Is the Great Resignation the biggest challenge facing accounting firms? Or is the biggest challenge the lack of movement to diversify firms into more advisory services? The staffing challenge is not going away and firms that are clinging to a compliance-only revenue model are delaying the inevitable. The Great Resignation is creating the opportunity to free every accounting firm from being heavily reliant on compliance delivered by CPAs. Even if more CPAs start sitting for the exam, the outflow of retiring Baby Boomers will continue to shrink the supply. Every firm will eventually hit a wall with their ability to deliver compliance.
Could technology enable an accountant to be twice as productive? If so, then it will also automate functions and decrease the demand for traditional firm services. This would stabilize the shortage of CPAs, but if superior technology gains were possible, that would be a temporary solution because workloads will continue to increase without an increase in the supply of CPAs.
The Great Resignation is forcing firms to rethink their future. The industry changed when software eliminated paper manual ledgers and manual posting. Today, the industry is changing in the services offered to clients. Larger firms have already transformed or are shifting revenue from heavy compliance to a more balanced advisory-focused firm. Other firms are slowly morphing into consulting firms that provide accounting, tax, and assurance as part of their support.
A tale of two trends
The Great Resignation has accountants leaving firms for greater freedom, compensation, and/or fulfillment. In the “Great Liberation,” firms are introducing other services, progressive technologies, and data-driven insights to free up their high-value professionals from onerous processes and less profitable engagements.
Firms are using technologies and data to drive efficiencies, identify opportunities, and empower professionals to reshape what a CPA firm looks like and how they operate. They will be building their reputation as a place where top talent can do their best and most fulfilling work, unshackled from legacy constraints. They are spinning the flywheel of sustainable and more profitable growth, with people and profits continuously liberated.
A precipice or pathway?
It’s an exciting time to be a managing partner. There is turmoil, but firms are making more top-line revenue than ever. Firms need to decide to ride out a compliance focus, which will slowly tip them further over the precipice of staffing dependence, or to accelerate movement to the advisory side. An advisory-facing firm will be more attractive to CPAs and less dependent on them for growth because non-accountants can fuel that growth.
An astonishing proportion of firms — 85% — have unfunded buyouts. Will professionals still want to buy out a compliance-focused firm? We have had countless conversations with firms that thought they had a succession plan that fell apart or they never were able to form a succession team. One reason plans fell apart was the lack of desire for the succession team to take on the buyout liability.
What can managing partners do to position their firm for the Great Liberation?
- Realign the vision. What type of clients and fees do you want in the future? The client lifecycle changes and so does their demand for different services. What will your clients want? The real questions are what will clients value and how can you optimize the value of your significant investment in your client base?
- Client redeployment. Look at the size, industry, fees, profit contributions, etc., of existing clients. Then, use technology to analyze them to see which are in the upper right quadrant — high dollars and high margins — and which are in the lower left quadrant — low dollars and low margins. What are the attributes of the upper right clients? What can be done to raise fees, improve firm training, or fire some clients in the lower left side? Develop a client redeployment roadmap and the results should be eye-opening.
- Rethink training. If you have determined your vision and created a redeployment roadmap, how do you need to alter training to support this direction? Slight changes can lead to significant gains.
- Acquire other businesses. An accounting firm could grow an advisory arm with internal resources, however, if CPAs are in short supply, why convert them to be consultants? Teach professionals how to identify consulting opportunities, then formally partner with non-accounting businesses while you look to acquire or merge in specialty firms.
- Eliminate practice management hurdles. A firm wants its CPAs to work at the highest end of their licensure and professional creativity, maximizing revenue and value creation for clients, but the same administrative hurdles get in the way every month (e.g., monthly bill prep). Technologies exist today to finally remove those hurdles.
It’s not a question of whether to choose Door No. 1 to door No. 5 above.You need to go through every door. The profession is in an adapt-or-die situation. The only questions are how quickly can you act and what damage could occur if you wait too long? The increased use of data and technology will make the movement to the Great Liberation faster, painless, lucrative, and successful. A firm can make more informed decisions if they can unlock the data to gain insights on the history of their profits, pricing, and performance.
Possible redeployment steps
First, you need clean data to determine how to redeploy resources, adjust fees, and realign messaging so that it resonates with the vision you have for the future of the firm.
Look at your clients, and determine for each one whether you should:
- Raise their fees?
- Disengage from them due to margins, time, or other reasons?
- Contact them more due to their strategic value, profit contribution or cross-selling potential?
- Call more often to just talk? This will create high-value work.
Second, use technology tools to unlock every ounce of sustainable efficiency and quality work from your professionals while maintaining a work-life balance. The next generation will not tolerate old, inefficient software and processes or difficult clients.
Finally, make it impossible for someone to not want to work for you. The best talent wants to do challenging and interesting work. Effective technology automates time-consuming administrative tasks such as billing or collections, and frees professionals to focus on client services. Firms using relevant technology will empower people and entice new talent to join your firm.
A question for tomorrow
Accounting firms are annuity businesses with a high trust rating and strong cash flows. This is one reason private equity firms have jumped into the space. Smart firms know they may soon risk price pressures via commoditization in service areas or face outright losses via automation. They are asking, “What will the accounting firm of tomorrow look like?”
It’s the right question because the client's appetite has changed. CPA firms have traditionally provided more compliance tax and financial reporting, but they need to deliver problem-solving services. We’re reminded of Thomas Edison’s famous quote: "Opportunity is missed by most people because it is dressed in overalls and looks like work."
The work of preparing your firm for The Great Liberation should begin today.
