Accounting firms, like so many types of businesses globally, are facing shifting client expectations, the introduction of new business models and a new regulatory environment.
In this blog post we take a look at just some of the key trends that are having an impact on the Australian accounting industry.
For accounting firms change is coming in two ways
For accountants, changes we see occurring across the broader business community today are somewhat more acute. While they’re assisting clients develop new business models amid global economic and technological shifts, they’re also considering how to transform their own business models in preparation for the future.
Globally the GFC has left its mark, not just in the US and in Europe, but here in Australia too. In many cases, Western governments are still working to tighten up regulation to avoid mistakes of the past by improving transparency and the management of risk, and these changes have swept right across the financial sector. But it’s not just regulation that’s changed since the GFC, global accounting body ACCA indicates that the profession as a whole has taken a hit too.
In the 2012 paper titled 100 drivers for change for the global accounting profession it is noted that “the risk of an erosion of public trust in business and accountancy could represent a significant challenge to the profession since public trust is fundamental to the way accountancy is perceived by policymakers around the world.”
I’d agree that the accountants need to be mindful of how important trust is, but I’m not convinced that it’s diminishing in any way. Business owners I speak to agree that accountants are very trusted in our communities as business advisors. They continue to trust accounting professionals to help them manage their finances, ensure their accounting is compliant and keep them abreast of changes that impact the business. It’s an important role that is more critical than ever as we also see increasing imposts on the small business sector.
The reputation of accountants, and other professionals in the sector, is at the heart of how they’ll need to move ahead.
Businesses now want a lot more than help with compliance according to many leading commentators on accounting trends and I talk to firms that say the same thing. Accounting practices are running businesses like any other – they need to consider how their operation will continue to grow and prosper in the face of competition. Being an accountant is not as easy as turning up and knowing clients will come through the door – relationship building, service offering and marketing are key.
The challenge for accounting firms lies in shifting business models
The challenge for accounting firms therefore lies in delivering more value added services to mitigate potential shrinking margins and increase clientele. But competition is on and according to the industry many firms still struggle to make the change. Many in the industry indicate that the vast majority of firms have been looking to move from a compliance-based business to an advisory-based business for some time but only a small number feel like they have successfully achieved this. This challenge is faced by accounting professionals at all levels.
In 2011 Deloitte published a report titled Crossing the chasm: From Operator to Strategist aimed at CFOs. In essence the report put the chasm down to this: “based on our experience with current and future CFOs, we propose that many fail to cross the chasm because their finance organizations may not have the right mix of talent or capacity to adequately free them from their Operator and Steward roles.” We suspect that time and skills are the most significant factors having an impact on all accounting professionals who find themselves unable to make the shift from what is effectively volume to value.
In this context, when looking at small to medium sized accounting firms, it’s not surprising that outsourcing of work to overseas contractors has become regular practice.
Anecdotally an accounting firm employing a qualified accountant in a less developed country such as India to do compliance type work is saving more than 300% of the hourly price – it’s clear how this could be very compelling for firms considering how to manage the squeeze on compliance.
However, if this isn’t resulting in a more diversified firm that adds greater value to clients, it’s unlikely a simple cost-saving exercise will prove beneficial for the firm in the long-run; in fact firms that are just cost cutting could end up just causing further margin drops across the whole industry – something to be mindful of.
Technology will underpin how professionals mobilise for change
In this same context there is significant shift toward cloud accounting occurring right now. While early adopters in the accounting industry and in small business have busted the door open we are now at the tipping point. On the client side the shift toward cloud accounting is commonly driven by a desire to be more mobile and gain access to company data from multiple geographic locations and they seem to be making the move more quickly.
On the other side, accounting professionals are driven by the mobility and multi-location access too but for most efficiency and effectiveness remain core drivers for technology change as they always have; and this becomes clearer when put against the backdrop of the challenges firms are facing in the desire to move from volume to value.
As margins on compliance work are being squeezed and greater pressure is being put on the need for value-added services, firms need to be more efficient. Cloud accounting certainly contributes to this. It’s one of the tools that can help re-shape processes across an accounting firm, improve how systems integrate and help to better manage workflows. Data entry will soon be a thing of the past and that means clients are right – accounting professionals should have time to offer better advice.
Our role in firms of the future is to deliver solutions for practices that simplify compliance to a point where all data entry is automated, where firms can manage and coordinate information coming in at the client end and out to government agencies at the other easily and efficiently, no matter what solution the business user has in place.
Bookkeepers and business consultants will be critical to ensuring firms have the support required through this process, and that SMEs are trained to manage systems effectively.
Let’s talk more about what’s trending in the accounting industry. I’d love to hear your thoughts in the comments section.