What’s the current state of play for Australia’s accountants? A new CommBank study highlights the driving forces at work in the industry, while offering a glimpse into the future for the accounting profession.
CommBank recently released the latest edition of its Accounting Market Pulse report, which provides in-depth analysis of the trends currently shaping the sector. Drawing on Beaton Research + Consulting’s quantitative survey of accounting firms across Australia, the report looks at some of the ways accountants are responding to changing client demands while exploring opportunities for sustainable revenue growth.
Although many firms are still facing perennial challenges around staffing and pricing, the report also reveals an uptick in business sentiment across the industry. In fact, two-thirds of the survey respondents predict that conditions will keep improving over the next 12 months, thanks to a strengthening economy and a rise in business investment.
Here are three ways that forward-thinking accountants are making the most of these favourable conditions to steer their firms into the future.
1. Expanding service lines
As client expectations evolve and the landscape becomes increasingly competitive, more firms are finding ways to diversify their service offerings. In particular, as accounting and financial advice continue to converge, 43% of firms are looking to either start offering financial planning and wealth management services or build on their existing services in these areas.
Meanwhile, a smaller group of firms are expanding their presence in fields such as risk management, private equity and business recovery. At the same time, a band of innovators are developing services in emerging areas such as cybersecurity and climate change.
This diversification trend looks set to continue. Almost all firms say they’ll grow or add to their service lines over the next 12–18 months, with many branching into multiple areas. However, two-thirds of firms are evolving into multidisciplinary practices as a result of organic growth, rather than by actively seeking out strategic partnerships or launching new service streams.
Of the firms surveyed, just over half are currently generating more than 10% of their revenue from diversified services. However, 9 in 10 expect their earnings from non-traditional services to increase over the next two years.
2. Changing fee structures
The report reveals that client fee negotiations are an ongoing issue for firms of all types and sizes – with around 7 in 10 describing the process as challenging or very challenging. While larger firms are better positioned to command higher prices, they’re also facing increased competition from mid-sized businesses.
With supply outstripping demand in the marketplace, clients are now more selective about choosing their service providers. This means they also have the upper hand when it comes to negotiating on price. Leveraging this new power, many clients are seeking certainty and transparency before committing, which puts pressure on firms to demonstrate value for money.
As a result, many businesses that were once reliant on hourly-based pricing models are introducing alternative fee structures. While traditional time-based billing remains the mainstay of the industry, it now accounts for just 62% of revenue – and this is tipped to fall to 50% by 2020.
In its place, fixed and value-based billing are gaining popularity. In fact, it’s estimated that fixed pricing structures will account for around one-third of revenue within the next two years. Large firms are taking the lead, with fixed fees (38%) already almost on par with time-based fees (42%).
Although these changes are largely being driven by client demands, they may also offer significant benefits for accounting firms themselves. As more businesses move away from time-based billing, they can make the most of opportunities to harness efficiencies and maximise profitability, while continuing to deliver excellent service to their clients.
3. Attracting the right staff
According to the Accounting Market Pulse, finding quality staff is still a core challenge for 62% of firms, while 38% of firms have difficulty retaining quality staff. Firms across the sector recognise that their people are their key asset for driving future growth, and many are exploring new ways to reach out to the next generation of accountants.
For instance, some accounting firms are modifying their people management practices and working arrangements to cater to the preferences of this new generation of workers. Some firms are also investing in their recruitment pipelines or developing training and scholarship programs for entry-level graduates.
By offering greater flexibility and opportunities for professional growth, accounting firms can become employers of choice, while at the same time reducing turnover and increasing staff engagement and productivity.
To complement these initiatives, firms may also look to outsource low-value activities to other providers. This then leaves their staff free to focus on work that is professionally more rewarding and delivers greater value to the business.
Source: All statistics and survey results referenced in this article are drawn from the CommBank Accounting Market Pulse, Commonwealth Bank, June 2018.