With the New Year just around the corner, we decided to look into two different crystal balls to see what the future holds: We asked a panel of top industry experts what they expect to see in the next 12 months, and we surveyed more than 200 firms about their expectations and plans.
For the results of the survey, see our slideshow,
What trends should accountants keep an eye out for in 2015?
Koziel: All firms will be affected by the tax extenders looming at year end. ... [They] could make 2015's tax season a real challenge to CPAs. Another trend is staffing. Retention is falling and young professionals today will leave on their own terms, forgetting the unwritten rule of staying with your firm through tax season. The workload is at an all-time high, with revenue per professional at an all-time high and revenue per partner at an all-time high, according to the AICPA's 2014 PCPS/Texas Society of CPAs MAP Survey. Staff are leaving the profession for good, making it a challenge for smaller firms to pick up larger firm staff.
Wiley: The transition of partners into new roles or out of their firms entirely will gain momentum in a big way. This momentum will open the door for emerging leaders to step up and take the reins on client relationships and firm projects. This will not be easy, but it will be a necessary and exciting change for our profession.
Wilson: First, succession -- it's everywhere and firms have to "get real" about who's going and when, and get going on client and other relationship transitions now.
Second, technology -- the rising importance of technology strategy, as an enabler to firm strategies like retention (anytime, anywhere work, flex, mobility, etc.) and client transition (customer relationship management systems where important client details can be captured and stored in perpetuity).
Nisberg: First, the profession can count on an increased trend in litigation. I am seeing more client litigation occurring, as well as unlawful termination suits by employees and outplaced partners. I suspect all the litigious activity is due to issues of quality on the part of clients and insecurity on the parts of employees and partners. I do see more firms fighting back, rather than rolling over and playing dead.
The second trend we can look forward to is increased competition from non-traditional service providers. Banks and law firms are building niches in tax advice areas, as well as other types of advisory groups. I suspect this will pick up steam as providers see how lucrative this can be.
And third, increased regulatory control will also prove trendy. The Securities and Exchange Commission and the IRS will take strong positions in conflicts with firms and firm clients as regulators flex their muscles post mid-term elections.
Metzler: First, competition for experienced people will reach record highs and turnover will be rampant. There will always be another firm that will throw more money at a great CPA; thus the winners will be those firms that offer rapid promotion and meaningful personal development.
Second, the "Changing Client" -- the succession of Baby Boomers is pervasive across all businesses, and 2015 will bring in waves of new leadership at clients with different expectations and requirements from their CPA firm.
Grissom: The trend I will mention is that firm leaders should anticipate another challenging year for recruiting and should have a focus on employee retention in 2015. The talent pool is shrinking and it is imperative for firms to find innovative ways to attract the best of the best in the coming months. Twenty-somethings are looking for progressive and creative firms, exciting and clear career opportunities where they have a sense of community. Accounting firms must learn to compete with other industries who are further along at creating these environments.
Koltin: First, look for a continuation of aggressive recruiting practices by firms of all sizes. As the economy has improved and growth is coming back to CPA firms, many firms are willing to pay a premium in terms of salary/bonus to their top talent. Make sure your stars know you love them and that they have a great career with your firm.
Second, continue to focus on your top 10 clients, because you can bet that your competition will! Most firms are in an aggressive selling mode and leading with industry specialization and/or consulting services to woo your clients. It is imperative that you spend quality time with your clients, truly understanding their needs and wants.
Crosley: The first one that needs furious attention is pricing strategy. The hammering of audit and other prices is not going away anytime soon, and firms need to figure out whether they're going to buy business or not, whether they're going to premium price and continue to lose opportunities, whether they're going to come in low and buy the business. ... We have not had very sophisticated pricing strategies in our industry.
The other thing to figure out is your hiring strategy. The profession heretofore has been a gentleman's game, but the gloves are off now, and that means aggressive hiring strategies and different ways of identifying candidates in sufficient quantities that we're not choking the firm. That might mean using executive recruiters, that might mean hiring in different places, that might mean a whole mix of approaches that is going to have to go on steroids. I came out of corporate America where we had high-level HR people, and how did we ace out the next guy? We brought in HR resources that were head and shoulders above everyone else.
Peterson: One trend is that we will start to see more Millennials leaving their firm and starting a small practice. Not only will their firms be cloud-based, entrepreneurial and reflect many of the things we have advised small firms to do today, but they may also start to shift compensation and hours worked to fit their personal lifestyle. Millennial firms will have a structure where they limit their hours to maybe only 40 to 50 hours per week. Clients will adjust and appreciate the forward-thinking business model of these young professionals.
What do you think will be the most surprising issue for accountants in 2015?
Grissom: I think that continued consolidation in the industry will occur and it can be surprising when a new competitor seemingly comes out nowhere. Most firms are at least interested in having a conversation with another firm regarding a combination, and I think we will continue to see more and more of this.
Crosley: Unexpected mergers of unexpected firms. That means that markets are going to shift, and you could be sitting in Podunk, Iowa, and all of the sudden in comes fill-in-the-blank. This is going to totally shift a lot of our markets.
Nisberg: I think the biggest surprise for the profession this year will be the merger of two Big Four CPA firms. While merger mania has changed the landscape of the second-tier Top 100 Firms, the Big Four have seen little efforts among themselves in several years. That said, I believe it's time something dramatic happens at this level.
Wilson: I think accountants will be most surprised by the departures of people they thought were committed, and also how much harder it is to find quality, experienced hires. If I get another surprise to share, it will be who merges with whom -- firms that are seen as very successful and independent will "give in" to the merger trend.
Koziel: One of the most surprising things for accountants in the coming year, I believe, will be their clients' uncertainty for the future. Complexity is growing for small businesses and, if the CPA becomes the bearer of bad news, the clients don't always separate the news from the messenger.
Metzler: The biggest surprises will come to partners looking to accomplish their succession internally. They will find that they will have to make the acquisition of equity by younger partners dramatically more affordable and easier than they ever would have imagined in order to have them on board to meet the buy-out payments down the road. The second part of this is that the number of new firms created by young partners/professionals breaking out of existing firms will increase dramatically because of the unrealistic succession buy-out and other expectations of the older partners.
Wiley: The number of clients and staff that firm leaders will identify, hire or acquire and take care of in our virtual world will become more the norm. People have already figured out that they can bank, hire someone to develop marketing materials or administrative tasks, and graphic artists all over the world, so the next step is that our firms can hire accounting talent and take care of clients in the same way. The time to get extremely comfortable with cloud technology and social media is now.
Do you expect anything to get radically worse for accountants? Radically better?
Peterson: Reduced funding for the IRS is probably going to make it much more difficult for practitioners to work with the IRS - wait times on the telephone lines will be longer and responses to written communications could be even slower than this year.
Metzler: Tax seasons will only get worse because of government and IRS dysfunction. IRS expectations and preparer liability will increase, and expiring /renewing tax provisions will increase in number and uncertainty.
Serving private companies/small businesses will get much better. With the robust activity at the Financial Accounting Standards Board and the Private Company Council with private company GAAP and with a high-quality OCBOA - the AICPA's FRF for SMEs - there will be some excellent choices for firms to offer more logical and sensible financial reporting options to clients.
Koltin: I think those firms that are simply compliance shops will continue to struggle with realization and margins. I was recently with a firm who told me that their marketing strategy for growth was to wait for requests for proposals to show up on their doorstep. To me, that is not a great growth strategy. But worse than that, it is almost a guarantee that the firm will have low realization and low profitability.
Wiley: The move to the cloud will be in the realm of radically better. Firms are really starting to see how they can improve their client service experience, move to a trusted advisor role, collaborate with their own team in a deeper way and improve security. The fear is lessening and the excitement is building.
Crosley: Pricing will stay radically bad. I don't know how much worse it could be. I recently saw an opportunity where the high bidder was almost five times the price of the low bidder. That's pretty radically bad. Pricing is out of control right now. To try to execute a winning strategy when you have that kind of spread is impossible.
Firms are making decisions about grabbing markets and grabbing share and grabbing industries - one of them I was involved in recently, they were able to come in at about a third of the price, because they do so much in a particular industry that they were more efficient. It has to do with the shift to specialization, it has to do with mergers and the shifting of markets as a result, and we were already facing pricing pressure as we came out of the recession.
Nisberg: What will be radically worse? I foresee the labor supply diminishing and a return to the pipeline issues of 2010-2012. I also envision loyalty becoming a radically serious issue. And again the regulatory landscaper will get severely worse. Radically better: new business development. Declining loyalty and fee pressures will encourage more [clients] to switch service providers. The challenge will be to protect market share while capturing that of competitors. Look for more double-digit growth in 2015.
Koziel: Whether things will get radically worse or better for 2015 will depend on the practice management commitment of the firm owners. The firms, no matter how small or large, that manage client expectations and have open, honest dialogue with both clients and employees will win the race and see things as radically better. Firms that manage the timing of client deadlines and use extensions and pricing of services to assist in spacing out the work throughout the year see things as better and tend to have an easier time through tax season. Firms that don't follow best practices could have an even greater struggle through tax season, with an added level of compression based on the uncertainty of tax extenders and the implementation of the Affordable Care Act.
What one piece of advice would you give firms going into next year?
Koltin: My first answer would be, whatever time you are spending building relationships with clients, potential clients and referral sources, plan to double it! The good news is that the more time you spend with prospects and referral sources should accrue to many more business opportunities. The bad news is your clients, as I mentioned, are top of mind with some of your best competitors and you need to make sure you are spending more face time with your clients than they are.
My second piece of advice would be to perform a really hard analysis on your current mentoring program to ensure that you have the right relationships between mentors and mentees and that your mentor program is, in fact, having an impact.
Wilson: If you don't have one, create - and if you do have one, update -- your firm's five-year vision: where you are headed in terms of size, reach, positioning, product/service mix, culture, and client mix. Include young leaders (down to seniors) in the process and make sure it is engaging to your next generation. Make sure your firm's strategies tie to that vision, and make sure your next-gen leaders have the loudest voice/biggest say in key decisions going forward, so they feel they have genuine ownership in your firm.
Peterson: With the uncertainty of tax extenders, the ACA and the impact of the new repair regulations, start planning on managing client expectations today so that you can have as reasonable a tax season as possible. Meet with clients before year end and have many of them agree to extend their returns so you do not have to have that stressful conversation during the heat of the season.
Wiley: Be bold in your decisions and make every one with this thought in your mind: "Is this an initiative or strategy that will help in creating a strong firm of the future?"
Nisberg: The one piece of advice (I need to hide four thoughts into one run-on sentence): Get into more non-traditional services, such as asset management and energy and R&D tax credits, while removing active retired partners and culling out high-risk and annoying clients. Formalize the succession planning process and centralize decision-making efforts at your firm.
Crosley: Technology! ... If you have to constantly worry about pricing pressure, the lowest-cost producer is going to be in a better place. The reason for technology, though, is the strategic significance of it, not the lower cost of production, but the strategic element of utilizing it in a way that's different and creative. It's going to be a differentiator and enable innovation and enable low cost of sales and low cost of production. It's the one thing that's going to touch every element of production, and it's the most powerful.
Get a good technologist, get someone who's a strategic technologist, whether they're inside or outside the firm. Get that technologist talking to whoever is in charge of your growth strategy, get them to hunker down with your managing partner to figure out how you're going to get technology to grow your firm. I don't think those conversations happen very often.
Grissom: Focus on people next year - give partners goals and help them achieve them, invest in your people and bear hug your best clients. If you do this, you will have a great year.
Koziel: Start planning now and manage client and staff expectations. Look at the bigger picture and potentially rethink some clients who are not going to add to the firm's future. Look at your pricing policies and implement ways to price clients according to complexity, timing and overall expectations and how they will contribute or relieve some compression issues in the firm.
Metzler: Spend adequate time and money on your firm's business planning process. One retreat a year doesn't do it. Planning and implementation are an all-year activity with solid accountability to it. Clients are changing, the world is changing, talent is changing, business is changing, laws are changing and the market is more competitive. Avoid complacency at any cost. We are no longer in an annuity business. Being relevant in a changing world is everything.
