092 Top Trends In Small Accounting Firms (2023)

Today we're cruising through the top trends.

I see in small accounting firms. What are the meaningful changes that people are making? What's the stuff that's particularly hot right now to where maybe you wanna get.

A taste of that rainbow, or maybe it actually makes you wanna do the.

Opposite because it's gonna open up that market. Come on in.

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Okay, I got five trends, and I.

Will start by saying there's nothing new under the sun, but I see these trends picking up a lot more now and over the last couple of years. Which means if I'm running a firm, I'm thinking, you know, is this ultimately a path that I want to go down? Or if these trends keep developing, how do I actually fill in the void that those trends leave? So like, for example, I feel like a few years ago the big trend, and maybe even more recent than that, was really around standardization and doing things in a super locked down way. And there's definitely benefits to doing that. But the issue with getting too standardized right now is you ultimately have to be different than all the productized solutions that are out there, right? And those Hyperscale like your QuickBooks, live bookkeeping, the benches, stuff like that, all those companies are ultimately set up to do things in a mega, mega scalable way. And with that will come limitations. But if I'm setting up my firm to have some of those same constraints, then I'm kind of setting up camp in a place I don't want to be in. Right? So anyways, as an example, a few years ago, things got real standardized. And what I saw was actually the folks with the really weird accounting needs were kind of getting hung out to dry as a result. That was kind of how I crafted. My firm was around the really weird, the hard stuff, because I found that those people assigned a greater value to us doing that work for them because.

They couldn't find anybody else to do it.

They couldn't hire staff that had the technical expertise to do the nuanced aspects of what made that specific situation hard. But. But then when they went around and talked to other firms, they would do some discovery and the firm would be like, oh, yuck, yeah, no, I see that you have to use this system or it's complex because of this and we don't want to touch it as a result. And we came in and we were Able to charge top dollar for some really weird kind of like one off stuff. But to be totally honest, like I'm fine with that. As long as you're getting paid well to do that really one off stuff, I think that's fine. The trap is when people get sucked into doing that one off stuff and the client doesn't value how unique that is. You know when you're doing the one off stuff at volume rates, when you're comparing your rates to bench, but you're actually going out and doing something totally bespoke for someone, you don't want to end up there. But we were able to come in and set the fees really high. Like coming into projects like this, we price our fees not according to like bookkeeping rates, but according to like full time equivalents. If you didn't have to pay us to do this, how big would the team have to be? And that's really how we set our fees. So five trends that you may want to get on.

They may sound nice or you may.

Actually want to be thinking about. If this keeps progressing, how could I actually be the one filling in the void that it leaves? So first one is just the move away from standalone once a year work. And the big example in the US is just standalone 1040 tax work. But that also applies elsewhere like standalone personal tax work. If you're not able to find a way to deliver value to that client year round, then fewer and fewer people are serving those kind of once a year needs.

Because it's kind of the worst part.

Of the business model, right? Like the fact that you have this once a year spike, really hard to build something profitable around that when you have this huge surge in demand specific times of the year. And so a lot of folks are completely throwing out the once a year personal tax work and only supporting the businesses with their tax needs, which involves more kind of year round planning, but also like more of the back office and accounting needs of the business. So where in the past we've had a lot of tax firms that would do any type of tax work, a combination of 1040 work, combination of business work, a lot of those firms are now moving into doing cast stuff. So back office supporting like kind of them as an accounting department in a box, you're fine bumping around and doing stuff in the background. So they're doing that on top of the tax work, but they're only doing the personal tax work of the business owner. So like they're not dealing with all of these like various different one off situations. And Clients that will not pay them very well. I didn't say you could run the sink, lady. And interestingly, like in the past, at least in the US Tax firms kind of looked down their nose at the bookkeeping work. And I think that was probably built upon traditional hourly rate standards where you could charge a higher hourly rate for tax work than you could for bookkeeping. But more and more, there's. There's a, a shrinking number of firms that will only do tax work and not do that accounting work because there's a huge, Honestly, there's a huge premium that people assign to being able to come to one place to do all of that stuff. And it's a great example of how there's certain things where if you come out and you just hang out your shingle and say, we're gonna do bookkeeping, it's really hard to get away from the commoditization of that and how there's sort of a standardized expectation around what bookkeeping looks like and what you charge for bookkeeping. But any incremental thing beyond that or any incremental specificity layered on top of people will assign a disproportionate amount of value to. So recently when I posted, like an example of on social media, you know, I think I posted a small business tax return, $500. A small business tax return for creative agencies, $1,000. A tax return for creative agencies, over a million dollars, $2,000. A tax return for busy creative agency owners, over a million dollars, $4,000. And half the comments were like, $500 for a tax return. I'm like, that's not the point. The point is the specificity. And when you can be a solution for like a very, very specific type of person, that incremental perceived value of that specificity and how you can be a really helpful one stop shop in my experience, like, always outruns the additional cost that comes from serving somebody in a more specific way. Because it's something that feels specific to them and there is some specificity in it. But the reality is, behind the scenes, you're largely doing the same stuff. You just know how to speak, like, their language and help them feel kind of understood, like the specificity of their pains, right? So while people, like, don't get excited to pay for bookkeeping, if you can say, I'll handle your accounting department for you, so you don't have to staff that, you don't have to think about it, you don't have to stress about it, like, then you're framed through the Lens of how big of a team would I have to hire to do this function? And, and honestly most of us do that and then we come in and we're like, yeah, we'll be half the price of that. When what we should be doing is being like more than that.

Because if they have to hire their.

Own internal team, they have to manage those people, they have to source them on an ongoing basis. They're not going to have the same level of expertise as you. So when you can come in and be that like a county department in a box, honestly, we should be charging more than what it would cost to go out and even find those staff to do that job, if they could even find them. But this is where tax firms. I'd be curious if you're not in the U.S. if this has been the trend elsewhere. This is where tax firms have definitely been trending, is investing more in this sort of back office accounting department in a box sort of service, but then only doing tax work for those people, business and personal tax work for them. So what is kind of the sawdust like the, the byproduct of that is a whole heap and pile of once a year personal tax work. And I'll tell you what, somebody's got to do it.

And if you can price it right.

Honestly, you can actually, you can make a killing just like pumping out 1040s, all that stuff that is getting left in the dust. Honestly, the, the, like the prices you can charge to get that work done right now, you can totally make a profitable business around it. I get that the seasonality is really hard, but man, people also sell fireworks in the US. Like something like 95% of fireworks sales year round happen in like two days. So there are workarounds for the seasonality. I don't know if I would subscribe to that. It probably it may boil down to like the style of work that you prefer. I enjoyed the tax cyclicality early on because I enjoyed taking the time off in the summer. But these days I like something that's a little more smoothed out. Hey.

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Second big trend that I think will continue to grow a lot is bookkeepers doing tax. Couple of things that are going to force that and is you have people just leaving tax altogether. Equally big you have tax firms doing less tax for the reason that we just talked about. So it's actually putting more tax work out there to be done because they're serving fewer people in a tax capacity and serving that smaller number of people in a more holistic way. So that's putting more tax work out there. But also there's never been a bigger void than there is right now between the productized solutions and how much it costs to get professional expertise. You've got in the US you've got your TurboTax, your H& R block, Liberty tax, stuff like that, sort of retail tax, you know, call most of those 200 to $600 returns usually. And then the jump into like what you are going to have to pay to get into an accounting firm, like, it is a big old jump. There's a big gap there and somebody has to fill that. And over time, productized solutions will probably fill that. Right now there's a lot of very small firms and solo operators that are filling that. But really quickly, they outgrow that super fast and their rates are, you know, in a matter of years, 2-5x what they were. But for bookkeepers out there who maybe haven't found specificity and are struggling to do that work in a profitable way, a really logical progression is getting into tax. Whether you're going to go out, you know, in the US and get your EA or something like that, it's a very like, it's a logical progression. And honestly, there's a lot, like, right or wrong, there's a lot of great tax preparers that just started by doing their families 1040s, and then a few years into it, they're like, well, I run, I run a tax firm now. So that's going to keep happening. More bookkeepers getting into tax. Honestly, for the whole ecosystem, that's probably a good thing. Like, we need more tax preparers. The bottom of the bookkeeping market's probably going to keep getting eaten away by productized solutions. So is that gonna leave like a massive void in how to get bookkeeping done? Maybe, maybe not. But I see a lot more bookkeepers leaning into doing tax work. Third trend is tax firms. I'll again say none of these. Like, there's nothing new under the sun. And for every single one of these things, there were people doing it decades ago. These are probably the five things right now, though, where I see firms making like really hard, really big changes is around these five areas. Number three, building tax firms around advising, charging like 3 or 4x the rate that they would otherwise charge for annual prep, and calling it tax advising or tax planning or whatever it is. And that is because you are able to frame that tax planning through the lens of ROI differently than you can with Tax prep. Tax prep is kind of like the equivalent of like boilerplate bookkeeping, where I feel like there's an increasing pressure of commoditization on it and without any sort of differentiation, like you're kind of just doing this autopsy after the fact where there's really not much wiggle room and not much space for your expertise to come in and somehow improve their result. Whereas tax planning and tax strategy, especially for folks who pay a lot of tax, you can say like, hey, here's three strategies that are going to save you 40 grand and I'm going to charge you 10 grand this year instead of 3 grand like I did to prepare your business return. Now, honestly, part of what I think is pushing this space forward is we finally have some tools that present these tax strategies in a better way. The main ones right now are Tax Plan iq, Corvi and Holistaplan's doing some of this and I'm inevitably leaving someone out. But the tax planning software from your tax vendor, you probably still need that. And that is the best tool there is for the super technical calculations. But what those tools are awful at is presenting those savings in a way that the client could ever understand. And this is a great example of how we will do some really cool, really meaningful work and save them a bunch of money, maybe even set something up that will save them money on an ongoing basis every single year. But then we're not great at communicating all that money that we just saved them. And we certainly aren't tracking that year over year to say, like, hey, just a reminder, like, we put 20k in your pocket this year, but you're still griping about that $1,200 bill. So some of these reporting platforms are more set up around managing that planning, engagement and reporting back. Here's all the strategies that we're doing and how and why they're saving you money, and very specifically how much money they're saving you. Because it's much easier to come to someone and say, hey, I can save you 40k if you do this $10,000 engagement with me, than it is to say, will you pay me five grand to do a tax planning analysis. Like that ROI based approach, like, just obviously is going to sell better because there's this element of found money. And a really nice byproduct of this is when you're being strategic and you're doing this sort of proactive approach to tax that takes all the pressure out of the busy season either because you don't even need to file during the Busy season, or you already know that person's tax situation well enough to where you more or less have the information that you need to file a return when you get to busy season, rather than that client just turning up and you having to, like, get the whole backstory of what happened all year just to file the return. So if you compare those two things and you can charge that planning client 3x what you could have otherwise charged with the prep client. And we talk a lot about, like, the arithmetic of your prices being more like, that's not 3x the profit. That's probably more like 5x the profit. If your prices are 3x because all of your price increases go straight to the bottom line, this realistically means for every one of these planning clients, if you're charging 3x the rates of a prep client, every one of those planning clients is making you as much as you make doing, like, for tax returns. So this is genuinely a path to, like, a more sustainable, way, less volatile tax practice. But it means pushing your clients to that planning really not being optional, which can feel restrictive. And to be honest, not everyone and I struggled with this in my firm. Not everyone needs it. Not everyone is paying enough tax to justify what I would like to get their fees to. But where we ultimately got was then that, you know, those people are probably not our best clients. And those are really tough clients to serve because they're just beyond, like, the TurboTax and the Jackson Hewitt threshold, where they've got a little bit of complexity, but there's not enough money there for your expertise to really be, like, fully deployed. And that was how I would kind of frame it for our clients. When we were a firm of about 40, I was like, like, here's the reality, here's the story is we have set up our firm with like, a level of expertise and effort that goes into all of those returns. Where for a certain level of complexity and a certain type of client, that makes sense. That level of effort makes sense because we're going to put in effort in situations where it's going to yield you that amount of return. But that just fundamentally won't be everybody. 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Okay, fourth trend, accounting firms that don't.

Look like accounting firms. I've been trying to highlight these in my newsletter. So I've got a weekly newsletter, newsletter Jason cpa, where you can sign up. And I try to highlight firm websites that I see that are almost like an accounting firm in disguise. And I kind of like this because, like, as we've talked about here, like, accounting for websites just suck. Like, just the ones that are like, here's a picture of our building and here's who we are and they're all stock photos and we're going to help you feel good. Like, that doesn't do squat for anybody because we've all seen 100 versions of that and nothing about that differentiates you from anybody else. So they're going to go out there and it will like, check this box of like, okay, they're a legitimate business because they have a website, which, I mean, that's really not even the case anymore. But I think that's why a lot of people still create websites, is to look legitimate, as if that's some sort of, you know, authentication of humanity behind this business enterprise. But people are standing up these websites that are like, you know, your AI tax advisor or your cfo, your AI cfo. Like, stuff like that where like, they will have kind of a, a party trick that they will build their marketing around. But behind the scenes, like, it's actually an accounting firm. We saw this a ton with R and D credits, people wanting to work with startups. And so they like, they do all their marketing around R&D's and they're like, we'll do your R&D's. But like, oh, it actually turn out they do bookkeeping, they do tax and all of that. R and D is just how they get them in the door. A lot of people did this with ERCs also. And obviously there's very scummy versions of ERC stuff happening. But there's a ton of totally legit, like, ERC stuff. And ERC was great for a lot of clients. And we worked our butts off to get them to the right people. But kind of in how we've been talking lately about how you're probably better off building your client around a. Building your book of business around a compelling offer as the way to get them in, rather than just, I will do your ongoing work if you can build that marketing around an offer that just converts better. Cause you're solving a specific pain point for a specific type of person. But also then once you do that initial project, when it comes to signing the deal to do the ongoing work, like, they're pumped, they're jazzed, they've been dazzled, they're gonna pay more for the ongoing work. So I'm seeing more landing pages built around that thing, that problem that it solves. And it doesn't look anything like an accounting firm. And you actually have to do some digging to realize, like, oh, like this is. This is just an accounting firm is all it is. And that's kind of an interesting thought experiment if you think about, like, what are the problems I'm trying to solve for. Does my website even need to look like an accounting firm website? Or can it just be like, this is a solution for this pain point? I actually love that we're seeing that because I think it enables. Enables kind of a different approach on specificity that's appealing to a certain type of client than it's more appealing to a certain type of client than just your vanilla stock, photos and pictures of people at the office kind of thing. Right. Okay. Fifth one that is growing in the US for sure is more outsourced fulfillment. That is, you are the face of the firm.

But the way that all the work.

Gets done is it either goes to another firm, it goes to an offshore group, that sort of thing. So there's all sorts of other businesses that work this way where the business may literally just be like a lead business and they sell those leads to plumbers or landscapers or whatever it is. But there's a certain, I don't know.

Sacredness to the work that we do.

Where it is admittedly really hard for us to, like, outsource any aspect of that work when at the end of the day, you're still the one signing your name on the dotted line. You're responsible for the quality of the output, but the default is still, we're gonna do 100% of that stuff in house. Because anything else just seems, I don't know, weird, odd when the reality is you're like gonna go out and try to find good junior team members and train them and they're gonna do kind of the first version of the work and then you're gonna review it and actually make it correct. But at least in the US this is still something that we do in house rather than outsourcing that kind of first prep and then you being the one responsible for finalizing it. I'm definitely seeing a trend. It's probably driven by kind of the globalization of work in general and people being more open minded to offshoring and to building partnerships with other firms that can even do this stuff with them. Definitely seeing a trend toward, you know, the firm owner's job being the marketing and finding out what compelling problem do I need to solve and managing those relationships. And that's the job. You're still gonna review the stuff to ensure it's correct before it goes out the door. But it doesn't necessarily mean that your firm has to be the one to take it from 0 to 100. This may be more of a US specific thing. It's particularly American to think that, you know, nobody's gonna do this work, like a room full of Americans are gonna do this work. That is a probably especially American thing. But I do think people are warming to that. And, you know, the framing of like this is sales and marketing and this is fulfillment. And I can have different teams overseeing those things. And ultimately what matters at the end of the day for the client and is, did I get that work done to the highest level possible? Like at the end of the day, that is what really matters, right? And so oftentimes there are maybe different ways to get that stuff done that we aren't necessarily considering. I've talked before about how I think just the traditional hiring and having that single method of fulfillment can be a real trap. How we are often, especially if you're in a small firm, you are extremely exposed around yourself and your ability to get the work done. And the fact that if you got sick tomorrow, like would the business stop? I'll put it on the, on the end card here, at least. On the YouTube video, I'll link out to the daily pod about diversifying your fulfillment more, ensuring that you're not 100% getting all the work done with just like an in house team member or a single contractor and how to kind of spread it across that. But I've been seeing that more and more. The people who are kind of the face of the firm, but then behind the scenes, there's actually a bunch of different groups, a bunch of different ways of getting that fulfillment done. And they're really just focused on the marketing, the relationship management, and then making sure everything's correct when it goes out the door. But there's still people that are cold on that, that don't really like that. It feels, I don't know, like dishonest or something like that. But we'll see. I think there's still an interesting version of a firm to be ran there. What other trends are you seeing? Those are like, maybe the five biggest ones I've seen. Again, none of those are brand new, but the people that I see making the big pivots in their firms, those are probably the five most comm of ones I'm seeing right now. Anything that I missed, any big shifts that you've done that we haven't talked about, would love to hear about it and I'll see you next time.