Tax and accounting professionals must wake up and realize that change cannot be avoided, and embrace a more responsive, forward-looking approach to innovation.
The broad trends affecting the tax and accounting profession over the next few years are clear:
- Sophisticated consumer software and various forms of machine learning, artificial intelligence and automation will continue to reduce the demand for traditional accounting practices (e.g., tax preparation, bookkeeping, payroll, audits, compliance, review)
- A do-it-yourself mentality among small businesses and younger people will continue to spread the notion that professional accounting services are unnecessary
- Client expectations in a 24/7 connected world will continue to rise exponentially as competition for their business increases.
The necessary response to these megatrends is equally clear: Tax and accounting professionals must wake up and realize that change cannot be avoided; the entire profession must embrace a more responsive, forward-looking approach to innovation and business development; and firms of all sizes must reevaluate their value proposition to clients, or risk being left behind.
Make no mistake, our profession is at a crossroads. What worked in the past is no longer a reliable indicator of what will work in the future, and the signposts pointing the way forward are maddeningly vague.
You are not alone if you feel besieged by calls to “embrace change,” “up your game,” “reinvent your business,” “be more proactive,” “create added value,” or “find ways to become a trusted partner.” And you’re certainly not alone if you feel anxious about precisely how to do all of those innovative, forward-looking things while continuing to provide tried-and-true services that clients are still willing to pay for. While it’s true that today the average small to midsize tax and accounting firm generates 60% or more of its revenues from individual tax preparation, some analysts predict that market demand for professionally prepared 1040s may drop by as much as half in the next three years.
What’s a CPA to do?
A more flexible future
The Big Four have been moving toward a more business-advisory model for many years, of course, and now next-tier, midsize and smaller firms are under pressure to follow suit – in their own way, according to the needs of their clients. The grand challenge over the next five years will be managing the transition from a traditional, after-the-fact business model to a more agile, engaged, forward-thinking model. Business development during this period will have to be broken down into manageable goals and reasonable benchmarks, all guided by a vision of how a firm can best serve its existing clientele while laying the groundwork for its clientele of the future.
For example, New York-based Berdon LLP is a Top 50 firm with a diverse portfolio of clients in the fields of communications, construction, manufacturing, healthcare, hospitality, real estate and several other areas. The firm already offers a variety of advisory services to its clients, but most of its revenue still comes from relatively traditional tax, compliance, audit and risk-assessment services. Anticipating that this will soon change, the firm has set specific benchmarks for increasing advisory and consulting revenue over the next few years. To meet the future head on, the firm is also experimenting with new offerings such as its Digital Asset Advisory Services team, which focuses on cryptocurrencies and the tax/compliance issues facing brokers and investors in various digital marketplaces.
Midsize firms with a relatively diverse client base are actually in a very good position to expand into more strategic advisory services. But what if you run a small shop that’s been doing the same thing – 1040 tax preparation, say – for the past 20 years? First, recognize that every tax return contains the potential seeds for new business. A tax return provides an enormous amount of information about the challenges any given individual or business is facing. The key to creating “added value” to those customers is identifying the challenges they face – especially the ones they may not be aware of – and offering a solution, or at least a strategy, for overcoming it.
For example, it’s a safe bet that many small business owners are unclear about how the new Tax Cuts and Jobs Act (TCJA) affects them. Explaining how the Section 199A deduction for qualified business income may benefit them, say, is an excellent way to engage clients in an ongoing dialogue about their tax strategy and other savings opportunities available to them. Confusion over the TCJA offers a unique, albeit temporary, opportunity to demonstrate the value of professional tax advice and build customer trust. And during times of dramatic change, maintaining customer loyalty is an essential survival skill.
If the future of the profession lies in business-advisory services, however, the question becomes: What sorts of insights can tax and accounting professionals provide that other business strategists can’t?
Several important technologies – e.g., artificial intelligence, natural language processing (NLP), the Internet of Things (IOT), augmented/mixed reality, robotic process automation and blockchain – are accelerating the rate at which data can be collected and analyzed, making data analytics an essential skill going forward. Inasmuch as these same technologies are displacing traditional accounting services, harnessing their power is also an important key to professional survival in the coming years. Big data without analysis is just chaos; extracting meaning from all that data is where the value is. Tax and accounting professionals can repurpose their considerable number-crunching skills into higher-value data-analytics tasks such as identifying inefficiencies, predicting market variables, developing competitive intelligence, creating threat assessments, modeling alternatives for better decision making and generally sifting through haystacks of data to find elusive needles of opportunity.
Another inevitable change that also represents opportunity is the continuous push to engage with clients more directly through apps, portals and other digital tools designed to give clients real-time, 24/7 access to their own information. To be clear, that push is coming from clients themselves, who need and expect such access to guide their decision making. Like it or not, clients are consumers, and they want their accounting services to be just as responsive and transparent as other products and services they use. In other words, clients/consumers want everything now, and on their terms. Those who don’t provide it will be gradually phased out and replaced by a new breed of online providers who cater to the growing market for comprehensive e-services. Geographical boundaries are irrelevant for firms that exist primarily in the cloud, but there is nothing stopping firms that now think of themselves as serving a specific region from expanding their customer base online as well.
Niche markets and specialized services
Yet another avenue for potential growth lies in re-imagining how firms can best serve specialized markets. For example, Business by Design is an Edina, Minn.-based firm run by Paul Miller that focuses exclusively on the unique business challenges faced by entrepreneurs. Miller uses his accounting expertise to advise clients on how to manage and grow their businesses, with an emphasis on developing personal relationships with his clients and a deep understanding of their individual needs. Likewise, Harless & Associates in south Florida offers tax services specifically for people who own yachts and airplanes. Niche markets offer countless opportunities; it’s just a matter of knowing how to serve them best.
Whatever strategy you decide upon, don’t panic. Though change is occurring more rapidly than ever, it is not happening instantaneously. There is time to develop and execute a winning plan. Accept and expect that you may have an entirely different business model in five years, with entirely different clients, and you may be serving them in ways you can’t even imagine today. But also allow for the possibility that a technical revolution in tax and accounting may be beneficial in the long run, allowing CPAs to do more interesting, rewarding work, in ways that add even more value to the bottom line.