21st century accounting practitioners

In the last couple of days, I’ve been thinking about the shape of the next generation accounting practice. This follows a number of conversations I’ve had with software developers and accountants in public practice. A number of themes are emerging.

The dominant hourly rate business model, stifles innovation because it is safe and easy to figure out likely profit for the year. And as many say: ‘Why change the habits of a lifetime?’ It cannot continue in its current form because clients won’t stand for ever increasing fees when there is no discernible benefit. In my view, this represents an opportunity to consider value based pricing. I won’t pretend it’s an easy option. It requires proactive practice management and development. I see little evidence or appetite for this approach today, but it will happen.

The rise of low cost or free business software as a service will expose the utility nature of book-keeping, which practitioners I speak with reckon accounts for 60-70% of annual fees. Given the rule of thumb rate setting formula should yield around one third profit, it doesn’t take a genius to figure out that with the right approach, fees either fall or are replaced with other services. Whichever happens, accelerating a move to value based methodologies makes sense because then you’re concentrating on what matters to business, not administration.

Contrary to received wisdom, evidence is emerging that outsourcing is taking hold, in part to tackle the cost crunch. India is not as favoured as I thought it might be because experience suggests that quality is an issue. Regardless of fee levels, quality cannot be allowed to suffer. The hunt is now on for the next outsourcing hotspot. Even so, I would not dismiss India as an outsourcing destination. You don’t even need to ship the original documents because you can use scanning and document management software to overcome the physical shipment issue.

The pervasive nature of the Internet is globalizing service based business by default. A third of my readers come from the US. I didn’t seek that. In fact it never occurred to me that US based readers would be interested. This site doesn’t specifically address CPAs. But in reading US material like David Maister, it is clear that firms in the US face many of the same challenges as are present in the British system.

Reputation management is a little understood yet incredibly important part of the present. Consider the very public mess IRIS got into with its payroll problems. This has hurt the company and the ripple effect will continue long into the year. You only have to look at what’s happened at PwC in Japan to realise just how small and flat the world has become. The flipside (again) is that firms like Stuart Jones’ 3CA is gaining attention, precisely because he is giving attention to issues that are of importance to his client group.

Finally, it is going to be hard to avoid social software (blogs, wiki, podcast, video-blogging) in 2007. That’s because when Microsoft Vista and Office 2007 ship, there will be functionality for some of the basic technologies like blog editing and RSS reader. Look for the Blogging with Word 2007 series of links. That means your perceptions and use of electronic communications will change. In this respect David Tebbutt’s views on email are well worth considering. In my case, his proposition that with blogs, maybe email will get back to its original intent – personal communication between people who know each other – has pretty much happened. Apart from the spam, that is. Which could wither if it becomes obvious that email spamming isn’t worth the effort because traffic has diverted to (largely) spam-free RSS, wiki, blogs etc.

And that’s before we think about the impact such changes will have on your approach to market, culture, focus and revenue streams. Just about everything really. I think for example Philip Woodgate would go down a storm in geeked out, fabulously lucrative, Silicon Valley. Why? Because you just know you’re reading the real thing and Philip absolutely understands the value of giving something back to this medium’s readers.

That’s what a couple of days thinking, no Internet, no email, no mobile in some places and signing contracts on a new house does for you.

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