The tax cuts contained in the Tax Cut & Jobs Act of December 2017 — along with potential added unilateral changes to the tax code by the White House — are creating the kind of uncertainty that drives demand for the services of accounting firms.
The largest firms are already seeing an increase in tax consulting work (see Accounting Today, June issue). And Big Four advisory fees are significantly outpacing traditional audit and tax compliance work. The Wall Street Journal reported that advisory revenue has surged 44% between 2012 and 2017 (while “traditional” audit work has climbed by just 3% in that time).
What does this mean for CPA firms? Accountex expects the largest accounting firms to double down on their fastest-growing, most profitable clients while shedding those that fall below profitability criteria – in particular, smaller companies that historically only buy traditional audit and tax compliance work.
Small opportunities for the Big Four still add up to highly profitable and attractive work for the multi-national firms, who in turn, will force rank their clients and shed those that they believe will have the smallest lifetime value. This pattern will continue, eventually making its way to small and mid-sized firms, creating an opportunity for smaller accounting firms.
Implementing the latest accounting technology will be the key to winning your share of these new opportunities, Accountex believes.
How can you position your firm to take advantage of this development? Begin by being aware that clients from bigger firms are accustomed to automated services. And from a firm management perspective, greater efficiency will be needed to serve this wave of new clients without adding staff.
Based on a survey of more than 400 owners of small to mid-sized accounting firms by Accountex and CPATrendlines, IT budgets are up for 75% of those surveyed.
What kinds of accounting technology are these firms looking to buy? To win new clients and better serve existing ones, the majority (in some cases, the vast majority) of small to mid-sized firm owners surveyed are increasing their spend on audit and risk support, followed by sales tax, and accounting software systems. Your peers are also increasing their investment in HR, expense and practice management systems.