Despite challenging economic conditions, Australian accountants are looking to the future.
Last month, CommBank released the second edition of its Accounting Market Pulse for FY16. Based on research conducted by Beaton Research + Consulting, the report captures the sentiments of a cross-section of different-sized firms around the country.
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Since the previous Pulse in December 2015, business confidence has dropped slightly across the industry. But according to Marc Totaro, the Commonwealth Bank’s National Manager of Professional Services, accountants are proactively taking steps to future-proof their businesses.
“What really stands out is how effectively accounting firms are responding in a tough economic environment,” he said. “Many accountants have done a great job of diversifying their businesses into different service lines and across industry lines so they can bolster their revenue. They’re also looking at their cost bases to find ways to reduce costs or outsource and offshore where they can.”
But although the future looks bright for forward-thinking firms, there are still plenty of challenges ahead. Here’s how they’re shaping the accounting landscape.
The pricing question
These days, many firms are moving away from routine accounting work and diversifying their services into a wide range of areas — from financial advice and property advisory services to management consulting, corporate finance and wealth management.
While this is great for business, it also presents a difficult question: how much should accountants charge for these services? Of the firms surveyed, 40% say that negotiating prices with clients is the biggest challenge for their firm, up from 33% in the previous Pulse.
“Many firms are looking at ways to adapt their pricing structures, including their fixed and capped fees, so they can be more flexible about how they meet client demands,” Totaro said. “It’s about taking a longer-term view of their client relationships, rather than focusing on what profitability looks like in the short term.”
For accounting firms who are moving into the financial advice space, taking a long-term view of the client lifecycle may present additional opportunities.
Totaro commented: “Advisory firms see their clients multiple times throughout the year, which allows them to really be the client’s trusted adviser. This means they’re well placed to talk to their clients about other services they can provide — as many clients would prefer to buy additional services from the same trusted provider.”
Outsourcing set to increase
Firms that diversify their services also reduce their dependence on traditional accounting revenue streams, such as tax, BAS and bookkeeping work. By outsourcing those tasks at a lower cost, firms can instead focus on delivering higher-value advisory services to their clients.
But while 80% of large firms are already outsourcing to lower-cost providers, 74% of smaller firms are yet to make the transition.
“Some firms have been hesitant to start outsourcing,” Totaro said. “But the economic benefits will become harder to ignore, particularly as the Tax Office moves to more automated tax returns and a lot of the traditional commodity-based compliance work reduces over the next five to ten years.”
Although smaller firms may not produce enough work on their own to justify outsourcing, Totaro says there are other ways they can achieve the economies of scale that they need.
“Smaller firms are joining forces to increase their buying power — so rather than one firm paying for outsourcing services, there’s the opportunity to band together and buy in bulk,” he said.
Teaming up with other firms may also be an attractive option for accountants who want to outsource their lower-value work, but would prefer not to send it offshore.
“Firms who want to keep the work in Australia may look to outsource to providers in regional areas, where FTE costs might be 20–30% lower than in the major cities,” Totaro explained.
Attracting the best and brightest
While outsourcing looks set to become a necessity for more and more firms, it will also impact each firm’s internal resourcing needs. According to the current Pulse, this could be one of the reasons some firms are already struggling to attract talented junior staff.
“A lot of the activities that are being outsourced are the lower-level tasks that graduates would typically do,” Totaro said. “But this also presents opportunities to provide graduates with more exciting and interesting work from day one.”
While 37% of firms cited staff recruitment as being one of the biggest headaches they face, many are rising to the challenge — for example, by attending university open days to promote accounting and financial advice as appealing career options for graduates.
To overcome staff retention issues, firms are also actively investing in the career development of their staff. Among the firms surveyed, there’s likely to be a 43% net increase in training expenditure in the months ahead.
“Some firms are exploring ways to offer their employees a broader career path across multiple disciplines within the business,” Totaro said. “It’s a real attraction for younger workers to have more flexibility in the outlook for their careers.”