CPA Firms Need to Find New Ways to Build Revenue in Post-Recession World

By Frank Byrt

The US accounting services industry, including CPA firms, is expected to remain in a slow-growth mode, with annual revenue expected to rise a pedestrian 1.3 percent this year, to $72.9 billion. Revenue is then estimated to grow to $80.1 billion at a 1.9 percent annual rate for the next five years, according to a report from the research firm IBISWorld.
This relatively stagnant outlook comes after a half decade of moribund industry activity following the recession and a stuttering economic recovery, which forced medium-sized firms to shrink or merge with others, caused many smaller firms to disappear, and resulted in some of the biggest firms having to cut or hold the line on fees.
In the last five years, IBISWorld said the number of accounting firms declined at an average annual rate of 0.3 percent, to 88,172 companies. "The majority of firms that have left the industry during the period have been small operators that rely on the small-business market, which was hit particularly hard by the recession." Small firms, in particular one-man shops, make up about 40 percent of all businesses in the industry.
IBISWorld industry analyst Andrew Krabeepetcharat, who authored the report, told AccountingWEB that while one-man firms were hit hard, Big Four accounting firms have seen slow growth in line with that of the general industry, aided by expansion into relatively new services. 
A reduction in service fees caused revenue and profit to fall; in response, many firms reduced employee numbers to maintain margins. "Consequently, the number of people working in this industry has increased at an annualized rate of only 0.1 percent, to 474,937 workers in the five years to 2013," the report said.
In addition, the strong growth that followed the introduction of Sarbanes-Oxley faded when the demand for cyclical accounting and advisory services deteriorated. This then caused prices to decline as firms began to focus on retaining their existing clients. And, according to the report, although demand has started to increase, "the industry continues to face reduced prices in 2013 because clients have become used to paying discounted fees." 

Ways to Build Your Firm's Revenue

  • Narrow your focus from a do-it-all accounting firm to one that has expertise in a particular industry or in a certain type of service.
  • Develop consulting skills to point out ways a client's company can boost profits or develop new business.
  • Keep up with industry trends, regulatory issues, and pending legislation that could impact your niche-market.
  • Become an expert in areas that require accounting expertise, such as business valuations, dispute resolution services, and litigation support.
  • Become an expert in forensic accounting to detect fraud, investigate financial losses, and develop internal accounting controls.
William R. Kinney, professor of accounting at the University of Texas at Austin, said he's heard that audit revenues have been flat for the past several years among the largest firms, but given their diverse revenue sources, it's difficult to say which types of fees were cut and by whom. 
As for smaller firms that may be struggling, Kinney said they might want to consider focusing on a particular industry and then offering accounting-related services that go beyond audit and tax work as "they can do fabulously well." As an example, he suggested a firm could specialize in giving expert opinions that help determine the value of certain types of for-sale businesses or the value of property for use in family estate settlements or divorce settlements. 
Sally Glick, CMO and principal at Sobel & Co. in Livingston, New Jersey, also said a niche focus is a great way to grow a practice, especially if the firm can hold itself out as a consulting resource in addition to its role as a tax or audit services provider. For example, Glick said a firm could focus solely on restaurants or construction general contractors, and beyond providing financial statements and tax returns, the firm could also point out ways businesses could improve margins or advise on industry trends and pending regulations that could impact their businesses. 
Andrew Rose, director of marketing and business development at Naden/Lean LLC in Hunt Valley, Maryland, said his firm has grown its business by developing expertise in providing accounting and consulting services as well as tax planning advice for specific types of health care providers.
Marvin and Company, PC Director Kevin McCoy said his Latham, New York, firm has seen growth in demand for forensics and fraud investigation services for small businesses, which has resulted in consulting work helping clients strengthen internal controls.
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