Highly Profitable Practices for Accounting Firms
Many see the change coming. New technologies will make CPAs more efficient than ever before. Bookkeeping tasks are becoming increasingly more automated, freeing accountants to invest their time in more productive ventures. It could be characterized as a shift away from time-based compensation and toward long-term business partnerships. And it’s a shift that’s already underway.
It’s often said you can’t please everyone all the time. With transformative change on the horizon, many accounting firms are pushing ahead by diversifying their practice with new services. More specifically, many practices are making a focused effort to grow their practice through additional client advisory services, otherwise known as CAS. In doing so, many will face the risk of spreading their efforts too thin. But mistakes like these are avoidable by guiding your search to become a more profitable practice with an evaluation of your firm’s unique position in the market.
Know Your Strengths
Businesses have supply needs, recruitment demands, and so forth. But you may find clients don’t want service from just anyone, they want it from experts in their field. It’s impractical to expect your organization to have expertise in everything at all times, and biting off more than you chew can be inefficient or counterproductive.
Whatever your firm offers, it’s essential that you’re capable of demonstrating yourself as a subject expert within your niche. It’s the difference between clients seeing your firm as technical advisory service for tax help, or a broader kind of resource for a variety of business opportunities.
Services worth providing many times require dedicated resources. Those insufficiencies are clear with respect to expertise, and they’re just as potent when it comes to staff. With their time and attention spread thin, finite resources like time and attention to niche tasks can undermine the development of client relationships. Firms should instead narrow their focus to highly specific services appropriate to their unique client base and expertise.
Creating a Forward-Looking Strategy
Delivering value to clients is the basis of developing client relationships. But it’s also necessary to select services that make financial sense, both in the present and near-future. This requires an evaluation of the segments your firm currently serves, measured in respect to changing client demographics and technological advancements which will invariably change the market.
For many accounting firms, that may mean tracking an operational segment of their business as its own profit center for the first time. An independent evaluation of the revenues generated from each practice will partially reveal what services are working, which could use improvement, and which might need to be eliminated.
This also can mean rolling up your sleeves and manually going through your portfolio of clients and identify niche industries or markets that they serve. It may take a little effort on the front end, but identifying a roster of clients that serve a unique market could reap future benefits for you as you begin to focus your efforts on these types of clients.
Relationships and Revenue
In determining the most profitable practices for their unique organization, accounting firms would be wise to focus on specialties with high realization rates and high margins. However, they must also understand how existing services can contribute to unlocking the relationships which enable those types of services.
Like any portfolio, what you cut matters as much as what you keep. Services which aren’t as high-earning in the immediate future may nevertheless facilitate the development of better client relationships. For example, business valuation services may be a minor part of your revenue. But such services may also provide reputational and client relationship improvements.
Identifying Potential Growth
In evaluating many of the most profitable practices for accounting firms, you’ll notice the persistent importance of client relationships. For example, some clients require wealth management services. That requires an accountant who truly understands the needs and desires of the client, and then is capable of setting up investment management, insurance, and similar finance services appropriate to their needs.
Business coaching is another clear example. For accounting firms with clients who are mostly small business owners, business coaching can be a profitable entry point for extending new services. Coaching may provide knowledge and expert guidance to another business owner. But it’s relationships which determine whether an accountant is truly the foremost advisor for their clients.
The Profitable Future of Accounting
Technology is ever-changing. In 1967, Texas Instruments released the first handheld electronic calculator. The invention of the calculator wasn’t an apocalypse for the accounting profession, it simply made accountants more proficient at doing their job. In the time since, accounting has been defined and redefined again and again.
For decades, accountants didn’t need computer skills or technical skills. In 2004, the AICPA noted “The knowledge, skills and abilities necessary for the entry-level accountant now include the application and integration of information technology into the accounting process, as well as financial and managerial accounting principles.” As new technologies emerge, the skill set necessary for CPAs is evolving yet again.
Developments in artificial intelligence, augmented reality, and machine learning will virtually reinvent how CPAs spends their time. At roughly the same time, the millennial generation will become nearly half of all people in the workforce. And as the most technologically friendly generation creeps towards middle age, they’re opening their own businesses and looking for opportunities of their own.
Staying current with changing technology is another essential part of establishing client relationships, both now and in the future. But the drive to provide as much value as possible to clients is precisely what leads some firms to over-extend in the first place. That’s why no strategy for growth will ever be truly effective without having the right tools to help facilitate client relationships, and help determine the most appropriate practices for your firm.