Spend money to make money
Top-tier accounting firms have been investing heavily in technology. They’ve thrown money at building out their AI and blockchain capabilities, acquiring innovative startups, launching JVs and developing in-house tech talent. Their size and scale makes them “antifragile” – able to profit from disruption by integrating whatever’s thrown at them by smaller competitors.
The Big Four already account for 75% of fee income across the industry. The opportunity to drive growth, create new revenue lines and slash costs by leveraging cutting edge technologies is simply too good to miss. The order of the day seems to be horizontal expansion, leveraging brand equity to cross-sell new services to existing customers, as well as enter new markets like legal services and marketing.
The rise of the challenger brand
At the other end of the spectrum, we’ve seen a wave of startups who are out to disrupt the natural order. A new breed of accounting firm is emerging – tech-enabled challenger brands focused on niche industry verticals. Specialisation is key, enabling firms are able to offer customer experiences which are better and, in many cases, cheaper. And in doing so, they are raising the bar across the accounting industry.
By leveraging cloud-based accounting software such as Xero to provide low cost, high quality services to SMEs, smaller accounting firms can drive profitability and accelerate their growth. Key to this is a change in the way accounting services are sold.
Time-based billing is becoming increasingly redundant and fixed-fee accounting is becoming the predominant model.
This is great for clients, because they can get full visibility on their costs and lock them in from the get-go. And it’s great for accounting firms, as they can start building more scalable enterprises by productizing their services.
What about the mid-market?
Of course, not all firms are willing or able to embrace change. Outside of the big players and the niche providers, the mid-market has found it harder to adapt. An estimated 22,000 registered accountancy firms operate in the UK and mid-tier firms are an important component of the overall landscape. They’re also the most vulnerable to change, since they lack the innovation of challenger brands and the deep pockets of top-tier firms. After all, they’re not full-service, and they’re not specialists.
The future of the accounting industry as we know it will depend on the ability and willingness of mid-tier firms to embrace technology and adapt in order to protect their portion of the accounting value chain.
To do this, a shift in mindset is required. The proliferation of technology in our personal and professional lives has changed consumer expectations. Technology saves us time, gives us greater choice, lowers prices. In the same way, accountancy clients expect more for less. But rather than seeing this as a threat to their business, mid tier accounting firms should welcome the opportunity.
An industry in good health
Thought leaders and media commentators are constantly foretelling the end of the accountant. But, in reality, the opposite is happening and the accountancy profession as a whole is thriving.
Technology isn’t destroying accountancy – it’s reshaping it for the better. Despite talk of automation, membership of UK accountancy bodies continues to grow. Seven bodies have over 530,000 members worldwide, with an annual growth rate from 2013 to 2017 of 3.2% worldwide. And the increase in total fee income for the Big Four audit firms in the same period was 6%, compared with 4.2% for firms outside the Big Four.
The bottom line? The automation of core accounting processes by third parties, such as Xero, creates opportunities for accountants to diversify their services and help clients on a deeper level. Increasingly, it looks like we’re heading for a “centaur” model whereby technology compliments and empowers accountants to help clients achieve their goals.
Like any transformation, it takes time for people to see the benefits of new technology and embrace it.
Accountants need to go beyond number-crunching and reinvent themselves as trusted advisors who provide holistic guidance to clients. For those forward-looking enough to make the transition, the future is bright.