With audit and accounting margins under pressure, many accountancies are increasingly looking into consulting as a new revenue stream. Yet a recent study in Australia reveals that accounting firms struggle with expansion into consulting. To move forward, firms may need to take the challenge more seriously, as well as build the relevant capacity to succeed.
The audit and accounting industry is under threat from wide spread changes brought about by rapidly advancing technologies. Many firms are now facing reduced margins as competition increases, with technology looking to massively lower operating costs as the back office is replaced more and more by robots. In a bid to stay relevant, and to keep profit levels healthy, many firms are turning to business consulting.
Bad for business
Yet while many accounting firms are seeking to turn their financial and audit expertise into business insights, a recent Australian survey has found that many newly fledged consulting units at accountancy businesses fail to make it – a somewhat astonishing 70 out of 100 fail to make it in a reasonable time. Smithink’s Mark Holton describes this result as “scary”.
The reason for audit and accounting firms to be worried is, according to Holton, that the move toward automation is threatening business. Without a secure new line of revenue, contemporary audit and accounting players may wind up on the street. “Let’s be frank, we report to big brother and if big brother changes the way we do it or changes the very nature of what they require or even, heaven forbid, start to think about interacting digitally direct [with] an SME, and we sit on the periphery of that, then that’s going to very well change the way we do business,” says Holton. He adds that a practice whose value proposition is around transactional processing is “under threat.”
According to the research, a lack of firm commitment and a lack of capacity are the two main reasons for the poor track record of accounting firms pursuing market entry into consultancy. “Lack of commitment, that’s a critical one because it’s never as important as compliance and what happens to stuff that’s never as important? When does it get done? Never.” He goes on to add, that “the second ‘c’ is lack of capacity. “Because of the lack of commitment we are not putting enough resources towards it so we lack capacity.”
To ensure that accountancy businesses survive the massive changes that are expected to affect mid-level clerical jobs when the machines get up to full steam, Holton suggests firms need to do more to prepare for a successful transition into professional services. A learn as you go approach is suggested by Holton: “If so many firms fail, we have to start to analyse why and put in preventative strategies to stop it happening. The challenge is how do I grow the size of my advisory services and have a lot of fun doing it? Well none of that is going to happen if you don’t get out there and give it a crack.”