Strategic priorities for tax professionals
In 2023, as businesses are trying to reclaim some semblance of normal operations after several years of pandemic-related uncertainty, accounting firms are also rethinking their priorities to better meet customer demand and position themselves for future prosperity.
While overall goals for tax-firm owners and leaders remained consistent in the latest 2023 State of the Tax Professionals Report, efficiency reasserted its primacy as a top strategic priority, client service moved up in importance, and the search for quality talent — last year’s top priority — slipped to fourth place, behind growth.
Priorities are aggregated by the number of mentions from surveys of more than 500 tax leaders around the world and grouped by theme. Going into 2023, the conversation in accounting is a bit different than it was in 2022.
When evaluating these survey results, you should note that although the order of priorities may have changed, this doesn’t necessarily mean firms care any less about any given priority; it’s just that respondents’ primary focus may have shifted. As a practical matter, all these priorities are interrelated, and the statistical difference between the top three priorities, for example, is only a few percentage points. Although finding and developing talent did drop from the top spot to the fourth spot overall due to input from small and midsize accounting firms, the hunt for talent is still a top priority at large firms.
Indeed, firm size is a crucial factor in these findings as well. For large firms (30 or more people), recruiting, developing, and retaining high-caliber talent remains the highest priority. In contrast, midsize firms (between four and 29 people) focus more on efficiency and client service. Talent isn’t as much of an issue at small firms (one to three people), where there is more focus on client service and growth.
Priority 3: Growth
One way or another, growth will always be a top priority for tax firm leaders — although it technically dropped a spot on our overall priority list, the difference between 2022 and 2023 is statistically insignificant. Strategies for how to grow do not appear to have changed much in the past few years either.
Such strategies as expanding the firm’s client base, leveraging technology and automation, and getting more work from existing clients remain the most popular paths to growth. Other strategies — such as offering new services and acquiring another firm — are still in the mix, but in this category, more so than others, favored growth strategies differ depending on the size of the firm.
For example, small and midsize firms actively pursuing a growth strategy tend to prioritize growing their client base, whereas firms with more than 30 people are more likely to prioritize getting more high-value work from existing clients. Large firms are also better positioned to fuel growth by adding staff or acquiring another firm.
Where technology is concerned, midsize firms are more likely to prioritize greater use of technology and automation as a growth strategy, although large and small firms aren’t far behind. In our 2023 survey, 60% of midsize firms with a growth strategy said incorporating more technology and automation was critical to their growth aspirations, while small and large firms alike said the same at 48% and 53%, respectively.
Expanding the client base
To similar but varying degrees, tax and accounting firms of all sizes appear focused on growing their client base or targeting high-quality clients to boost the number and size of billable hours. Currently, the overall client mix among all firms leans heavily toward private individuals and small to midsize companies with less than $50 million in revenue.
When asked to describe their overall client base, for instance, firms reported that, on average, 78% of their clients are individuals or small businesses with less than $1 million in revenue. When broken down by firm size, however, it’s apparent that small firms rely almost entirely on individuals and small businesses, whereas, not surprisingly, larger companies tend to gravitate toward larger firms.
In small firms, for example, 89% of clients are either individuals (58%) or small businesses (31%), and only 8% of their work comes from companies with more than $1 million in revenue — not including the category of charities, non-profits, government, or other. Meanwhile, at midsize firms, individuals and small businesses still make up the majority of clients (78%), but 14% of their clients are medium-size companies with between $1 million and $50 million in revenue, and 3% are companies with more than $50 million in revenue.
The big fish: High-value corporate clients
The dynamics shift a bit more dramatically at large firms. At these larger firms, a little more than half (55%) of clients are still individuals and small businesses, almost one-quarter (24%) are medium-size companies — $1 million to $50 million in revenue — and 10% are large companies with more than $50 million in revenue.
Looked at another way, this means that large accounting firms are three times more likely to have a big fish client — those with annual revenue of $50 million or more — within their customer base compared to firms with fewer than 30 people. In fact, three-quarters of firm leaders who responded to this year’s survey said they do not have any large corporate clients at all. On the other end of the spectrum, a select few firms (3%) say companies in the $50-million-plus club make up most of their business, which is rarified air indeed.
Growth strategies differ according to firm size, with the general rule that the larger the firm, the more likely it can attract high-value corporate clients and have more options to fuel further growth.
While concerns about talent were dominant in last year’s survey, those have now given way to an increasing desire for greater efficiency, along with a renewed commitment to the expansion and delivery of client services.
Heading into 2023, tax and accounting firm leaders reported that their top overall priority now is driving operational efficiency, which may reflect a need to contain costs ahead of a potential recession and a desire to squeeze as much productivity as possible out of existing processes, systems, and personnel.
Yet, despite the importance of efficiency as a stated strategic goal, more than half of all firms report that they do not have a designated person responsible for driving efficiency. This lack is unfortunate because firms without leadership and a detailed plan will likely see their desire for greater efficiency remain little more than a wish.
Similarly, the expansion of client services gained some momentum in 2023 — primarily in response to ongoing client demand for more advisory services — particularly in the areas of tax strategy, financial planning, and general business guidance. Small and midsize accounting firms are also interested in improving the client experience by providing more responsive, personalized service. Indeed, if there is a trend to watch for in the coming year, it’s the extent to which firms are willing to change how they do business in response to client demands for more advisory services, more flexible pricing models, and additional business guidance above and beyond basic tax preparation.
Growth is another strong general goal for firms in 2023, but strategies for growth differ somewhat depending on a firm’s size. Small and midsize firms typically focus their growth strategy on expanding their client base. In contrast, large firms are more likely to focus on acquiring new clients, getting higher-value work from existing clients, developing client services, and leveraging technological efficiencies.
At the same time, more automation and improved tax software are also changing how work is apportioned and prioritized at many firms, opening up opportunities for tax professionals who want to build a broader portfolio of skills.
As the industry moves through 2023, adaptation, evolution, and flexibility are likely to become the watchwords — for both accounting firms and individual tax professionals.
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