CPA firms need to revitalize despite the decline in accountants

Take one look at the websites of CPA firms and you’ll see the game of “hide and seek” continues: The sites continue to promise a solid stream of advisory services, but in the real world, the appearance of a plethora of CPA advisory offerings in most firms is phony.

The business model of a CPA firm has changed, and many firms are still not acknowledging that change, much less understanding what it means. Many partners are still managing their firms as though their growth is in tax, audit, wealth management, compliance, bookkeeping, accounting, and even strategic planning.

Even before the COVID-19 pandemic, many accountants began shifting their focus from compliance services, as there was not enough revenue to support a practice, and there was often not enough wealth to support a wealth management practice. Internal accounting services began lagging when QuickBooks was learned by moms at home, and large CPA firms outsourced this accounting work to foreign countries at a cheaper rate so they could maintain their cash flow.

But then the coup de grâce for the CPA’s old business model occurred: College students in significant numbers stopped majoring in accounting, and the volume of new CPAs entering the industry slipped about 30% and continues to plummet.

The law of supply and demand still prevails. The only way to retain your young CPAs was to increase salaries and benefits significantly, and hire fewer. It also meant that most firms decided not to fully compete for the new CPAs in the workplace but moved the firm’s advisory CPAs back into tax and audit, maintaining their break-even point.

Without the ability to provide significant CPA support to advisory services, it means financial advisory services are always on-call, and continue to decline in the practice, ultimately going the way of compliance and wealth management. 

These situations have really thrown a wrench into the CPA’s old business model and are indicators of the need for a new one. Think Uber versus yellow cabs: Uber’s business model owned no vehicles, but changed an industry that did.

Let me explain where I believe the main problem rests within the CPA profession today. They are not strategic managers, and their only strategy has nothing to do with their customers. No, their driving force is “growth through acquisition,” and eventually the hunter becomes the hunted. A strategically managed CPA firm’s driving force should always be growth through customer-centricity.  

I don’t see that it is customer-centric. Otherwise you would see a whole slew of services needed by their clients that are a part of their service offerings. If it were, you would have a practice of service providers beyond payroll and HR.

In my experience working with strategic, high-growth CEOs, the winners are always the more agile and nimble of them that are not afraid to approach a change in a business model that supports strategic management. My bet is that it is the same with the CPA industry.

The list of services provided by today’s CPA firms in their current business model continues to diminish, but without a change in strategy of their services, only the strategically managed firms will succeed, and that means a change in the business model.