I remember an old wise crack that went like this:
Question: “What’s the biggest change in accounting in the last 40 years?”
Answer: “Air conditioning.”
Whilst I think that’s unfair, it illustrates a point that the profession does have challenges aplenty.As the capability of accounting software continues to increase, questions are inevitably asked about the future of the mid-sized accounting firm. It’s true that products like Xero and MYOB have made it exceptionally easy for small to medium sized companies, with revenues of up to $50m and as many as 100 to 200 people, to prepare timely and complete financial information without the traditional input from their Accountant.At the same time those client businesses are changing dramatically too. Technology is playing an increasing role, sales channels are broader than ever before, personnel needs are more sophisticated and compliance requirements continue to rise. Of these challenges, I would argue that compliance is the only area where the traditional accounting firm and its Partners can help out.
Which leads us to the question about the future role of the Accountants who have typically served those clients. As logic dictates, many of the smaller accounting firms are now looking to the larger firms for guidance. For many years now, the big 4 accounting firms, PriceWaterhouse Coopers (PWC), Ernst Young (EY), Deloittes and KPMG, have all broadened their offer beyond the staples of tax, audit, insolvency and accounting services that they historically offered. We now see these firms pushing Mergers & Acquisitions, large-scale advisory activity, business broking, sustainability, organisational development and research to name just some of the services being offered.
However, for the smaller firms, hiring additional expertise to enable them to offer such services is not always a financially viable option. And the incumbent partners and staff, who’s personal nature means they are likely to be highly resistant to change at the best of times, have trouble developing the skills and communicating the knowledge to enable such a transition.
Through my client work on both sides of the Tasman, I get to see many accounting professionals from firms of all sizes in action. Some of these are outstanding. Broad based, commercially savvy, technology literate and with a strong personnel and customer focus. However, the great majority are not. Many are clearly struggling to fit into the new role that the business community is demanding of them in 2015. In a number of cases these people are not yet half way through their careers.
I recently read an article, written by a Partner in one such mid sized firm. It purported to highlight a number of challenges, labeled as the “top 10” issues in a particular business sector. It happens to be a sector that I know well and whilst the article was moderately informative to the man in the street, it was poorly researched, relied on token anecdotal market information and was largely damaging to the sector it was trying to help. Critically, it missed the four biggest issues that that particular sector is currently grappling with. Namely, quality strategic planning in a rapidly changing marketplace, banking structures and support, capability of leadership and access to quality personnel.
What this article did do however was illustrate the difficulty that this particular Accountant was having in trying to be something that he is not. And he’s not alone. I see more and more Accountants standing out for all the wrong reasons, as they struggle to understand and adapt to changes in the marketplace, particularly the move beyond compliance, tax and accounting.
The real challenge for the accounting fraternity is that many of their members are not equipped with the skills and experience to deliver the “advisory” services that they wish to provide and that their clients now need and value. As technology and software takes care of process and compliance, accounting services will become lower cost and commoditised.
As a result, the role of the traditional Accountant will diminish. Clients now need support in strategy, business planning, leadership skills, customer experiences. The great majority of Accountants don’t have the skills to provide this type of advice. I suggest that the profession has to adapt rapidly in order to remain relevant.
So how do they do that? If they had more time, it would be easy. Simply change the recruitment model, and breed a different type of future Partner. The big firms have already done this. Professional qualifications will continue to be important, but so too will people skills, leadership skills, strategy and business planning, customer understanding, human resources, product development and marketing capabilities. These are all things that their clients are screaming out for.
However, in the immediate term, it seems that the mid-tier accounting firms don’t have anywhere to go to get these skills. As a result clients will migrate away from these firms, often out of desperation, and often to poorly qualified “coaches” and other less than satisfactory substitutes.
The industry needs an “interim strategy” for the next 10 years to bridge the gap while today’s change resistant Partners await the arrival of the more broadly skilled leaders of the future. There are a number of ways of dealing with this:
- Promote the promising youngsters early. Most young people in professional firms will tell you that they are ready to step up long before they are. And most senior partners in those same firms will tell you that the young guns are never ready, even when it is quite apparent that they are. Somewhere in between is the right answer. Bring the promising people with the new skills in early, mentor them and give them the right educational support, and put them out as the future face of the industry.
- In-source by bringing in people at a senior level who do understand the areas of future opportunity. There are plenty of people out there now, who have been thrown out of the corporate world by the outcomes of the GFC or subsequent corporate downsizing, and who are outstanding commercial operators with broad skill sets. They are likely to have business degrees, but are not necessarily accounting or finance majors. However they do have the skills around leadership, product, people and customer that the clients of Accountants are looking for.
- Acquire, form joint ventures or set up contractual arrangements with third party consulting firms or individuals who are already out there, operating in this space, with client bases of their own. These people will not only bring the necessary commercial skills, but also intellectual property in the form of research, frameworks and knowledge that allow them to ‘hit the ground running’ in the advisory space. Their existing clients will instantly contribute to the revenue line and so risk is minimal, but you can create a platform where 1 + 1 = 3, and all parties, the firm, the client and the advisor, all win.
I’m sure that these are not the only ideas. But I suggest that they can contribute to a debate that is moving too slowly. The important fact is that over 90% of businesses are categorised as small or medium, and these firms need strong support from professional services operators, like their Accountants and Lawyers, if they are going to succeed and grow.
I am constantly alarmed by the simple mistakes that business operators are making out there. When I talk to them about it, they simply don’t know where to go for help. The logical way forward, is to make the Accountant relevant again.
THANKS FOR READING – PLEASE FEEL FREE TO COMMENT, LIKE OR SHARE THIS ARTICLE.