The new normal for CPA firms? Maybe not

Normal. What is that? Conforming to a standard; usual, typical, or expected. And what is “new normal?” A previously unfamiliar or atypical situation that has become standard, usual, or expected.” (Both definitions come from Oxford Languages.) I am not sure that we are 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 out of our control, a new normal has yet to arrive. We are in a period of transition.

Do you remember the days of business attire at the office? Every day. One day I was talking to a partner at a firm, and he said that they were a progressive firm and were now allowing business casual on Saturdays. Wow! That was a big deal. Slowly but surely the profession (and most other businesses) slid into business casual every day. Some firms called it “dress for your day” or something like that. A month or so ago, I was in a good-sized local firm on a Monday and the managing partner greeted me in jeans and sneakers. Do you think that we will ever return to the business attire culture for most firms? It’s doubtful.

Working from home

Now comes remote work. Used to be called “telecommuting” (and maybe still is). Most teleworkers say they are working from home by choice rather than necessity.

The Pew Research Center conducted a study January 22-30 of this year and they found that 60% of workers with jobs that can be done from home say they’d like to work from home all or most of the time when the pandemic is over, if given the choice. This 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 work has made it easier for them to get work done and meet deadlines. One common downside? Sixty percent feel less connected to colleagues. This is likely a long-term trend. Your firm culture will likely morph into something new, but everything in life changes sooner or later. We have not yet arrived at a “new normal.” (The full Pew report is here.)

According to Bloomberg (Feb. 28, 2022), the pandemic-era shift to remote work will likely be more persistent than anticipated, hitting the finances of US cities that are banking on commuters to get back to the office post-pandemic. “About 75% of the increase in telework over the course of the COVID-19 crisis will likely stick … Twice as many workers will be 100% remote as before the pandemic.”

Like it or not, this transition will continue to evolve, and firms must adapt. Firms that refuse to adapt will lose talent to firms that do adapt. Stop beating your head against a wall and start actively looking for remote employees. If you have people working remotely that are six miles from your office, why can’t you hire someone who is 106, 1,006 miles (or more) from your office? There are plenty of online recruiting websites. Use them.

Accounting majors are down…

As reported in The CPA Journal (September 2020) among 78 large and midsized college accounting programs, 64.5% reported a noticeable decrease in their accounting enrollment in recent years.

The AICPA Trends Report for 2019 has reported that total accounting enrollments are down 4% from the highs of 2016 and master’s enrollments are down 6% from 2016. The all-time high for graduates was in 2012. Is this a new normal? Perhaps, but I think it is a transition. According to Lumens, in United States colleges and universities, roughly 2,000 majors are offered. Students have more choices. During the 1990-91 school year, 22.8% of students who received bachelor’s degrees were business majors. That percentage dropped to 19.4% in 2018-19.

There are a multitude of reasons for the decline in enrollments, the least of which is an increasing number of majors for students to choose from and a smaller percentage of students majoring in business. The bottom line is that this is not a trend that can be turned around quickly. We are in transition. Firms have options:

  • Pay more for accounting grads. Some firms are trolling the marketplace offering as much as a 30% increase in compensation and a promise of remote work. How do you pay for that? Increased fees? Lower partner income? Thirty percent increases in compensation are not a new normal; it is temporary and perhaps a transition to entirely new systems of compensation and staffing
  • Hire non-accounting majors for work that doesn’t require a CPA. Use these non-CPAs to build a robust advisory practice and/or technical support services. This will require some planning and creativity. It may impact your firm culture. Be creative and deliver new value streams to clients.
  • There is considerable M&A activity these days. Some staff will not like the new situation that they find themselves in. Wait for a merger and then recruit staff from the merged firm. This is not a great option …you can’t predict or rely on this approach.

The end of organic growth?

Firms have enjoyed good fees for several years providing traditional services that really haven’t changed much (ie, audits). I know, you are thinking about relentless standard-setters who always have something new. Implementing those standards can be expensive. But from the client perspective, an audit doesn’t look much different than it did 20 years ago. Plus, the client really doesn’t even want the audit. Somebody else does! For most firms, the market is pretty much tapped out except for clients who are fee shopping.

Opportunities for organic growth seem to be declining. But there are alternatives. Mergers … merger activity with firms of all sizes is at an all-time high and that activity is accelerating. With a merger, some clients leave the merged firm for various reasons. You might get lucky and pick up clients there, but just like with staff, this is not an option that you can predict or rely on. The realistic and primary opportunity for growth is the addition of value-adding service lines. Advisory services.

According to Gusto (a provider of payroll, HR, and benefits for small businesses), over one-third of business owners are willing to pay 10% more than they currently pay for an accountant who provides a variety of HR advice. Additional advisory services that businesses would like from their accountants include marketing, operations, and sales according to the Gusto survey.

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

There are factors influencing the market that are out of your control. Get over it. Change your mindset, approach your firm in new ways and begin building your firm of the future.

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