Another tax filing season has passed and many accounting firms that had hoped the post COVID world would be kinder and gentler have found that reality has not quite lived up to the hype. Too many firms are working too much, asking their teams to work too much for the wrong clients and roughing it through the Fall deadlines.
Tax season isn’t getting any easier. In fact, we have heard frequently that 2024 was much worse than expected and that a ‘new normal’ appears to have arisen.
Here is the reality that is upon many accounting firms:
- More work and demand for their services than ever before
- Recalibrated workforce expectation including work being less important to them. Work has been reshuffled with the desire to have more life, less work. Working from home trends and part time are rampant.
- Cost of labor increase
- High staff turnover
- Aging partners and a succession crisis (have you tried to find a plumber lately? It’s going the same way in the accounting profession)
- Lack of students studying accounting (see below)
The Wall Street Journal published an article on October 6th, 2023, titled, “Why No One is Going into Accounting. Pay has stagnated in a profession once seen as a sure thing while other fields are more lucrative; ‘pretty much a death sentence for my dreams.’”
The title of the article is a bit dramatic for my CPA (inactive) sensibilities yet many of the themes ring true. A profession plagued by a big commitment (time and money) to education (150-hour rule), long hours, at times tedious work, lower pay than other fields and a country mile to make it to the potential pot of gold (partnership). These forces have had a deleterious impact both on accountants leaving the field and the pipeline of accountants.
From the article:
- According to the Bureau of Labor Statistics, that has led to even greater workloads for existing accountants, and more than 300,000 have left the profession between 2019 and 2022.
- Those studying accounting have decreased.
- The number of accounting majors fell by about 30% since 2018 said Prabhudev Konana, the Dean of the University of Maryland’s business school.
This should be resulting in:
- Change in business model
- Getting focused on the right clients
- Sunsetting services that don’t make sense
- Raising prices
- Accelerating around niches
- Focusing on a business model that serves the right clients with the right services all year round
- Alleviating workload compression around 3/4/9 and 10/15.
Where there is sizzle but not enough steak:
- AI will move the needle, but you will still need humans.Before you have a surgery, you want a human (Doctor) providing you options, considerations, understanding your concerns (emotions), same with taxes, business restructuring, tax planning etc.
- Changing the 150 hour rule etc.. All worthy of consideration yet if you are still going to ask accountants to work more than their peers, for less pay the profession is NOT focusing on the right things.
- Private Equity Group (PEGs) buy outs.It is exciting certainly for partners and possibly some staff to get some upside. Keep it coming. With that said, we don’t see PEGs buying up the large majority of the profession which is sole practitioners and small firms.
So where does that lead us?
I presented to the Partner forum in Walnut Creek California for the California Society of CPAs on November 6, 2014, a presentation titled, “Succession and Staffing. What’s the real problem.”
My first slide had an image of a bottle of tabasco sauce and a bottle of Pepto-Bismol. My argument was that the profession didn’t have a succession or staffing problem, it had a business model problem. That is, if we focused on fixing the business model of accounting firms, we would move the needle on solving the succession and staffing problems we faced. Metaphorically, if we eased up on the tabasco, we would need less Pepto.
The accounting firm business model has been problematic for decades. I know first-hand as a CPA (inactive); I experienced public accounting in the trenches first with KPMG in San Francisco then a large local firm in San Francisco. The experience was not a pleasant one.
I graduated near the top of my class at UCSB and went straight to work for KPMG. I left the freedom of studying when I wanted, where I wanted, dressed how I wanted, to wearing a suit with a timesheet never too far from my hand. I was confused as the incentive I was taught in school was that capitalism was to create as much value or output with as little effort or resources as possible. It’s called profit. The accounting firm business model didn’t reflect my understanding of capitalism. Working 2300 or 2500 hours was worn like a badge of honor. Vacation blacked out during busy season and the way to get ahead was to work more. Yuk. My peers who didn’t enter public accounting worked less and made more. Needless to say, I left public accounting for a better life. Further, I have a very successful group of peers from UCSB who also studied accounting and none of them found success in public accounting. Kinda sad.
The old business model was about being all things to all people, driving realization and utilization were the primary metrics. Keep people busy, leverage was in people and even if summer work meant low rates and tedious work pick it up. The profession asked smart people to do tedious work, working long hours, making less money than their peers and with any luck you might make partner in 8-10 years.
To that end and unfortunately, we’re not surprised by the mess the profession is in. We have serious concerns that the State Societies, a pillar for local firms, might not make it.
One slide I presented in Walnut Creek was titled, “Renew firm of today” arguing the metrics we ought to be measuring are:
- What are the top 3 things we are doing to make your firm your #1 client
- What are the top 3 things we are doing to NOT make your firm your #1 client
- Measuring team member satisfaction
- Monthly recurring revenue (yes, subscription model in 2014)
- # of A clients, B clients and C clients and,
- A value review with clients.
The gist being you need to focus on having a healthy firm, with the right clients, creating the right value for them on a recurring basis. These are the steps towards transforming your business model so you can work 40 hours or less all year round, with the right clients. This model will facilitate the ability for both you and your team to work 40 hours or less with the right clients focused on value creation. This will drive pipeline and retention of accountants. It will also enable firm owners to goal seek for driving profits up and hours down.
Many firms have made progress, and the AICPA/States are all too aware they have a real problem on their hands. We argue if the business model of accounting firms doesn’t change, all other initiatives will be short term or half-baked fixes. Address the tabasco issue.