Bad News: It may come at the expense of a post-SOX slowdown.
But what do CPAs think? Take the poll; get the answers.
by Rick Telberg
At Large
After the super-heated growth of recent years, tax and accounting professionals may be happy to hear that they might get a chance to catch their breath. In fact, a new economic study suggests that the accounting industry’s growth spurt may be starting to sputter.
Over the long term, to be sure, tax and accounting services are expected to grow at an annual rate of 3.1 percent through 2010, slightly better than the projected overall 2.9 percent rate.
But IBIS World, an Australian-based business trends researcher, is predicting that revenue growth profession-wide will drop to 1.2 percent this year, down from 4.5 percent in 2005.
That’s pretty hard to swallow. But then, many in the profession have practically been choking on all the extra work thrown their way in recent years.
Studies from Accounting Today to Public Accounting Report show the top 100 firms have been riding a huge revenue wave. Chicago-based consultant Marc Rosenberg headlines his latest survey of 281 firms, “Times Are Booming.” And results would be even better if firms could find enough good staff to handle all the new business, he says.
But the IBIS World report suggests that the quantum boost that the Sarbanes-Oxley law has given to audit and related services may have already peaked. The five percent growth rate that SOX helped to jumpstart in 2004, will not be seen again this decade.
And the smallest firms may have already missed the surge. According to Rosenberg, revenues at firms with net fees under $2 million a year grew only about four percent last year, compared with 16 percent at firms ringing up over $10 million a year.
The growth in 2005 was helped in large part by assignments linked to helping clients become Sarbanes-Oxley compliant and by the Big Four’s expansion into a burgeoning China market. Now that the Sarbanes-Oxley effect is waning, the fortunes of the professions are more closely tied to global economic conditions, which the report says will decline.
That makes it all the more important for firms of all sizes, and particularly smaller firms, to concentrate on basics that include fortifying their local market positions.
The IBIS World report cites the following “Key Success Factors” in the years ahead:
— Quick adoption of new technologies.
— Competing based on pricing.
— Good industry and geographic market reputation.
— Good customer retention.
— Maintaining clear market positions.
— Quality control.
— Staffing skills.
To be sure, staffing skills should be toward the top of the list because employee wages account for 40 percent of costs in the profession. And accounting, like other service professions, is highly dependent on their staffs’ client contacts and knowledge.
Payroll service providers are urged to be especially up-to-date on technology because competition in the payroll field includes an increasing number of online services provided by staffing and employee leasing services.
While smaller firms concentrate on what they have been doing, the Big Four will increasingly expand in international markets to offset business declines in the United States. The Big Four, the report says, are still reacting to revenue lost from being forced in 2002 to divest or otherwise reposition their non-audit/consulting businesses in order to be Sarbanes-Oxley compliant.
The regional and other middle-tier firms meanwhile will continue their feeding frenzy of mergers and acquisition to grow in order to compete for more and larger clients. The report says, “the stricter regulatory environment coupled with reduced demand for its services will be the catalysts” of continued M&A in this sector.
The report, like many, should be taken with a grain of salt. But its main message is worth understanding.
Every firm, every professional, needs a plan for the future. What’s yours?
[First published by the AICPA]