The traditional business model of CPA firms revolves around tax, audit, accounting, advisory and financial services. That business model has been this way ever since they introduced accrual accounting in the 19th century.
For the past 30 years, the business model for CPA firms has remained resilient despite mergers, acquisitions, recessions, technology and business calamities like Y2K. However, the latest dilemma for that business model is occurring today.
I consider a change to any industry’s business model to be similar to the experience found on those rotating restaurants such as the one on top of the Space Needle in Seattle. You take an elevator up about 1,000 feet to the restaurant, check in and are seated at your table.Â
The view across Puget Sound is breathtaking, as everyone comments. Then you order a drink and begin a conversation with your wife and friends and, before you know it, your view is of Kinnear Park in West Queen Anne and you cannot even see any water!
A major change in the business model doesn’t happen often, but when it does, only the most strategic CEOs or managing partners will recognize the occurrence and take action to transform their companies and firms appropriately, before it’s too late.
Think of Uber. Here’s a company that transformed the taxi transportation industry’s business model and never owned a vehicle. It’s a technology play by a company that recognized that taxi customers wanted more than hailing down a cab in the street.
A similar transformation is occurring with the business model of the CPA firm. Technology has had a positive effect by reducing the number of hours needed on the manual elements of the model, but that has led to the elasticity of tax, audit and accounting services, the bulk of the revenue model of the CPA. It appears to have commoditized the profit structure of elements of the CPA’s current business model.
Relationship management is still an important ingredient for the success of a CPA firm, but time counts as well, particularly when a service costing $50,000 can be delivered at $20,000 and the clients know it. That’s placing a tremendous amount of pressure on the CPA partners of the firm, and international outsourcing is only a fix to the old business model. Will an upcoming recession become a catalyst for a new business model?
I don’t think so. In my opinion, “the real problem” that is reshaping the CPA’s business model is the stress on the participants of the firm, partners included, such that “more than 300,000 U.S. accountants and auditors have left their jobs in the past two years, a 17% decline, and the dwindling number of college students coming into the field can’t fill the gap,” according to The Wall Street Journal.
Do a CPA firm’s clients want more services than what they are currently receiving? If they do, the most innovative managing partners will recognize this and take action, even as they seek international outsourcing for tax, audit and accounting to solve the apparent problem.
