a complimentary whitepaper for certified public accountants

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Preparing for tomorrow’s public

accounting practice

What today’s practices must do to endureFor decades, public accounting practices had a fairly consistent image. Ask people outside the profession about CPA practices, and you’d hear descriptions like “stodgy,” “boring,” and “old-fashioned.” Between bookkeeping and tax preparation, most practices could count on consistent business and predictable schedules. It was relatively easy to keep up with the industry’s slow evolution.

Not anymore. It’s safe to say that the public accounting profession has changed more over the last decade than in the previous three or four … and it’s clear that the pace of that evolution is accelerating. Profound changes in the business world are reshaping the needs and expectations of clients, and forcing accounting practices to reengineer the roles they play and the services they offer.

In this document, we’ll examine several of the changes that are impacting the day-to-day business of small and medium-sized public accounting practices. We’ll also spotlight the strategies that practices who want to remain relevant can use, as well as opportunities that may be worth investigating.

Technology: villain or inspirationConcerns that new technology will create disasters for accountants probably date back to the first time someone improved an abacus. Look beyond short-term hysteria, and it’s clear that changing technology has been a constant in the profession. The key differences today are the acceleration of that change, and the fact that the changes have less to do with the technology itself, but what it’s allowing clients to do.

The biggest example is the growth of the do-it-yourself approach to bookkeeping, tax preparation, and other key elements of accounting.

Products such as QuickBooks® and TurboTax® have put tremendous power in the hands of clients. That’s particularly true for smaller businesses, whose accounting needs have always been simpler. When a business owner can access a comprehensive cloud-based bookkeeping and billing system for $15 a month, why would she be willing to pay a local CPA hundreds of dollars for those services?

“This act of moving accounting online doesn’t precipitate the end of accountants,” Jonathan Poston told Entreprenuer.com. “However, what does push accountants to the margins is how inexpensive and user-friendly the new online accounting software is.”1 And Accountex reports that current trends suggest that 9 in 10 small and medium-sized businesses will turn to the cloud for accounting software by late 2017.2 “It’s convenient, it’s inexpensive and the big software providers have put a lot of effort into making their products as user-friendly as possible, “ writes Henry Bell. 3

Convinced that you still offer something a software package can never duplicate – namely your professional insight? Don’t be so sure. As machine learning and artificial intelligence improve, systems may be able to duplicate accountants’ ability to mine predictive insights from data.4

New competition from big namesFor many years, the services small and mid-sized accounting practices offered to similarly sized businesses focused on bookkeeping and tax preparation. Clients that needed more sophisticated advisory services generally needed to turn to regional and national CPA practices. As technology gave smaller practices access to data analysis and online resources, those practices were able to broaden the services they offered to clients.

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However, at the same time, many of the larger practices spotted an opportunity to offer value-added services to smaller clients. As their traditional business – larger companies – has become more sophisticated and clients expect greater value for lower fees, the big accounting practices have looked to smaller companies as a huge source of potential revenue.

In other words, the big practices that wouldn’t have taken a second look at your clients a decade ago are beginning to covet that business. If you want to keep your clients in the coming years, you can’t settle for being better than the CPA practice down the street; you need to be prepared to compete against the biggest names in your state or region. 5

Clients expect moreBetween the added transparency created by technology and the aggressiveness of bigger practices, companies are increasingly aware of what’s available in the marketplace. They want those services, and what’s more, they want them customized to their specific needs. Look at nearly any service-based business, and you’ll see a trend toward customer-centric and specialized services. Companies only want to pay for the services they perceive they need. At the same time, technology makes it possible for accounting practices to develop new, more meaningful connections with clients. You can resist that change, or you can seize the opportunity to become exactly what each client wants you to be.6

What do clients want? Besides asking them directly, you can get a better sense of their attitudes and challenges through social media. Following their social media feeds gives you a way to “listen” to what they’re doing and what is interesting to them. It’s also an effective way to better understand the challenges and changes in their industries.7

New roles for CPAsPractices that focus on general bookkeeping and tax work can expect to see more of those activities move to the client side. So what’s left for accountants? Something many CPAs have long wished for: becoming an integral, strategic business partner. Instead of waiting for stacks of data and information to come from the client at prescribed times, or responding to one-to-one conversations initiated by clients, the client service relationship is becoming what Jason Bramwell describes as “a continuous loop of client engagement opportunities.”8

Keeping those relationships strong is more critical than ever. In the “old” days, changing accounting practices created tremendous hassles for companies, because of all the physical records that were involved. Now, a company that uses cloud-based services can switch from one practice to another almost as quickly as you can pay a credit-card bill online. Boasting that you also offer online services isn’t going to impress a business owner.

What will? How eagerly and innovatively you serve your clients. An Accountex Group survey reported that 72 percent of small businesses that decided to switch accounting practices cited a lack of proactive customer service as the reason.9 If your service keeps your clients happy, they’ll stick around. But if you’re not as responsive as they expect you to be, it won’t be hard for them to move to a competitor.

Whitepaper: Preparing for tomorrow’s public accounting practice

“ If you want to keep your clients in the coming years, you can’t settle for being better than the CPA practice down the street; you need to be prepared to compete against the biggest names in your state or region.”

866-625-3863 • www.oakstreetfunding.com | 3

Who will do the work?While the pace of change accelerates, the public accounting profession as a whole is aging. The average age of CPA practice partners in New York is 55, and nearly two-third of practice partners nationally are in their 50s or older. Even more sobering is that more than 64 percent of New York’s CPA practices lack a formal succession plan.10 In fact, three-quarters of AICPA’s membership will be eligible for retirement by 2020.11

Who will take the place of those aging and retiring partners? That’s an excellent question. While the number of students enrolled in accounting classes appears to be growing, fewer accounting grads are opting to sit for the CPA exam. In New York, the number of accountants taking the test has been flat for over two years. In addition, CPA practices in that state have doubled the number of non-accounting graduates they’ve hired, from 13 percent in 2007 to 26 percent in 2014. 12

Employee expectations have changed, too. Accountants nearing retirement age remember going to work for large practices after graduation, where they spent a few years “paying their dues” with long hours in audits and tax preparation, hoping for a spot on the partner track. The trends seen in other industries, with recent college graduates more interested in work/life balance and less patience for moving up the corporate ladder, are also happening in accounting. 13

Future-ready accounting practicesAs the evolution in the accounting profession continues to pick up speed, practices that fail to adapt or prepare for the changes are less likely to survive. The role of public accounting practices is changing, and partners need to pursue strategic planning to become what their clients want them to be. Making more effective and client-centered use of technology is one example.

Where workforce issues are concerned, the days of practices sitting back and choosing from stacks of eager candidates are disappearing, replaced by an environment in which the practices must woo new hires. Those practices would also be well-advised to establish formal mentoring and leadership development programs to ensure that younger employees gain the skills, knowledge, and judgment needed to assume partnerships in the future. To help overcome the hesitancy to sit for the CPA exam, practices can provide incentives such as extra time to study for the test and covering the cost.

Finally, one effect of the aging population of partners and the lack of formal succession planning is that many practices will become acquisition candidates. Practices that are poised to capitalize upon the evolution in the industry may be able to add clients and employees by taking advantage of those acquisition opportunities. In addition, practices may also look to mergers with similar practices as a way to gain economies of scale and become more competitive with regional and national practices.

Can you afford it?Most of these approaches will require some investment, whether that’s buying technology resources, funding staff development, or obtaining capital for an acquisition. As with most businesses, accounting practices can obtain financing through several sources.

Whitepaper: Preparing for tomorrow’s public accounting practice

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A first choice is often loan officers in the community, but traditional banks aren’t always comfortable with professional partnerships like CPA practices. Most banks are geared to making loans to businesses like retailers, manufacturers, and construction companies that have tangible assets such as inventory, equipment, and real estate. Some banks offer loans that are guaranteed by the Small Business Administration, but SBA loans typically take a long time to process, may involve an overwhelming amount of paperwork, and have relatively small lending limits.

Another alternative is specialty lenders that are accustomed to working with the accounting profession. They understand how a practice like yours operates, and are familiar with the nature of your income streams, so they can approach the underwriting with realistic expectations and an appreciation for inherent risks. In addition, as private companies, they are not restricted by the federal limits associated with some others types of loans.

Working with Oak Street Funding®

With a loan from Oak Street Funding, you can borrow against the future cash flows from your clients. It’s a solution other CPA practice owners have used to finance strategies for growth and competitiveness.

Oak Street Funding can customize a loan for your needs and situation, from $100,000 to $20 million, with a term of one to ten years. The goal is to help you finance growth with minimal out-of-pocket cost by leveraging the power of your practice’s cash flow. Learn more or request a free quote at www.oakstreetfunding.com or 1-866-OAK FUND.

The strategic opportunities available to CPA practice are limitless. Access to affordable capital is the key to taking advantage of those opportunities, and Oak Street Funding can provide that capital.

About Oak Street FundingSince 2003, financial services professionals have benefited from hundreds of millions of dollars in loans from Oak Street Funding, a direct, non-SBA lender that understands their business model and appreciates their most valuable assets – even though they are intangible. Our strong financing expertise, innovative technology, proprietary actuarial models and experienced niche-lending team align to develop new products to meet the growing demand for RIA financing. Visit www.oakstreetfunding.com to learn more.

The materials in this paper are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. The use of this paper, including sending an email, voice mail or any other communication to Oak Street, does not create a relationship of any kind between you and Oak Street. Loans and lines of credit subject to approval. Rate may vary at any time. Potential borrowers are responsible for their own due diligence on acquisitions. CA residents: Loans made pursuant to a Department of Corporations California Finance Lenders License (#6039829).

Whitepaper: Preparing for tomorrow’s public accounting practice

“Specialty lenders... are accustomed to working with the accounting profession. They understand how a practice like yours operates, and are familiar with the nature of your income streams.”

866-625-3863 • www.oakstreetfunding.com | 5

1 Samuel Edwards, “5 Trends Driving Disruption in the Accounting Industry,” Entrepreneur.com, September 23, 2016

2 Henry Bell, 6 Accounting Trends to Watch Out for in 2017 (And How to Make the Most of Them), receipt-bank.com, December 19, 2016

3 ibid.

4 Edwards, op. cit.

5 Peter Vessenes, “3 Trends That Are Affecting the Accounting Profession,” cpapracticeadvisor.com, April 27, 2016

6 Edwards, op. cit.

7 Jason Bramwell, “Top 5 Trends Shaping Accounting’s Future,” accountingweb.com, October 28, 2014

8 ibid.

9 Bell, op. cit.

10 Michael Cohn, “Changes Coming Fast in CPA Profession,” accountingtoday.com, October 9 2015

11 Bramwell, op. cit.

12 Cohn, op. cit.

13 ibid.

Whitepaper: Preparing for tomorrow’s public accounting practice