The new standard for accounting firms? Maybe not

Normal. What is that? Conforms to a standard; usual, typical or expected. And what is the “new normal”? A previously unknown or atypical situation that has become standard, usual or expected. (Both definitions are from Oxford Languages.) I’m not sure we’re in the new normal. At least not yet. Rather, we are in a period of transition to a new normal. While things have changed and are changing as a result of environmental changes beyond our control, a new normal has yet to arrive. We are in a period of transition.

Do you remember when you wore professional attire to the office? Every day. I was talking to an associate of a company one day and he told me that it was a progressive company and now allowed occasional business on Saturdays. Wow! It was a big deal. Slowly but surely, the profession (and most other businesses) transformed into casual business every day. Some companies called it “dress for your day” or something like that. About a month ago I was at a good sized local business on a Monday and the managing partner greeted me in jeans and sneakers. Do you think we will ever return to the business dress culture for most companies? It is doubtful.

Work at home

Now comes remote work. Once called “telecommuting” (and maybe it still is). Most remote workers say they work from home out of choice rather than necessity.

The Pew Research Center conducted a study from January 22-30 of this year and they found that 60% of workers with jobs that can be done from home say they would like to work from home all or most of the time. when the pandemic is over, if given the choice. This figure is up from 54% in 2020.

Among people who rarely, if ever, worked from home before the pandemic and are choosing to do so now, 64% said working from home has improved their work-life balance. In terms of productivity, 44% say remote working has made it easier for them to work and meet deadlines. A common drawback? Sixty percent feel less connected to their colleagues. This is probably a long term trend. Your corporate culture will probably morph into something new, but everything in life changes sooner or later. We have not yet arrived at a “new normal”. (The Pew’s full report is here.)

According to Bloomberg (February 28, 2022), the shift from the pandemic era to remote working is likely to be more persistent than expected, hitting the finances of US cities that are banking on commuters to return to the office post-pandemic. “About 75% of the increase in teleworking during the COVID-19 crisis will likely continue…Twice as many workers will be 100% remote as before the pandemic.”

Like it or not, this transition will continue to evolve and businesses will need to adapt. Companies that refuse to adapt lose talent to companies that adapt. Stop banging your head against a wall and start actively seeking remote employees. If you have people working remotely 10km from your office, why can’t you hire someone who is 106, 1006km (or more) from your office? There are many recruitment sites online. Use them.

Accounting majors are down…

As reported in The CPA Journal (September 2020), among 78 large- and mid-sized college accounting programs, 64.5% reported a noticeable decline in accounting enrollment in recent years.

The AICPA Trends Report for 2019 indicated that total accounting enrollment is down 4% from 2016 highs and master’s enrollment is down 6% from 2016. The all-time high for graduates was in 2012. Is this a new norm? Maybe, but I think it’s a transition. According to Lumens, at colleges and universities in the United States, about 2,000 majors are offered. Students have more choices. In the 1990-1991 academic year, 22.8% of students who earned a bachelor’s degree were business majors. This percentage fell to 19.4% in 2018-2019.

There are a multitude of reasons for declining enrollment, not the least of which is an increasing number of majors that students can choose from and a lower percentage of students majoring in business. The bottom line is that this is not a trend that can be reversed quickly. We are in transition. Businesses have options:

  • Pay more for accounting graduates. Some companies are trolling the market by offering up to 30% pay raises and a promise of remote work. How do you pay for this? Increased fees? Decline in spouse’s income? Thirty percent pay increases are not a new norm; it’s temporary and possibly a transition to entirely new compensation and staffing systems
  • Hire non-accounting majors for jobs that don’t require a CPA. Use these non-CPAs to build a strong consulting practice and/or support technical services. This will require a bit of planning and creativity. This can impact your company culture. Be creative and deliver new value streams to customers.
  • There is considerable M&A activity these days. Some staff members will not appreciate the new situation in which they find themselves. Wait for a merger, then recruit staff from the merged company. This is not a good option…you cannot predict or trust this approach.

The end of organic growth?

Companies have enjoyed good fees for several years providing traditional services that really haven’t changed much (eg audits). I know, you’re thinking of the die-hard normalizers who always have something new. Implementing these standards can be costly. But from the customer’s perspective, an audit is not much different than it was 20 years ago. Plus, the client doesn’t even really want the audit. Someone else is doing it! For most businesses, the market is pretty much sold out, except for customers making paid purchases.

The opportunities for organic growth seem to be diminishing. But there are alternatives. Mergers …merger activity with companies of all sizes is at an all time high and this activity is accelerating. During a merger, some clients leave the merged firm for various reasons. You might get lucky and pick up customers there, but just like with the staff, it’s not an option you can predict or rely on. The main and realistic opportunity for growth is the addition of value-added service lines. Advisory services.

According to Gusto (a payroll, HR and benefits provider for small businesses), more than a third of business owners are willing to pay 10% more than they currently pay for an accountant who provides a variety of HR advice. According to the Gusto survey, additional consulting services companies want from their accountants include marketing, operations, and sales.

Consulting services are defined differently by virtually every CPA you talk to. The important thing is how do you want to define advice? Accounting firms say they are “too busy” to implement a strong portfolio of advisory services. Well, that’s where those non-CPAs come in. Find one or more bright young business leaders, maybe with a bit of experience, but who definitely have an entrepreneurial spirit. Work with them to develop an advisory services plan. Give them the green light to launch and run your consulting firm. Transform your business from a CPA firm (a compliance-centric firm) into a professional services firm that provides a variety of value-added consulting services and can also provide necessary compliance services. Staff your new non-CPA tax department and improve your margins.

Some factors influencing the market are beyond your control. Move on. Change your mindset, approach your business in new ways, and start building your business of the future.

About Mildred B.

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