In its continuing effort to provide leadership in technology consulting for accounting professionals and small businesses, The Sleeter Group recently conducted research among decision makers at small and medium-sized businesses (SMBs) across the United States. This research is a repeat of a study administered last year, which was presented at the AICPA/CPA2Biz SaaS Executive Round Table event.
The goal of this year’s research was to confirm the findings from last year and identify any important trends developing in what SMBs want from their outside accounting firm. As was done in the original research, we asked a series of questions targeting the types of services currently provided by CPA firms and the types of services businesses desired. We also focused on understanding the SMBs’ impressions of what services their accountant could provide compared with what they thought their accountant wanted to provide. The data might surprise some accountants as well as SMBs, because quite often, the difference between what businesses want differs from what they think their CPA wants to do for them, especially in the area of technology consulting.
The combination of The Sleeter Group’s 20 years of qualitative research with the two years of quantitative research data leads to some interesting findings in how accountants work with their clients and how SMBs want to work with their CPAs. We feel the results paint a picture of significant opportunities for forward-thinking accounting firms that invest in technology skills and build client services to leverage these skills.
This article summarizes the results of our research. The complete results can be found in our 2014 research report on What SMBs Want from Their CPA.
About the Research and Respondents
The data for this year’s research was collected through an online survey conducted at the end of January 2014. Over 1,000 prospects were screened for qualification, with a final sample of 188 respondents used for the analysis. In looking at business demographics, what we discovered may not be surprising to most accounting professionals and was consistent with last year’s findings.
Almost half of the SMBs surveyed generate under $250 thousand in annual revenue, and less than 25% generate between $250 thousand and $1 million. This is quite different from the demographic makeup of U.S. businesses, where 85% of companies have revenue under $250 thousand and 95% under $1 million (U.S. Census Bureau 2007 Survey of Business Owners). However, when you consider that more than half of U.S. businesses make less than $25 thousand and would probably not use the services of a CPA, then the revenue breakdown of these SMBs falls in line with expectations.
As expected, there’s a correlation between the annual revenue of a company and the number of employees it has on staff. In Figure 1, you can see the percentage of firms with less than $250 thousand in revenue (48.5%) is very close to the percentage of firms with one to five employees (44.6%), and as we examine the percentages at higher revenue breaks, the percentages at higher employment breaks closely match.
Figure 1: Correlation between revenue and number of employees.
Every participant in this study was involved in the decision to hire an outside CPA firm or accounting services organization. Sixty-nine percent acted as the sole decision maker, while the rest were part of a team. Since almost 70% of the companies have fewer than five employees, it makes sense the decision is made by one individual in nearly 70% of cases.
In examining the types of businesses that engage CPA firms, 73% of respondents were from service firms. The United States has a service-oriented economy, so the percentage is consistent with the national breakdown of U.S. businesses, where 77% are classified as service companies (U.S. Census Bureau 2007 Survey of Business Owners). Of these companies, 50% provide services to consumers (B2C), and 50% provide services to other businesses (B2B).
Examples of typical B2C businesses are auto service, artists, churches, construction, hair salons, landscaping, and legal. B2B business examples include advertising, design, information technology, consulting, and property management.
What Technologies SMBs Are Using Today
In 2013, we asked SMBs about their current accounting systems, and it was no surprise to find an overwhelming number using QuickBooks on local hardware in their offices. That hasn’t changed in this year’s results, but we do see a slight decrease in the percentage of QuickBooks Desktop users, from 68% to 62% (see Figure 2). In the white paper, we dig into this data quite a bit more.
Figure 2: SMBs’ accounting systems in 2014 versus 2013.
- The use of internal bookkeepers increased from 40% to 43%.
- The hiring of external bookkeepers (other than a CPA) increased from 17% to 22%.
- The use of a QuickBooks Hosting service or online accounting software remains below 10%.
The majority of businesses continue to live in the “old world” of desktop software, running within their own offices. Their adoption of cloud services is limited to add-ons that connect to the cloud, such as merchant services, online banking, or Bill.com for managing AR/AP and cash management. At this time, it’s difficult to say whether the low rate of usage is due to resistance or to a simple lack of knowledge. If it’s the latter, then there’s a great opportunity for CPAs to provide technology services by educating SMBs on the various options.
How SMBs Select Their Accountant
To understand how businesses select an accountant and what’s important in their decision to engage an accountant, we presented SMBs with several factors and asked them to rate each factor’s importance in selecting a CPA, using a scale of 1 to 10, where 1 is not important at all and 10 is extremely important (see Figure 3). To no great surprise, “expertise” and “responsiveness” were the top-rated qualities, with scores averaging over 9.
What business owner doesn’t want an accountant who is good at what he or she does and responds to questions quickly? What may come as a surprise is that “proactive strategic advice” was the third-highest-rated factor with an average score of 8.7, coming in ahead of “reputation” and “low fees.” The fact that proactive strategic advice rated so high shows SMBs want a CPA who is a partner in their success and often thinking about their business. Proactive strategic advice can be business or tax planning, but it can also take the form of technology planning to improve the efficiency of the business’s operations. Simple recommendations, such as a solution for online document sharing or associating electronic documents with accounting transactions, can go a long way in solidifying the perception of the CPA as proactive.
Figure 3: Criteria SMBs use to choose a CPA.
Should Accountants Specialize?
The percentage of SMBs who require or prefer their CPA to be a specialist in their industry increased from 53% in 2013 to 62% in 2014 (see Figure 4). This may indicate a growing desire among SMBs for CPAs with knowledge of technological solutions for specific industries. There’s still a significant number of SMBs who don’t care if their CPA is a specialist, and a possible reason for this is the misconception there’s no need for industry expertise unless the accountant is helping them with business planning, technology planning, or business-process engineering. This could be a strong warning sign that SMBs who answered “don’t care” are only receiving compliance services (e.g., tax preparation and financial statements), which is quickly becoming a commoditized service. In the coming years, the real opportunities for accounting professionals will be in advisory services, which develop deeper engagements with clients.
Figure 4: SMBs who want their CPA to be a specialist in the SMB’s industry.
How Satisfied Are SMBs with Their Accountant?
To gauge how satisfied SMBs are with their current accounting firm, we asked how likely they would be to recommend the firm to a friend, colleague, and/or other business on a scale of 1 to 10, with 1 being very unlikely and 10 being very likely. What we discovered is that 59% of SMBs are “highly satisfied” with their external accounting firm, 21% are “satisfied,” and 20% are “dissatisfied.”
Figure 5 shows an Accounting Net Promoter score of 39, which is near the top when compared with other service businesses as measured by Satmetrix. Net Promoter is a tool that’s used to gauge customer loyalty. It serves as an alternative to traditional ways to measure customer satisfaction and claims to correlate with revenue growth.
Figure 5: Accounting received a Net Promoter score of 39.
The Net Promoter score is based on the following criteria:
- Promoters (score 9–10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives (score 7–8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0–6) are unhappy customers who can damage your brand and impede growth through negative word of mouth.
To calculate your score, take the percentage of customers who are promoters and subtract the percentage who are detractors.
What Services to SMBs Want?
In looking at the services SMBs are currently receiving from accountants (Figure 6), traditional CPA services dominate the top five spots in 2014, just as they did in last year’s study. Technology services, such as creating a dashboard to monitor the business or general technology consulting, do not even crack the top ten.
Figure 6: Top services SMBs currently receive.
When asked about the services they want from their CPAs, there’s a clear desire for planning, strategy, and analytics (Figure 7). Those services, plus “create a dashboard to monitor business” in the top three, demonstrate SMBs are open to receiving technology recommendations from CPAs. This presents an opportunity for CPAs to provide another level of service that can only benefit all parties.
Figure 7: Additional services SMBs want.
How Do SMBs Want to Communicate with Their Accountant?
We asked respondents how they currently communicate with their accountants and how they would prefer to communicate with them. As expected, the traditional methods – in person, phone, and email – were the most mentioned as the current form of communication, but an interesting trend developed when comparing the current methods to the preferred methods. As Figure 8 shows, SMBs desire to move away from typical communication and engage their accountant in more nontraditional, technology-based forms of communication. While SMBs may want to communicate this way, it’s not possible unless the CPA makes it an available option. After all, communication is a two-way street, and both parties must have the ability to use that particular method. If CPAs made these options available, it would satisfy the preference of clients and show the accountant is ahead of the technology curve. This would be a step toward proving the CPA’s qualification to provide technology services.
Figure 8: Current versus preferred methods of communication.
Why SMBs Switch Accountants
While examining the importance of the factors in choosing a CPA, we also asked respondents if they had ever switched from one CPA to another. Approximately half of the companies switched at some point in the life of the business, which was consistent with the results from 2013. As a follow-up question, we gave survey participants a series of reasons and asked them to tell us how much of a role each played in the decision, with 1 meaning no role at all and 10 meaning a large role. As you can see in Figure 9, the top reason was the CPA “did not give proactive advice, only reactive.” This reinforces how SMBs view the relationship with their accountant. They see the CPA as a resource with the knowledge and expertise to help make their business successful, but if the CPA isn’t ahead of any potential issues or recommending ways to streamline operations, then the SMB may move on to an accountant who will. It’s a good reason for CPAs to make sure they’re current on the latest technology solutions for businesses and inform their clients on the benefits.
SMBs Want Advice on Strategic Planning and Technology
A major focus of this research was to understand how much involvement SMBs want from their CPA as far as “strategic technology advice” compared with “strategic business planning advice.” The idea was to get the SMB to differentiate between an obvious match (business and financial planning) as compared to the technology planning area.
Just as we discovered in the 2013 study, SMBs turned to accountants most often when seeking strategic financial advice (see Figure 10).
Figure 10: Who SMBs turn to for financial advice.
But when asked about business and technology planning, the CPA wasn’t someone they turned to very often (see Figure 11). For business planning, the majority of SMBs said they “sometimes” seek out the advice of their accountant, while nearly a quarter said they “never” do. When it comes to technology planning, almost two-thirds of respondents said they “never” seek out advice from their CPA, showing SMBs don’t believe accountants have the expertise in technology to provide such advice.
Figure 11: Majority of SMBs don’t look to CPAs for strategic advice.
Where Is the Profession on Technology Adoption?
To understand why SMBs hold this view of accountants, we asked them how “up to date” their accountant is with regard to adoption of new technologies. We found only 13.5% said their accountant is ahead of the curve as far as technology usage inside their firm, 17.1% said their accountant is “behind,” and 59.6% said their accountant is “current” (see Figure 12). It’s not surprising that SMBs don’t think of accountants as technology experts when three out of four believe their own CPA is behind or just keeping up.
Figure 12: Only 13.5% of SMBs say their CPA is an “early adopter” of technology.
Despite the perception of accountants as unable to provide technology-related planning and consulting services, we did discover almost half of SMBs want a CPA who is proactive in helping them plan and implement technology changes. However, when asked if their CPA is proactive in helping them plan and implement technology changes, almost 80% of SMBs said “no” (see Figure 13). This leads us to conclude that there’s a significant opportunity for firms to differentiate themselves in the market by providing technology-related services and to market themselves as being experts in technology. If nearly half of SMBs want the help and almost 80% of accountants aren’t providing the help, then the doors are wide open for someone to step through and fill the demand.
Figure 13: Majority of SMBs say their CPA doesn’t help them with technology.
Summary and Recommendations
In summary, although SMBs are mostly happy with the accounting profession, there’s room for improvement.
More importantly, the new world creates new business process complexities for SMBs that they’re not equipped to handle alone. When an SMB starts selling online, taking credit cards, or streamlining their paperless workflows, they often don’t have the expertise needed to evaluate options and integrate the “chunks” to create an efficient business system. This is where accountants have incredible opportunities for growth. While many traditional accountants haven’t focused on these types of engagements, we believe that data in this survey make the case that accountants who develop services in business process engineering, strategic technology consulting, and business planning will experience significant growth.
When combining these new services with a change in business model, the inspired accounting firm will be well-positioned to thrive in the new world. The new business model for the firm will de-emphasize the traditional audit, tax, and other compliance services and move toward a collaborative, accountant-centric tool set where both accountant and client can access the same data anytime, from anywhere.
Opportunity for Accountants to Differentiate
For accountants who stick to financial statement and tax preparation services, the dramatic improvements in technology will continue to commoditize those services. A good gauge for how quickly these compliance services are being replaced by automation would be to consider payroll tax preparation services. Within the last eight years, the whole concept of accounting firms providing payroll tax services has all but gone away. Payroll services include tax returns, and payroll software automates the tax filings to the point where it’s no more complicated than pressing the submit button. How much longer will it be before other tax and compliance services are automated to similar levels?
If you want to differentiate your practice and position it for growth into the future, here’s a checklist for getting there:
- If you’re mainly in the compliance-services business, move toward higher value-added services, such as strategic business consulting, strategic technology planning, tax planning, and collaborative accounting services, where both accountant and client can access live data.
- Educate your staff on new-world technologies and adopt a set of recommended products for your clients.
- Agility trumps ability. Don’t assume you can use just one tool. Each client may require that you collaborate with him or her using different tools. You don’t want to lose clients because you “don’t know” their systems.
- Develop skills to connect systems together from multiple vendors. We call this “digital plumbing.” The future will need many digital plumbers to connect systems together and troubleshoot “leaks” in digital plumbing between applications.
- Use and recommend collaborative accounting technologies to broaden and deepen your client engagements.