Outsourcing expert and business development manager for Connect Outsourcing Rachelle Weingott weighs in on the challenges facing the accounting industry today.
As an outsourcing expert I spend most of my time speaking to owners of accounting firms about what they are struggling with and how the industry is changing. Based on the conversations I am having more and more firms are struggling to maintain their profit margins due to a range of issues facing the industry.
Automation is changing how accountants do compliance work. And margin erosion is changing how they get paid for their services. Accountants are under increasing pressure to make their businesses more profitable while somehow managing a bigger workload.
The accountancy industry is facing three issues that affect profit:
- Increases in the internal cost of production
- Margin erosion
- AI and the increasing digitisation of the tax return.
Internal cost of production
Staff wages are the biggest expense of any accounting firm. And most of the firms I’ve spoken to lately say the cost of hiring, training, and retaining good staff is mounting.
Brian Morton from Accounts plus is one boss who has been feeling the squeeze. “The pressure to keep increasing the local labour conditions meant my staff expected a certain level of salary,” he said. “So my mark-up and charge-out to clients for my fees has started to escalate, but my clients are resisting a fee increase.”
Shortage of good staff is especially a problem for firms outside of the main centres. To recruit someone new you face ever increasing wage costs to attract the senior talent you need.
Accountants are also under increasing pressure to reduce or maintain their prices for annual returns.
Chartered accountant Paul Martin notes that his clients now expect to pay less for him to do more. “Clients see my compliance service in a cost-versus-benefit light,” he says. “Clients who use MYOB or Xero have been saying: ‘We’ve done all the hard work for you. Surely your fees should now be in the hundreds of dollars?’”
AI and the increasing digitisation of the tax return
Automation is taking on more and more of the traditional roles of an accountant. While a human is still needed to interpret data and help business owners apply it, there are now huge chunks of an accountant’s job description that are basically obsolete. We’ve been feeling the pressure of these changes since the introduction of cloud accounting services like Xero.
The Inland Revenue’s recent announcement of a new $1.9 billion-dollar Business Transformation programme further changes the landscape for accountants. The programme aims to replace ageing computers and move operations into more automated systems. And it also will ensure that individuals and businesses are taxed more accurately through the year, reducing the need for additional tax payments and annual tax refunds.
All of this sounds prudent, but it comes at a cost to our industry. Not only will thousands of IRD staff members lose their jobs as a result of greater automation but also there will be less compliance work for firms. If you’re relying on compliance work to make ends meet, you will really feel the squeeze.
So how can firms continue to offer compliance services, and remain profitable?
Today’s successful accountant is more than a number cruncher…
With powerful machines and automation performing increasingly complex tasks, you could find yourself thinking that accountants might soon be out of a job. But it’s not all doom and gloom.
Automation, machine learning and cloud technology present an awesome opportunity for accountants. Most small businesses don’t plan their growth, forecast their cashflow needs or understand the reports their accountants send them.
The insights in those reports might be gold, but they’re worthless unless someone teaches them what it all means. This is where accountants need to stop telling and start asking.
CEO of The Gap and Chartered Accountant Viv Brownrigg says, “The business advisory services we focus on at The Gap are simple ones like business planning, better cashflow management, regular reporting, accountability and coaching. Accountants are perfectly positioned to provide these services. They make great coaches because they have their clients’ trust and they understand the numbers. AI won’t deliver that any time soon!”
How outsourcing is part of a business transformation model
Outsourcing reduces production costs and frees up time to start working on growing your business advisory services.
Firms need to move to a leaner production model for their business. Outsourcing your compliance tasks plays an essential part in reducing the cost of production.
One of Connect’s clients found outsourcing to be the answer to their production cost woes: “We previously had two senior accountants managing our workload. Using Connect we have replaced a $160,000 wage cost with a $100,000 compliance cost, and we’ve increased our production significantly.”
Making changes to your practice isn’t as simple as taking on an outsource company like Connect and beginning to offer advisory services. It’s a business transformation process that needs careful consideration and time to implement. It requires leadership skills to manage staff, make changes to your internal processes and realise the vision of where your firm will be in the next 5 to 10 years.
The accounting industry is facing a turning point for its business model- Is it time for you to look transforming your accounting practice? Speak to the team at Connect to see how we can help you to transform your business into a powerhouse of productivity.