The Future of the CPA Firm in the U.S.
I operate a CPA firm that acts as a Virtual CFO for several agencies in the digital marketing industry. I went down to New Orleans last week to moderate a discussion on service-based business metrics at Operations Camp.
What’s Operations Camp?
From their website:
Operations Camp is where we take everything a digital studio is, put it in a box, and flip it over. We reconstruct everything using the collective knowledge and know-how of some of the best studio operators around.
This isn’t a vacation — it’s three full days of frank discussion about the tools, practices, and principles that make studios thrive. It’s also about ways to fix the stuff that keeps you up at night. Together, we’ll share ideas that worked, some that didn’t, and the lessons we learned from both. And during the whole thing, you’ll make lasting friendships while witnessing the launch of a new community.
How’s that for an event description?
I’ll say this — there are traditional industry conferences, weekend workshops, and meet-up groups, and then there are experiences like Operations Camp. I had a whopping fun time and got to meet a number of interesting web development and design agency owners.
As one might expect when you put a bunch of folks in the web design industry together, we chatted lot about the industry itself — where it’s come from, what’s happening now, and what the future may look like.
Just after the conference, I was sent a link to The Future of the Web Design Agency in the United States, written by Greg Storey, one of the Operations Camp co-founders.
It was a fascinating essay — Greg’s insights on web design agencies resonated with me, because I’ve seen so many similarities in my own accounting services industry with CPA firms.
Here are some key takeaways from Greg’s article, followed by my own thoughts on the accounting industry.
IBISWorld reports that the web design industry in the United States is projected to generate $21bn in revenue in 2015.
If you thought the web design industry was red hot, you wouldn’t be wrong. But then, the accounting services industry is about 5x larger, with $100bn in estimated 2015 revenue. Between the “big four” — Deloitte, PricewaterhouseCoopers, KPMG, and Ernst & Young — and the thousands of large, medium and smaller accounting firms, there sure are a lot of us number crunchers out there.
A large chunk of “web design” businesses employ less than 10 people.
In the accounting services industry, there are also a number of smaller firms.
Here are some stats from CPATrendlines.com (2009 data):
- About one third of the accounting services industry work for one of the Big 4.
- About 17% of the accounting services industry work for a top 100 firm.
- About one third of the accounting services industry work in firms with 2–75 employees.
- About 17% of the accounting services industry are sole practionioners.
The design agency is far from dead and it will live long. It’s just evolving very fast.
There’s been a fundamental shift in the way people interact with and buy from companies over the last few decades, particularly when it comes to service-based businesses. People don’t like surprises. They value transparency in their buying process and expect a more educational and consultative marketing and sales experience.
We’re living in an age of clear, predictable pricing and over-the-top awesome customer service. That’s the new norm. Customers don’t like being invoiced by the hour, and smart companies know that billable hours are limiting.
While the accounting industry is far from dead or dying, it has been slower to embrace this emotional shift. Many aging CPA partners are stubborn. They continue to use a billable hours model with clients and foster an eat-what-you-kill kind of culture within the company.
When I think about our web design industry clients and what they provide / how they provide it for their own customers, I see things like clear, value-based retainer models and top-quality project management and communication using tools like Google Hangouts and Basecamp.
Hopefully we’ll see more of this happening amongst other CPA firms.
Over the years, we’ve actually looked at buying other CPA firms to expand our business. At the end of the day, we found that these firms and our firm were too different in culture and old-school in practice to make the merger or acquisition work.
The Future of the CPA Firm in the United States
Like in the web design industry, a huge chunk of CPA firms in the U.S. employ less than 10 people. While consolidations are happening, there seems to be a surplus of CPA talent out there, and we’ve found it more economical (and a much easier way to scale culture) to hire individuals than to buy existing firms and their client bases.
Winning CPA firms will become more consultative, helping companies not just with financial reporting, but to improve margins and advise on industry trends and pending regulations that may affect business. It’s no longer just financial statements and tax returns, folks!
Most service-based business stakeholders don’t relate to traditional accounting terms like accounts receivable and balance sheets — they care more about understanding how their business is really performing, against themselves and against their peers. It’s up the CPA firm to tell that story, to help its clients keep a pulse on their business and to act more proactively when it comes to financial health.
Finally, similar to what we’ve seen in the web design industry, we’ll likely see clearer, more transparent pricing. No more billable hours, hidden costs, or miscellaneous fees. We’ve found that by publishing our flat-fee price list, having a conversation about whether or not we’re a good fit for a prospect is a lot easier for both parties.
The CPA firm of the future will be able to out-educate its competitors, helping companies understand where they stack up and how to create business processes that maximize profits and minimize taxes.
Jody Grunden is a nice guy who likes hockey, golf, and his family. He also meets with businesses on a weekly basis as a Founder and Managing Partner over at Summit CPA Group, a Virtual CFO firm that helps growing companies manage (and improve) their finances.