If you want to know what the future holds for small accounting firms, look to what the present holds for large accounting firms today. As software improves and economics change, small firms are increasingly able to access tools that had, just a few years ago, been the near-exclusive province of large firms that could invest millions of dollars in sophisticated software tools. This trend is expected to continue, dramatically expanding the services smaller firms will be able to offer clients.
In this installment of our series “The Frontier,” we zero in on the local firms that form the bedrock of the profession to think of how they might evolve as technological improvements filter down to their level. Randy Johnston, executive vice president and shareholder at K2 Enterprises said that one big effect will be an explosion of advisory services at the small-firm level. While there are many small firms that offer these today, he said, most lack the resources to offer clients the same level of service as larger firms. However, Johnston said this is changing and will likely continue to change in the future.
“I think five years is enough time for it to become more common,” he said.
Part of this will be because the economics of accounting technology is changing, according to Jim Bourke, a partner and managing director of advisory services at Top 100 Firm Withum. He pointed to the Dynamic Audit Solution project currently being undertaken by top firms in cooperation with the American Institute of CPAs. The project is meant to develop cutting-edge audit tools and methodologies based on the latest technology and make them accessible to those who may not have the capital to invest as much as the Big Four firms do. This is only one part of what he sees as the erosion of the first-mover advantage that these large firms enjoyed through these technological investments.
“Today, even the smallest firms, even those sole practitioners on Main Street, have access to the same cloud-based tools that bigger firms have. Heading up technology in my own firm, we’ve got 2,000 employees, I can put the best technology in the hands of my auditors. Those same technologies I buy with, say, 2,000 licenses, the sole practitioner is buying just two or three. So no longer is technology a competitive advantage for me. The same technology is out there and available to everyone,” he said. Bourke added he does not lament this, because better tools mean a better quality of accounting overall.
Having access to these technologies means that data analytics, which is already being performed by some smaller firms, will likely explode in availability as time goes on, according to Geni Whitehouse, the “Countess of Communication” who leads the Impactful Advisor.
“Analytics used to be a big boy thing, but now we all have tools to do analytics, forecasting and modeling. It’s really been brought down to the small-business level,” said Whitehouse. She noted that high-end tools used to cost, at the cheapest, tens of thousands of dollars. Today, she said, she can access cloud-based analytics tools for as little as $12 a month, while business intelligence applications can be had for as little as $50 a month. What’s more, she said, these tools tend to be tailored to small and midsized businesses and so are actually more usable than some of the high-end tools. She added that some of these high-end tools are even a little outdated next to the newer solutions for small businesses because they’re more expensive to update.
Jennifer Wilson, co-founder and partner of Convergence Coaching, said the increasing accessibility of data analytics will make business intelligence dashboards, previously only used by larger companies, practically ubiquitous across the business world. This will allow a deeper level of analysis and understanding of what is happening in a business, whether it’s the accountant examining client data or the owner examining it themselves.
“I think everyone will have dashboards. I think the traditional reporting where we get these reports with tons of columns [won’t be as popular]. I think there will be so much more visual reporting happening and it will be commonplace to business owners. In real time it will be on their phones. I know it’s available [today], but it will be commonplace later,” she said.
She added that automation, too, will become more commonplace as software becomes more available, pointing out that today even small practitioners can automate things like billing and workflow, aided by data extraction tools that are also becoming more accessible. Similarly, she said, remote audit tools will also become more common, meaning even small practitioners likely won’t be doing as many site visits as they do now.
Big-firm tools, big-firm headaches
The fact that these solutions tend to require an internet connection to work means increased vulnerability to hackers. Therefore, next-generation tools will need next-generation cybersecurity as well, according to Donny Shimamoto, managing director of IntrapriseTechKnowlogies LLC. Small firms already recognize this, he said, and are preparing.
“Even small firms now need ‘enterprise-class’ cybersecurity, incident response and business continuity policies and plans in place. Small firms currently can’t afford to have a professional on staff to address those areas, and most of the managed services providers don’t have the understanding to handle the business aspects that need to be addressed for a comprehensive plan. That’s why firms are working hard to right-size these enterprise policies and protocols to adapt them to the way smaller firms work and make them cost effective for a small-firm owner to implement,” he said.
Joe Woodard, leader of Woodard Events, who runs the Scaling New Heights accounting technology conference, said this will be a reflection of the changing security landscape, driven not only by regulatory pressure, as we see currently with IRS standards, but client demand as well.
“They may have a client doing $10-15 million in sales, and they have a data security plan which encompasses contractors that must adhere to that or else lose the work,” he said, noting that even now, “we’re subject to audit anytime from our clients, they’re very stringent, so even if we didn’t have our own plan, we still have our client’s,” he said.
This is a reflection of the increasingly online nature of the accounting profession, which will accelerate in the future. As data becomes more and more important even to small firms, by necessity firms will need to take additional steps to guard that data in ways similar to those employed by larger firms today.
“I think where the enterprise firms have tightened up what their employees are doing with their data systems, by necessity that will move very quickly into the smallest of the small firms,” Woodard said. “So you’ll see sole practitioners embracing IT standards around data encryption, backup to protect from ransomware and malware, and data curation at the level of the top 25 largest firms in the world.”
This story is part of an Accounting Today series called “The Frontier,” where we explore the cutting edge of accounting technology through conversations with thought leaders across the country, who will share with us their observations, hopes, concerns and even a few predictions here and there.
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