PLUS: More trends and insights from annual operations and technology survey.
By Randy Johnston and Brian Tankersley
The Accounting Firm Operations and Technology Survey
Recruiting and retention have consistently been the top concern for the last two years, 33.6% of firms citing it this year, up from 28.8% of firms in 2019, according to the new Accounting Firm Operations and Technology Survey. Second place: Raising profitability at 23.4%. Third: Cybersecurity and data privacy at 22.4%.
Referrals – new clients who are referred to a firm by someone they trust – remain the top channel or source of new clients for firms. A higher percentage of firms report that they are receiving referrals from other sources, such as other professionals and firm website and search engine optimization, over each of the last three years.
The method of how accounting professionals deliver tax returns to clients is changing. Over time, we have seen a significant shift in how tax returns are delivered to clients – away from paper-based methods, and toward digital-based communication methods.
Portal products have become more robust, with most now offering tools for requesting and tracking schedule/data requests from clients, instant publishing from applications, integrated electronic signature and integration into document management systems. Some tools are now even offering the ability to integrate invoice payment into the finalization of an engagement.
Firms of all sizes agree on the most and least effective ways to control costs. Respondents share a similar belief that examining the firm for technology, process, or workflow inefficiencies are the most effective ways to control costs. Furthermore, respondents working in firms of all sizes also agree delaying or eliminating technology upgrades is the least effective way to control costs.
The most effective ways to generate revenue on an overall basis were
- upsell existing clients at 21.6%,
- raise fees 17.4% and
- firm acquisitions 16.3%.
The most ineffective ways to generate revenue overall were social media, 16.9%, and payroll services, 15.0%.
The size of the firm impacts their view on the most and least effective ways to generate revenue. Solo practitioners and small firms, both limited by a small number of employees, are more likely than medium and large-size firms to be wearing many hats within the firm. Small firms believe adding more services to their already full plate is an effective way to generate revenue.
When it comes to technology challenges, security moved into the top spot as practitioners are concerned about how they manage their practice, with 28.0% of all firms selecting this option, up from 19.3% in 2019.
Workflow and efficiency dropped from the top spot to second this year. Workflow and efficiency were cited by 21.5% of respondents as their top technology challenge, up from 20.6% in 2019. Another category related to firm processes, getting your clients on board working with the firm in a digital way, was cited by 10.3% of respondents as their top challenge, down from 16.7% in 2019.
There is a notable increase in the number of firms considering expansion via merger. A total of 46.7% of firms are considering a merger or acquisition either in the next year (19.6%) or in more than a year (21.5%). Firms most likely to be making acquisitions in the future tended to be larger and included 63.3% of medium firms, 50.0% of large firms, and 56.3% of extra-large firms.
Handling communications with customers and prospects: It is not surprising that the top three methods that a firm uses to communicate with clients and prospects are phone and email at 96.3% and face-to-face meetings at 87.9%. The next three are postal mail and secure email at 63.6% and then a web portal at 53.3%. The use of social media has dropped 5% year over year.
Social media strategy for communicating with clients, recruits, and prospects: 35.5% have an internal marketing or recruiting person who handles social media for the firm. 27.1% of firms do not use social media to communicate with clients, recruits, and prospects.
Survey respondents were asked technology management questions concerning email and IT support, web portals, mobile devices, backup systems, and security. They were also asked about computer antivirus software, firewalls, and system downtime.
Email is essential to our everyday lives. We guess that a vast majority of people reading this survey report heard about the survey via email, received this report from the survey founders via e-mail and handle the bulk of your business dealings using email. It can also be a formidable interruption in our work routine, keeping us from focusing on tasks at hand. We all know how essential email is to our everyday lives. Email is also a significant vector for malware, ransomware, phishing and other fraud scams such as business email compromises.
Overall, 21.2% of all firms host email internally, but the firms that are internally hosting their email tend to be the larger firms. 40.0% of extra-large firms host their email internally. Most solo practitioners – 53.8% – small firms at 76.9%, and midsized firms at 69.0% use a hosting company or a service such as Gmail for Business, Zoho or Office 365. Regardless of where email is hosted, firms should have spam and malware filtering, message archiving and data loss prevention tools deployed to help them manage their compliance with relevant laws and regulations.
Web portals are here to stay
Web portal use has continued to climb steadily in the history of this research study. 89.4% of all respondents indicate they use a web portal to share files or documents with clients, which is up from 52.2% in the initial survey five years ago. Most firm sizes use web portals (including solo practitioners). The real challenge for many firms is which of the half-dozen or so online file storage tools should be used, and how can we most effectively get our clients to migrate to the new web portal if we choose to change providers.
Cloud backup is the dominant method used for backup in all five firm categories. Do-it-yourself backups such as the use of USB hard drives, site-to-site backup, and personal-grade web-browser-based backups like Mozy and Carbonite are all down significantly from previous years.
More firms are using mobile device management (MDM) solutions, but firms with over 100 employees are the only grouping that has more than 50% of the respondents using mobile device management software. Not using MDM represents a significant risk for any firm not using a solution, as mobile devices are increasingly used for authentication to systems and are also frequently targeted by hackers and other cybercriminals.