Hnry: removing complexity for sole traders

A little idea is making a very big difference in the working lives of sole traders across Australia and New Zealand. And the tax authorities are chuffed with the outcome, too.

We’re providing high rates of compliance for a part of the market that was traditionally difficult to get compliance in.

Eight years ago, when Claire and James Fuller were independent contractors, the couple had two young children and did their best to plan responsibly for their future. That included ensuring they put aside enough money to pay taxes. The problem was that, with their lumpy freelance incomes, they never knew how much was required.

“For us as a small family, that became quite difficult,” James Fuller says. “Sometimes, we’d finish a year and our accountant would ask us for less money than we’d put away. While that’s a positive, we would look at the amount of money and say, ‘We really could have done with that for a holiday, or to get the car fixed’.”

Frustrated with that outcome, they designed a spreadsheet that offered better accuracy around what they should put away, and when.

Friends asked for a copy of the spreadsheet, and they happily obliged.

Today, tens of thousands of sole traders in Australia and New Zealand now pay 1% (plus GST) of their income, capped at $1500 annually in both currencies, to subscribe to the service that was inspired by that spreadsheet.

Hnry, a cloud-based, all-in-one accounting solution, doesn’t just automatically pay the right amount of tax to the ATO/IR, but also files tax returns checked by real accountants, raises expenses, sends quotes and invoices, and more.

Still on an early growth trajectory – in a Series B funding round in 2022–2023, the business secured NZD$35 million – the success of Hnry appears at least partly to be due to the fact that sole traders aren’t always priority clients for accounting firms and that they can be difficult to shoehorn into enterprise accounting software.

“There are many accountants out there who want to work with small enterprise and medium companies, who want to do trusts and partnerships and those sorts of things,” Fuller says. “Sole traders don’t always fit into their model. We’ve got great relationships with a number of really progressive accountancy firms that refer sole traders through to us because we’re simply better suited to their needs.”

Hnry also has excellent relationships with the ATO and IR. That makes sense, considering the main offer is automated software that ensures the right amount of tax is paid on time, every time.

“We’re providing high rates of compliance for a part of the market that was traditionally difficult to get compliance in,” Fuller says. “We have sat down with the deputy commissioner of the ATO, and with the chief executive of IR. We had the minister for small business in New Zealand in our office the other day.

“These are people that we can talk to, and we can advocate for the needs of sole traders. We can actually educate government and business, because it’s a very misunderstood segment of the economy.”

In the meantime, Fuller says, Hnry also frees up other accountants, including those that work with sole traders, to do higher value work such as business advisory, estate matters, trusts and partnerships.

“When you have trained for many years in the accounting field, the work that you want to do is in the grey area. It’s in the complexity, in the tricky problems that only a human can solve,” he says. “It’s not in validating receipts for a sole trader plumber. These are not clients who are looking to grow an enterprise or employ people or take on funding. These are midwives, photographers and personal trainers.

“These are folks who are self-employed by virtue of the industry they work in, as opposed to because they want to grow a company. They have a hard time with compliance, just as Claire and I did, and Hnry makes it easy and effortless.”

Xero: the road less travelled

Eighteen years ago, serial innovator Xero popped up in a market dominated by desktop accounting software. Now at the top of the heap, the company continues to do things differently.

Innovation is incredibly important to us. In Australia and New Zealand it’s within our DNA not to feel constrained.

When Xero launched in 2006 from a kitchen table in Wellington, New Zealand, founder Rod Drury knew he’d have to take the road less travelled.

The global, cloud-based accounting software business he planned to build would require at least 50 people, he calculated, including up to 20 developers, as well as salespeople, HR people, accounting professionals and more. The cost of staff alone would be roughly half a million dollars a month.

That was a problem, because the venture capital market in New Zealand at the time tended to top out at fund raising rounds of NZ$3 million. And so, Drury instead listed on the New Zealand Stock Exchange within 12 months of startup. The initial public offering (IPO) raised NZ$15 million.

At the beginning of the IPO process, the brand had just 20 customers. By the time Xero floated, it had just 100.

Today, Xero has 4.2 million subscribers in over 180 countries, revenue of NZ$1.7 billion and a physical presence in New Zealand, Australia, Singapore, South Africa, the UK, Canada and the US. And so, one secret to its own success was knowing what it wanted, and ensuring it had the funding to get it.

Another was putting immediate effort into a major offshore market. At the same time the small challenger was taking its first steps in New Zealand, it also had a team in the UK. Customers in various territories, including Australia, would likely be hesitant to subscribe to a new offering that had only been proven in New Zealand, Drury believed. But find success in the UK, and the world would be his oyster. The Australian market was only approached once the UK was up and running.

The third secret to success was constantly seeking collaboration with other software partners. A platform populated by countless technology partners was something the competition at the time, desktop software sold in boxes from shelves, simply couldn’t compete.

Today, Xero boasts over 1100 ecosystem partners that “allow us to collaborate in partnership to ensure small businesses, accountants and bookkeepers can get solutions specific to their requirements,” says Kirsty Godfrey-Billy FCA, Xero’s CFO.

The cloud-based platform turned the traditional sales and marketing model for accounting software on its head: free practice management software for accountants meant there was no financial barrier to test the new tech. Practitioners liked it, and their clients pay modest subscription fees for access to what is now the most popular accounting platform in ANZ.

“Really, it was about creating a solution that was solely in the cloud,” Godfrey-Billy says. “There were desktop solutions out there, but we were able to re-imagine the connection between the small business and their accountant and bookkeeper, working on that one platform and allowing collaboration.”

Even with such success, the business is still obsessed with identifying and enabling the way small businesses work, both internally and with their various stakeholders and partners.

“We want to ensure we are really re-imagining the way in which the accountant or bookkeeper journey, and the small business journey, is enabled within the Xero product,” she says. “We want to extend the reach of Xero into the adjacent jobs to be done in businesses.”

The future of Xero, for FY2025–2027 at least, is mapped out under what is known as its 3x3 strategic pillar. It involves a core focus on building customer solutions for the three most critical roles small businesses need to perform – accounting, payroll and payments – in Xero’s three largest markets of Australia, the UK and the US.

Other parts of the strategy include a focus on the efficient acquisition and onboarding of subscribers to the right products, deeper customer relationships, enhanced customer experience through AI and mobile, and a purpose- and performance-driven employee value proposition.

On the Xero platform, AI will become more important as an assistant. The ‘Just Ask Xero’ (JAX) generative AI solution will automate key tasks, including providing insights into specific parts of the business, generating invoices, writing emails and following up overdue payments.

“Innovation is incredibly important to us. In Australia and New Zealand it’s within our DNA to not feel constrained,” she says.

XBRL: the reporting language of the future

With mandatory climate-related disclosures and changing IFRS standards, local corporate reporting is constantly evolving and annual reports are increasingly complex. How can accountants and investors make sense of all the information? The solution is digital reporting, supported by a global standard known as XBRL.

Digital reporting is like moving from an analogue telephone system into a smartphone era.

Financial reports from Australian organisations sometimes top out at 250 pages in length and are often highly technical. They present a massive volume of data that no ordinary person can understand, says Emeritus Professor Peter Wells, from the Accounting Discipline group at University of Technology Sydney.

“We’ve also probably gone past the days where an ordinary accountant, someone who is not an expert in financial reporting regulation, can actually read an annual report,” Wells says. “Unless you deal intensively with reporting, I think it’s got to the stage where now you probably can’t read and understand a financial report. I don’t think that’s too harsh.”

That’s a problem, especially when much of the rest of the developed world long ago moved to digital financial reporting, which can be standardized around XBRL, a common mark-up language.

Such reporting enables an entirely new level of analysis and understanding of an organisation, an industry, a sector or an entire economy. It makes every filing by every company searchable and able to be analysed for the purposes of AI, for example. And it provides a powerful boost to accuracy of reporting.

“All of the financial institutions send financial reports off to the Philippines to have them re-typed into bank templates,” Wells says. “One of the first things the bank staff do when they get their financial reports back is make sure they still balance. Guess what? They don’t.”

Digital financial reporting would streamline that entire process, he says.

In the US, mandatory digital reporting has existed for Securities and Exchange Commission registrants for 15 years. In that time, those markets have progressed from first-generation to second-generation technology.

“So, you’d have to say that the concept of digital financial reporting, the taxonomies, the technology, the programs, are all well established and mature,” Wells says.

In Australia and New Zealand, he says there has not been the will on the part of regulators to prescribe digital reporting.

Four years ago, a joint parliamentary committee made a recommendation that Australian business should pursue digital financial reporting, “because it was the dead obvious thing to do”, Wells says.

That recommendation went to the Treasury, but nothing has changed.

Amir Ghandar FCA, reporting and assurance leader at CA ANZ, says the business reporting standard (XBRL) enables financial reporting information to come into the digital age.

“It’s like moving from an analogue telephone system into a smartphone era,” he says. “There are so many problems in accounting and financial reporting where we have hit a brick wall. The solution is not necessarily fiddling with standards or regulations. We need a paradigm shift and, for me, that’s what digital reporting enables.”

Suggesting businesses move to digital reporting and making recommendations simply doesn’t work, Ghandar says.

“I think the carrot-and-stick analogy that’s often been invoked in this debate has muddied things a bit,” he says. “Laws and standards are how society agrees on reporting, so that everyone is on a level playing field, expectations are clear and the information is consistent for investors. For this information to be useful and able to be compared across different companies and sectors, there must be a critical mass of information provided in the right format.

“Opening up an opportunity for people to submit reports and then hoping that they will, is destined to fail. There needs to be a mandate in law, as there is in 90% of the world’s major capital markets.”

Until we do business in a digital reporting environment, Australia and New Zealand will be stuck in the past.

“Thousands of years ago, they used to do accounting on papyrus,” says Ghandar. “The way we present our financial statements now, from a value perspective, isn’t much different.”

Wells agrees. “For the countries that have implemented digital financial reporting, there is faster price reaction to information. There is a lower cost of capital. There’s better access to capital markets, and the list just goes on,” he says.

“What are we missing out on? If you’re an international fund manager and you can’t efficiently access financial data for our local firms, are you going to bother?”