Whenever a company changes its driving force, there usually is a transformation of its business model. There are indications that the business model of the CPA Industry, as we know it today, is stagnating.
That’s when the rational pattern of a firm creating new products and services for its customers stops developing, growing or advancing adequately, and clients start to seek and find alternatives.
The major cause of a stagnating business model is a company not supporting a customer-centric driving force, but only supporting itself. Have you ever looked at the websites of the top five CPA firms in your market and observed what similar services they provide?
The “coup de grâce” for the CPA’s old business model began in 2021, when college students stopped majoring in accounting in significant numbers. The quantity of new CPAs entering the industry slipped about 30% and continues to plummet, while CPA firms grow older thanks to fewer partner retirements.
This means the only way to keep young CPAs is to increase salaries and benefits and hire fewer of them, but there’s been a significant elimination of financial advisory services within the CPA industry, due to the dislocation of financial advisory CPAs back into tax and audit functions of the firm.
The list of services provided by today’s CPA firm in its current business model continues to diminish, but without a change in strategy for services, only strategically managed firms will succeed, and that means a change in their business model.
Back in July, McKinsey announced it was developing a chatbot that answered tax, legal and HR questions. Morgan Stanley and PwC have announced they’re teaming up with OpenAI to develop a co-pilot AI app that could perform tasks like due diligence and flagging client compliance issues. Deloitte too is working on AI with Microsoft.
These moves are clearly designed to help the firms achieve more with less, but the good news for mid-level CPA firms is that it appears to address the symptom, but not the real problem: the business model.
Another trend has been happening that all of us are familiar with. CPA firms have been on a cost-cutting spree because their break-even point has been breached by today’s economy. PwC announced it was freezing salary increases in the U.K., while Deloitte eliminated about 1,200 jobs in the U.S., and KPMG laid off 700 employees.
As if this weren’t enough of a signal for mid-tier CPA firms, many small and midsize companies aren’t meeting revenue and profit targets and are cutting back on services. They are approaching fixed and variable costs as if they are in a full shutdown recession!
Normally it would be logical to throw up a competitive flag, but in my mind this is no coincidence. It’s the first step of a change in the business model of the CPA profession as we know it today.
In my next column, I will discuss some alternatives of what a new CPA business model should transform into, so CPA firms can land and expand once again.
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