances that do happen there are statutory local differences that we need to work out in our solutions. But the gap and you know, in you know, under IFRS, and US gap, like the generally accepted accounting principles are very, very similar now. So for financial reporting, we can now solve solve these problems. It’s exciting, you know, especially as we expand globally here. We really are in Australia really is kind of the that headquarters for our APAC expansion. And so we do have customers throughout Asia and you know, is different culturally, as some of these different jurisdictions are. It’s fun to talk accounting, because I think that’s the core language when we start to talk debits and credits. You know it with the language barrier and the cultural differences like we all it is its own language. It is its own culture. And so it’s exciting to do different teams. We were on with a team from India a couple of weeks ago, and you know, and we were geeking out over different pieces of functionality. So yeah, I like yeah, it’s the one thing that I think that brings us together as a profession, even closer now than we’ve ever been. Absolutely.
Heather:
And accounting is a global language and sort of utopian accounting would see the standards be global and actually be the same globally. With the taxation side., different of course that is nuance to the export tax world. And you know, I would really like to see that. Because as accountants, it allows us to actually travel and be flexible and move and work far easier. I travel and work and everything but it allows a lot more people that flexibility. And it also allows us to compare countries, compare country business performances, like if there is some more standardisation in there.
What are the current trends you’re observing in the ERP and the accounting platform markets?
Adam:
There’s one of the big trends that we’re seeing. So if it thinking back about a decade and a half ago, I guess is when Gartner came out with this idea of the best of breed right? And it was as you build out your accounting landscape, you know, as you build your and I’m not even your accounting, but you’re really systems landscape. You go in and you buy the best products that are out there that fits your business needs. So when you’re looking at an ERP tool, which sometimes gets gets conflated as an accounting tool, and anyway but when you’re looking at your ERP tool to get one that’s best for your business. If you’re heavy in manufacturing, get an ERP tool that’s that’s best for manufacturing, right? If you’re you know heavy into you know, ecommerce, get one that works works for that site as well. And then just plug and play these different systems. Then the magic of the integration will fix all of, you know, it does just integrate and tie all these systems together and everything will be great. I think, you know. That’s worked to some degree or less, with different businesses. But I think the acute pain that we feel on the accounting side with disparate systems that are kind of tied together, whether it’s through Excel spreadsheets and uploads or whether it’s through an actual integration, is it exposes us from an internal control perspective. So now, you know, if I decide to you know, I’ve got my ERP tool here and I get you know, choose like a fixed assets solution over here, then, you know, I can integrate those together, and that’s fine, but I need to make sure that I have controls around that integration and that I have controls around this new system that I bought. And then of course, my team has to learn the new system and figure out the nuances behind that system. And so there’s internal control, and then operational challenges with doing that as well. And so the big trend we’ve seen is, there’s a couple of like consolidating tools under one umbrella. So trying to reduce the system landscape as much as possible around the office of the CFO, is a big one that we’ve seen. Reducing those integrations, reducing the learning curve for the the you know, your employees and your staff as they have to bring on new tools has been a big one. Then also trying to reduce the number of vendors that they have around that as well so that they have more control around their accounting landscape. So you see that a lot. And that’s where, you know, that’s one of the areas where we come in is we come in and we’ve got all of our tools kind of under the NetSuite umbrella there. They’re built on the NetSuite platform. But I think you know, more if you if you look at some of these other systems, too, you look at Workday and you look at you know, like Intact and you look at Microsoft, there’s a big attempt to try to pull in more into their tools. Whether it’s through the partner landscape, or whether it’s directly building these these tools into their systems. They’re getting a lot more competitive. And this is where, you know, you ask how we’re doing over the last 10 years. I think we’ve made some large gains over the last 10 years. Just because there’s more attention on the problems and the challenges that our profession faces. I don’t think it’s been fast enough, and I don’t think it’s enough yet. But I do think there’s a positive trend in supporting accountants and the accounting profession more.
How is Netgain differentiating itself in this very crowded market?
Adam:
So, we’ve got, it’s interesting, there’s two arms of our business. One is outside of NetSuite. We’ve got a tool at least accounting tool that is down market and it serves, you know, much broader customer base. So companies that are running on Xero and QuickBooks and Intact and in some of the Microsoft tools and in MYOB. They’re running on this lease accounting system outside of NetSuite. In that space, we really work closely with accounting firms. So the way we differentiate there is our partnership, our deep partnership with accounting firms. We work with audit side where you know, we give them our tool and enables them to audit the spreadsheets that their clients may have, you know, cobbled together. Then we also work with their customers directly. But it’s really built for the compliance aspect of it. If you look outside, and then it’s a low cost, you know, solution that really makes it easy to migrate off spreadsheets without a significant implementation or significant cost. And so we’ve made that one really easy to use really easy to migrate your data. I think that’s how we compete on that side of the business. On the NetSuite side of the business, it’s really bringing our solutions under one roof and having them all operating. With NetSuite, there’s integrated partners, there’s hybrid partners that have done some stuff in NetSuite, but they have some stuff sitting outside of NetSuite and have an integration. And then there’s built for NetSuite native partners. So ours are all native apps. So all of our code sits in you know, if you’re running a NetSuite, it all sits in your account, you know, you’ve got 100% control around that account. It looks and feels like native NetSuite. You don’t ever have to leave that system. There’s no data flowing back and forth from the system. So it’s all under one roof and and so that’s the big competitive advantage. But we found that so as we built this compound product company, it’s not as easy as just building a good enough solution that kind of sits under the NetSuite umbrella. Our customers demand a lot and they’re looking at at high quality solutions that you know that we compete against that sit outside of NetSuite. And so we found that we can’t just create a good enough solution under the NetSuite umbrella but we have to have best in class tools that also sit under the NetSuite umbrella. When we build these best in class tools that are in NetSuite, it creates some pretty significant competitive differences from those others that are that are on the market. So Adam, could you share with us some success story of how Netgain has helped transform a client’s accounting practice using your solution? Yes. I’m trying to think of some specific companies that we work with. Honestly we’re one where we’re effectively building the tools that we wanted to use as controllers, and CFOs. I think when when companies migrate off of like Xero onto NetSuite, there’s an expectation that there’s going to be more structure around, you know, the month that the financial statements and the numbers are, you’re gonna get data quicker, you’re gonna get data that you can rely on better and you’re going to have more structure around your accounting processes. And that is both true and not true. If you have bad processes going into it and you don’t change those processes then you know, you it’s the garbage in garbage out idea. If you don’t you know, impose that structure around the new system that you implement, you’re gonna get the same bad data in the same you know, slow timeframes that you were used to getting it before. And so our net close tool is is really that tool that builds that structure. So we’ve seen it over and over again, where companies will will put in the task lists and you know, the close checklists that they need that are very specific organisation by organisation. They’ll put those in. And then of course, you can get visibility and we’ve got dashboards around seeing the movement of those tasks to completion, seeing where accounts are stuck, seeing where the bottlenecks are, and it just makes it creates rigidity and it creates controls around the month end close process. And so we’ve seen companies be able to speed up their close pretty significantly and you know, with the balance sheet reconciliations and the flux analysis. All of these create more confidence in the numbers that you have. They’ll catch errors and it’ll help you have more integrity with your financial statements as they come out. And of course, with that tax checklist, we can accelerate it. So we’ve seen a big move with organisations on the close side. Of course, you know, lease accounting and fixed assets and some of the lawn accounting, like they’re just not spending near the amount of time that they used to. So we’re speeding it up and and hopefully freeing up the staff to help them just have more time to really focus on the business. I think that’s where we’ve got this in these brilliant resources that work for us right in our organisations that know the details of the business, but just don’t have the time to step back and really assist the business and help the operations team. So that’s what I think, you know, we’ve enabled with different customers, and we’ve got large customers that operate globally that we’ve been able to help out with. Then we’ve got smaller, very small companies that have been able to leverage some of these resources. Our mantra is to just make these things as easy to use as possible so that you know, you also don’t have to learn a new system when you when you implement these tools.
Heather:
Absolutely. Thank you for that.
Are there any other key features of Netgain’s products that you think customers really find beneficial?
Adam:
There’s one and this is kind of a unique area that you know, a lot of users that might be on Xero might be on QuickBooks, or MYOB. They may be just kind of used to the bank reconciliation process. I’ve been talking a lot about bank recs lately. Because it’s something that as you go up market it’s fascinating to observe the differences in bank rec tool. So if you want to look at like, you know, if you go to SAP or Oracle, like the bigger the system, what you’ll find is the worse the the tool is in those different markets. It’s interesting how tolerant we are sometimes as accountants, especially with these big, you know, expensive tools. These big tools don’t have very good bank rec processes. Well, and as you go down market, interestingly enough, they become better. But as you migrate onto these, you know, higher performing accounting systems or ERP tools you’ll find that there’s a downgrade to the bank rec process. There’s no good reason for it. Like of course, the bigger the company, the more bank account you might have, the more transactions you’ve got to reconcile the bigger the need you have for it, but also these companies are able to just throw more resources at the problem. And so we have heard directly, a lot of complaints from customers that migrate onto a better system, you know, bigger, you know, more robust system like Intact or like some of the Microsoft tools or NetSuite. They lose a lot of the functionality that they had on the bank rec site. If you, you know, look at the different bank rec tools, like we have, it’s interesting how best in class, a tool like Xero, or a tool like QuickBooks is when it comes to bank reconciliations. You know, there’s for all the weaknesses that those solutions might have. They are very strong on bank reconciliations. And so we have set it out and kind of made it our mission over the last year to build a tool that’s easy to use intuitive that’s absolutely best in class, but that has a lot more of the power around creating the rules and the automation engines that the bigger companies might need. There’s things that you know, you’d never really come across or need to have and Xero or QuickBooks; like you know when you transfer cash from one bank account to the other across multiple subsidiaries or entities or countries alike. We built it so that we you know, when you execute a transfer, like all the backend intercompany accounting is automated. If it’s a foreign currency that you’re, you know, one currency to another like that we handle the foreign currency settlement and things like that. So there’s areas where we want to make it stronger, more enterprise, but there’s also areas where like the bank integrations, like pulling in the bank data. Then automating, you know, as much of the reconciliation as we can and then having the resources on the ground kind of focus on just the outlier transactions, which is where the attention should be anyway to resolve some of those issues. So we’ve focused a lot on the bank rec. I think there’s areas where you know, QuickBooks and Xero are good. Again, best in class on bank recs, but there’s things that we’re doing where we’re kind of innovating on the bank, rec side. One is this frustration, years ago when we started that game, like I did a lot of the accounting myself. It was weird to go from, you know, understanding my personal finances just very well to going and starting a company. Now we’ve got payroll, we’ve got rent we’ve got and then we’ve got customers that are paying us and I’m not quite sure when those checks are going to arrive. We’ve got all these moving pieces to completely lose visibility into our cash runway, as a business. So oftentimes, I found myself on the back of a napkin writing down when I think these invoices are going to come in and when you know what we have going out the expected outflows. Then referring to the bank account for my cash balance, you know, minus whatever outstanding transactions I might have. It was very rudimentary. Like, unsophisticated. I think we tolerate a lot of that too. So like moving the bank rec from a month end process where you might have it done on day five. So now, you think about that you reconcile your bank account on day five, you never know how much money you have in the bank account. Like you’ve never really settled everything. So moving it from a month end process to a daily process is a big, you know, process that we’ve baked into our tool. So that the executives or the you know, the entrepreneurs and the owners of these businesses have on their dashboard, you know, real time access to what you know, the cash is and whether that’s been reconciled or not, is it red, yellow, or green? If it’s green, they can have confidence in it if it’s red, they know there’s outstanding transactions that the accounting team hasn’t settled yet. So we’ve done a lot of thinking in like how this bank rec process should work. Especially in this new world of open banking. Where we now have transactions globally that are now you know, it we’re able to feed in and have integrations and pull data in through the open banking kind of revolution that’s happening. So there’s a lot that we’re doing there. And bank recs are very exciting for me personally, because I think it has a big impact on that, you know, it’s a big headache for a lot of people, especially as they migrate up to bigger and better systems. It feels like they’re, you know, two steps forward and one big step back on the bank rec. So we aim to like not only not take a step back on bank rec, but like accelerate that forward.
Heather:
It’s probably shocking for a lot of people who are working in the small business accounting world to actually hear that that’s actually what is happening in the large business accounting world. Definitely timely data leads you to inform business decisions, which you don’t have the opportunity to access if it’s month end type, or if it’s only been reconciled on a monthly basis.
Adam:
Yeah. And you said shocking. It is very shocking in some cases where they’re like, wait a second, I have this all dialed in Xero. Now I’ve got to go back and do a lot of stuff manually.
Heather:
They would assume it would happen. They would assume it’s getting better. In fact, it’s not in some respects.
Let’s talk about AI. Have you integrated AI into your products and services? How are you rolling that out?
Adam:
We spent a lot of time focused on AI. I think it’s one of the most exciting things is kind of happened to our profession. So there’s a few things that we’re using right now. So one is for lease contracts. So signing the lease, you’ve got you know, this 120 Page lease agreement with all sorts of mambo jambo and the agreement and in so what we’ve been able to do is you can take that document that PDF doc most of the time and just upload it into our system. In our system, we’ve got it you know. So it gets entered into an AI engine that will read through the document and then of course pull out the relevant sections, around like what the lease term is what renewal options are baked into what the monthly payments are by year you know, as those escalations happen. what the deposits look like. So it’ll pull out all the relevant data from the lease agreement and then populate it in the system. Of course, like, you know, AI is great and it does a very good job of identifying those areas. You know, of course, there’s still a review you want to go back and look and make sure it’s actually got the right data, the right dates and things. But it does a really good first pass at that review and saves a lot of time for companies that are heavy in leases. Even companies that aren’t heavy and leases, it helps really give you assurance that you’re not overlooking different aspects of the lease agreement. So we’ve got that tool and that one has been around. We’ve been using that for for a long time, maybe over a year now. And then on the back end, this is one that’s to me, super exciting. So we’ve got our close tool, and we’ve got the flux analysis that’s done. For those listening that aren’t, you know, fully familiar with the flux analysis, it’s where you look, you know, quarter over quarter or month over month or year over year you’re looking at the difference in you know, like, let’s say rent expense, you know. You’re looking at all these different accounts, and if it’s over a certain percentage or a certain dollar amount, the accountants dive in and investigate why, you know, let’s just use rent expense as an example. Why did rent expense double?
Heather:
I’ll jump in and say I think in Australia, we use the term trend analysis for people who are listening.
Adam:
Oh, see. Perfect, yes.
Heather:
I’ve had this conversation before. Because I was like, I know of a flux capacitor is the Michael J. Fox movie. What is it back to the future? But yes, you call it completely flux, flux, flux flux, but we call it trend.
Adam:
Trend analysis. Honestly, trend analysis. Perhaps makes a lot more sense now that I say it out loud in my head.
Heather:
I do like that is Michael J. Fox there and Back to the Future in there in your reporting, though.
Adam:
So the trend analysis. We’ve got a tool that will pull you know the differences like you know, you’ll be able to run it for whatever period to whatever period and pull it out and then you can see the differences. So if it falls below your threshold, you know, is pass if it’s over your threshold requires an explanation. So rents expense, let’s say rent expense doubled, you know, month over month. You know, there’s obviously some underlying reason. Typically what you do as an accountant is you dig in, and you would look at the underlying transactions for last month, underlying transactions for this month and see what’s different. Of course, in NetSuite that’s super easy to do, you can just drill in and you know, and take a look at all that data. But when you’ve got a high volume of transactions, sometimes a lot of the nuance and detail gets missed and sometimes as accountants, we just roll forward last periods explanation. You know, and oftentimes, that’s the right explanation and sometimes, you know, there’s nuance to it. And so what we’ve been able to do with AI is and especially because we’re embedded in NetSuite so we have all the transactions for last period and all the transactions for this period. And you know, sometimes that’s 1000s of transactions. We uploaded into the AI engine and the AI engine will review all last periods and all these periods and it will spit out a variance explanation from last period to this period. And we’ll give you a high level summary. And then oftentimes, it’ll spit out very specific transactions that you had that you didn’t have in the prior quarter. And then you can even feed it more data. So you may say, well, okay, rent expense doubled. But we did have you know, we got 20 leases and we added two leases, and you could put that in and it will add that into the explanation. Then it will kick out the transactions and you can see it’ll even identify duplicates. So you may have like accidentally booked last month and this month in the same period and that’s why you know, you’ve got a big doubling of rent expense. To me it’s super cool. It catches a lot more the errors that may have gone overlooked if you’re just doing a manual review of all those transactions. So I think it’s a great use case for AI. Now, as we look forward, I think we’ve got some big opportunities. This open banking revolution that I’m talking about. So Australia was an early adopter. So there’s legislation that requires banks to you know, allow you to feed data, get your pull your data out. And so we’re able to leverage that. And we’ve got customers that are now able to grab all their data from the Australian banks and pull it into their NetSuite system and we’ve got that part of our bank rec tool. But if you think about some of the challenges that we struggle with, you know, a lot of the tools that have come out are like kind of top level, they’re, you know, looking at all the data in a system. But if the data was bad coming in, you’re not going to get a good analysis of that data on top. And so we think where AI is really valuable is on the ground. Looking at those root transactions. And that happens at the bank level that happens at the credit card level. So really this combination of open banking, combined with AI and the ability to look back over the last five years you know, worth of transactions and and and learn from those prior transactions. And apply it to these future transactions from a coding perspective. We view this as having a huge benefit to the kind of the bookkeeping side of our profession and being able to do a lot more with with a lot less on the bookkeeping side and still have a very high level of accuracy. You see a lot of companies that do AP automation and they dabble with this. I think AI is going to flip that, you know that side of the world entirely to some, especially with these transactions that we’re able to bring in and read. So exciting times. So you know, I think we’ll see lot in the next five years.
Heather:
You’ll just be able to move so much faster than the person who is in those spreadsheets and not getting any of that information surface for them.
Adam:
And it’s interesting because I see areas where AI you know can make a lot of different professions redundant. I feel like we are so understaffed. I just don’t see that happening. I see what it will do is is really take the monotonous side of our profession and automate it and enable us to do much higher value add activities. There’s such a shortage. There’s so many demands being placed on us. I think by pulling off, you know, some of those lower value add tasks.
Heather:
It’s globally and it’s Singapore. It’s in Malaysia it’s in the UK it’s hear that there’s such a shortage. And accountants have so much opportunity out there bring on anything that makes our life easier. Because we’re all working too many hours. So let me just before we are wrapping up here. You have listed the book ‘Double Entry’ as one of your favorite books now.
Is the ‘Double Entry’ book by Jane Gleeson-White one of your essential reads?
Adam:
Jane Gleeson-White, who is here in Sydney. Yes.
Heather:
It is. I wondered if you’ve caught up with her. Have you caught up with her?
Adam:
No, no, I wish I had. I may try to meet it because I am a huge fan. It’s a you know, goes into the history of accounting. I think a lot of it you know is lost, like we show up. We’re trained how to do double entry accounting, we take it as, you know, just that it’s just, you know, kind of a thing that’s always existed. But it was actually invented. And our professions had an interesting history. And I think we played a major role in the development of some of these global superpowers that have emerged right. It was the Renaissance was the first piece. Then the Netherlands in the rise, you know, like the Dutch East India Company, the modern corporation and then England in the UK, in their kind of global dominance for a while and then the US, right? I think double entry accounting has been behind some of these massive market accelerations and behind a lot of the progress that we’ve seen, you know, in society. I think it plays a major role in you know, in everything we do. Sometimes we get tagged as the bean counters, you know. There’s a lot of derogatory terms about us, you know. The green visors and the pocket protectors and, but we are.. Superheroes. We are.
Heather:
I have a copy, an autographed copy, of her book down there.
Adam:
You do?
Heather:
I do. I just wasn’t sure if that was the book that you were referencing. Look, I always say accountants are superheroes and we save livelihoods. We don’t save lives, we save livelihoods of the small business community and the community at large.
Is there anything else you’d like to share with our listeners, and how can they get in contact with you?
Adam:
Ah, no. This has been a wonderful discussion. Thank you for for taking the time with me today. So you can absolutely get in contact with us. Our website is Netgain dot tech, t e c h. And then the big thing is we you know, if you’re on NetSuite, we definitely definitely can help you. And then if you’re not on NetSuite, I am biased. I am a huge fan of NetSuite. I think you know, it’s a great platform. But if you’re not, and you have lease accounting problems, then we can definitely help you there as well. Even if they’re minor. We’ve got a super cost effective solution and you can reach out to us we’re on Netgain dot tech. And you can find us there. We’re on LinkedIn. We’re kind of everywhere. And so yeah, please reach out with any any questions in any way we can help you. We’re happy to do it. And we’re here in Sydney now, so very exciting.
Heather:
Very exciting. Adam, thank you so much for joining me on the accounting apps podcast.
Adam:
Awesome. Thank you very much, Heather.
