What it means for independent tax and accounting firms.
By Hitendra Patil
The accounting profession in the U.S. has been shaken up by announcements from Liberty Tax Services and H&R Block that they are entering into core bookkeeping and accounting services business.
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The news came as a surprise to many and I had a few discussions with some accounting professionals, especially smaller firms and some solo practitioners, on what they think of this new development.
The Scope of Impact
Both of these firms are large; have nationwide presence; have existing relationships with tens of thousands of small businesses and millions of individuals; have physical office infrastructure that spans hundreds of thousands of offices (outlets, if you will) and a workforce that is centrally and systematically kept informed and trained on the various compliance and tax requirements, backed by standardized processes and systems that significantly reduce their cost per unit of productivity. And they have demonstrated investment capability to successfully implement marketing and sales programs consistently to attract new clients.
All of these are dream capabilities for smaller firms. The sheer reach of Liberty and H&R Block is hard to beat.
And they have attracted talent and new technologies to lead their foray into the backyard of thousands of accounting and tax professionals out there.
They might be price competitive compared to small firms. They might have the resources to provide faster turnaround. They might have collective leverage of several professionals to answer client questions across a wide variety of needs.
Three Key Questions:
- Would they be difficult to match in terms of sheer types of services they can collectively offer within and across their respective branches network?
- As technology increasingly commoditizes basic accounting and tax preparation work, would they be like the giant retailers that placed a low ceiling over the opportunities for the corner grocery stores?
- Would they be the disruption that can neither be denied nor fought?
The Million-Dollar Question: Is It a Threat or Is It an Opportunity for YOU?
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Analogies apart, the key challenge is to understand how the move by these giants affects your business.
- Increased Fee Pressures: Consumers would expect them to be reasonably priced. And that could mean new fee benchmarks that can lead to at least moderate to immense fee pressures immediately.
- Locational Disadvantage: Their offices are more in the busier and more convenient areas for clients to access during their daily routines. Compare this to your clients' requiring special effort to reach your office by disturbing their daily routine. You may be at a locational disadvantage.
- Narrower Spectrum of Services: Suddenly, they will have access to many competencies that they can leverage from across their offices. Think Amazon, which delivers goods from locations closest to where you are to reduce time and cost of delivery. Comparatively, your skillsets will allow you to offer narrower spectrum of services, creating a distinct disadvantage for you in the long run.
- Resources Inadequacy: With their ability to pool resources across various locations, they will be able to turn around larger projects far more quickly. It might become their selling point, too. In comparison, your resources being inadequate to match such speeds of service delivery, you might see a distinct shift in the size of projects that you get, which can directly impact your revenue.
- Lower Profitability: The combination of factors means lower profitability in your core services offerings. Unless you figure out really higher value add, compensating this loss could be a major challenge for you.
But There is a Silver Lining, Too
- Liberty and Block may look for collaboration for some key competencies and hence would look to engage more franchisees, even at individual levels. In other words, the huge problem and cost of marketing of services (which small firms can’t bear due to capital and cash flow constraints) can be taken care of by these larger firms to “internally” refer clients to you.
- Further, as both H&R Block and Liberty would be logically expected to leverage the cloud to standardize their new service offerings, and because they are launching them nationwide, you can now start servicing clients from anywhere, thereby mitigating your locational disadvantage.
- It is likely that several consulting opportunities will emerge from the new engagements that these firms will have with their clients and instead of hiring high-cost-high-value pros, these firms might enter into strategic alliances with competent consultants – just like you!