The Big Squeeze

The Accounting Industry is Experiencing the Big Squeeze

Executive Summary

It is now becoming abundantly clear that the market for conventional services of accounting firms is shrinking. However, this does not mean that mid-size firms cannot flourish as the industry rapidly changes. In fact, the opportunities are endless if these firms are prepared to expand their service offering and take advantage of new technology. In this new era, firms will require:

● a bold vision that embraces new service lines and expanded consulting services;

● demonstrated commitment to diversity in the way they recruit, develop, reward and promote their staff; 

● the adoption of next generation technology platforms that promise to fundamentally change the way accounting firms operate, expand and scale their services offering. 

Trends

A Generational Shift in Attitudes: The Need for Work/Life Balance

The most significant challenges facing CPA firms right now are people related. As you consider your firm 5 years out, keep in mind that the nature of the workforce is also changing. The desire to log 50 plus hours per week in order to get ahead is no longer a driving force. Everyone is, and should be, looking for balance in their lives. According to the Grow Group, six in ten accountants would like to make a career change and transition to industry or a different practice.

The Talent Shortage: Competition Will Require More Focus on Recruiting & Retention 

There is a serious shortage of talent and this is only going to get worse as the baby boomers move on. This generation is retiring at a rate of 400,000 per year in Canada and similarly in the USA (4 million) and Europe; this trend is expected to continue for the near future. Consequently a great deal of valuable corporate knowledge is going to leave the workplace. The “talent exodus” is also happening at a time where suitable graduates are in high demand. Firms that are going to survive must be strategic in order to obtain their share of the emerging talent pool. Firms must also be prepared to pay higher salaries and provide more benefits if they hope to compete. All of this leaves us with a shrinking workforce and one that will likely not work the hours we have grown accustomed to over the years. As noted by Goodhart and Pradhan in their book The Great Demographic Reversal “What happened in the three decades up until 2010 was the largest increase in the availability of workers that the world has ever known”. This is now reversing itself at unanticipated speed.

For additional insight, I draw your attention to the attached article “How Companies Can Adjust to Avoid a Boomer Bust” https://www.canadianbusiness.com/business-strategy/how-companies-can-adjust-to-avoid-a-boomer-bust/

Work from Anywhere: Higher Employee Expectations and Less Loyalty

Through the lens of the pandemic, we have learned quite a bit about what the future of work will look like; it has underscored the importance of getting the remote worker equation right. As key staff members spend less and less time in the office, their relationship with the firm is bound to change. This will present opportunities for other firms to poach top performers. We now have an unprecedented situation where we have new staff who have never worked in their employer’s physical environment. This can make it very difficult to develop a sense of belonging for these staff members and thereby create a team environment. As a result, such employees are opened up to working for the highest bidder in a world of faceless employers. Remote workers also test the technology infrastructure of their organizations; their expectations are high for a seamless and secure interface and a 24/7 ability to connect.

An Impending Economic Downturn: Putting Downward Pressure on Fees

A drop in the trained workforce across the country will likely result in an economic downturn, or at the very least, marginal gains. The impact will lead to fee pressures and a negative impact on growth, coming at a time when people are less and less interested in spending money on compliance-type engagements. Our clients have higher expectations - they want smart advice and comprehensive plans that will assist them in building their businesses. 

Maintaining Growth: Requirement of Firms to Expand their Service Offerings 

The firm of the future will need to expand beyond the classic CPA services. They will need to go well beyond standard compliance services to provide clients with comprehensive advice in the key areas that affect their client’s success. What new areas can firms focus on that are complementary to their current offering? How do you expand on this and become the “Advisory” firm of the future? What extensions to your current offering could you provide such as wealth advisory, succession planning and cyber security? Some firms have creatively expanded into areas as diverse as marketing services, providing CRM systems integration, analytics insight and even search engine optimization. Service offering additions are, therefore, essential to continued success.

A Cultural Shift: The Need for Firms to Embrace Specialists from Outside the Profession

Accounting firms have traditionally operated as a network of experts operating under one roof for the benefit of our clients. However, the gurus continue to tell us that we must creatively focus on developing niche practice areas for expansion. Therefore, a cultural shift will be required as firms welcome and nurture individuals from different disciplines.

Offshore Resources 

This can be part of the solution for firms but really concentrates on the cost side rather than the income side. Report after report indicates that the strongest organizations are those with an eye on growth. While many firms are and will continue to consider the outsourcing of compliance type work offshore, cost cutting does result in short term income gains but it is not growth oriented.

Risk Mitigation

As auditors, we are analyzing risk as it relates to our client's ability to remain a going concern. A strong practice can clearly be developed in this area.

Cyber Security

We also need to develop a clear understanding of the risks presented to our clients by cyber threats. When we develop our “Opinion” on their results from operations and their abilities to continue to do so into the future we had better have a good understanding of the strength of their IT infrastructure. This should also put us in a great position to advise our non-attest clients on the quality of their security and the advances that may be required.

Strategic Planning

In-depth knowledge of our clients’ affairs make us the ideal candidate to assist in their strategic planning process. We can provide leadership and direction in this regard. Firms can start by developing an internal template/process package to guide staff through the process. 

Data Mining/Analytics

There is a need to enhance our abilities to extract relevant information from our clients’ data banks to assist in the planning and decision making process. By scouring this data, we are in a position to gain great insight and competitive advantages.

Making the Shift

Market Size/Growth 

There is a strong argument in favour of market size growth in the mid-term but in the future it will not be present in the traditional service areas. Compliance work and its outputs are quickly becoming commodities with extreme downward pressure on related fees. Entrepreneurs/Directors are happy to pay for proactive advice that makes their enterprises better. However, they are reluctant to pay for historical data that does not lead to business improvements. It is important to consider all the ways in which a classic relationship between CPA and client can expand to provide proactive services. Proactive services should focus on improving client efficiency, competitiveness, social contributions, employee satisfaction, cyber security, shareholder wellness etcetera.

Threats 

The biggest threats to market growth is the culture within firms and the mindset of the current partners. Other key challenges are related to the availability of adequately trained staff and competition from non-traditional players. Partners need to recognize just how much knowledge they possess and how to best use it to support their clients’ growth. The battle for talent will be intense. This can be mitigated with the introduction of new service lines and embracing the talent best suited to scaling up within practice areas. All the while, we cannot underestimate the effect of other specialists (such as bankers and brokers) entering our traditional space and providing “estate planning and tax compliance services”. 

Industry Consolidation 

Smaller firms concerned about succession are increasingly being rolled up into larger firms. At the same time, larger firms are expanding their service offerings by combining with leaders in other industries, which are compatible with their own offerings. What does this mean for small and mid-size firms long-term? It is almost imperative that mid-size firms follow the lead of the larger firms and find complementary service offerings. The role of the international affiliation/network is getting more and more important. It is no longer enough that these organizations provide referral firms around the world and some form of professional education; they must also elevate their game and provide much more to their members. Focus needs to be on the consolidation of the activities that are being duplicated in each individual office. We need to find a mechanism to provide a network-wide solution. The ultimate goal: become a center of excellence and thought leadership that the individual member firms can draw on.

Technology 

It is no secret that big data, bots and AI will be transformational going forward. This is especially true in our profession. Bots are making routine repetitive tasks far more efficient and accurate while AI is transforming the way in which we detect fraud and ultimately perform our audit functions. Data analytics is also opening the door to new opportunities in preparation of comparative reviews of the numerous data points our clients create. These platforms are fast moving into firms and they promise to go mainstream. Embracing these technologies has immense potential for firms looking for new markets, cost savings and competitive advantages.

Business Development 

Traditional business development has been turned upside down. The opportunities to meet face to face and get connected to potential clients has all but dried up; thus the role of social media and other technologies has become far more prevalent. How do you ensure your firm is picked out of all the noise? These are the new issues and must be addressed immediately. There are many great technologies to support this new world.

Infrastructure

How will firms need to navigate this new world? How should firms be thinking strategically about their cost structure related to real estate? What are the key considerations for reducing costs through virtual workers? Is offshore a good option as well for reducing cost?

Compliance 

How will Government regulation impact the way firms do business? 

Talent 

Firms will need to re-think how they hire and retain top candidates that are necessary to fuel their growth? What skills and enabling systems will they need to develop or draw on?

Opportunities

New lines of business - Where are the opportunities for firms to grow their revenue?

The “Firm of the Future”

The Evolution Hub will continue to paint a picture of “The Firm of the Future” by outlining the strategies and technologies that will drive these initiatives as well as introducing creative solutions to the many issues facing the small to mid-size firm.