Although it’s been out for more than a month, we haven’t had a chance to take a deep dive into Thomson Reuters’ 2024 State of Tax Professionals Report. We really should, and will, because A) it’s a great report and B) the profession is in such a state of change at the moment that what’s important now might be chopped liver come next year. This report is an excellent way to benchmark the various issues impacting tax firms and demonstrates how much things can change year-to-year in this current period of flux.
To tide you over until we can do that deep dive, the good folks at TR just published an article on tax firms’ top strategic priorities. Talent continues to influence the obsessive thoughts that bubble over in firm leadership’s brains when they’re trying to fall asleep every night however growth, pricing, and efficiency are of significant importance, too. Depending on what size firm you ask.
Here’s a handy chart:
Says the full report:
- Small firms (1-3 people) tended to lean in the direction of maintaining the status quo, preferring a more balanced approach to prioritization.
- Midsize firms (4-29 people) were much more likely to pursue talent development as a priority and drive efficiencies through streamlined workflows and aggressive use of automation.
- Large firms (30-plus people) had the resources to pursue multiple priorities at once, including talent development and growth through efficiencies found using more sophisticated technology and automation. Large firms were also more likely to explore different pricing strategies for the broad range of business services they offer.
On the topic of pricing, Thomson Reuters says this is the first time ever it has appeared in the top priorities list. Ron Baker and the rest of the Death to the Billable Hour gang will love this part:
…largely because the wisdom of hourly billing is being questioned by both clients and their firms. Many clients don’t like hourly billing because it is unpredictable; hence the rise in flat-fee and project-based pricing, among other alternatives types of pricing. Firms, too, have come to realize that hourly billing doesn’t necessarily capture the true value of their services, particularly in the areas of business consultation, tax strategy, and decision support.
This makes a lot of sense when you think about how popular advisory services are these days. Don’t expect this change to happen as rapidly as automation, they’ve been debating this for like 15 years and the old-timers are really having trouble letting go. Here’s Ron Baker’s value pricing pitch from almost ten years ago:
A big problem with hourly billing is it’s an internally focused metric. It looks at our costs and our inputs. It doesn’t look at our outputs and outcomes. There’s nothing in the hourly billing formula that looks at client value.
The other problem with it is it limits an accounting firm’s income. As more and more firms are moving to the cloud, a lot of labor that CPAs used to do is now being automated. If you’ve got a business model that says, “I sell time,” and the time it takes you to do more work is being driven down because of all these technological changes, unless your hourly rates are increasing faster than productivity, your income is going to suffer, and your profitability is going to suffer. And our hourly rates have not been increasing faster than our productivity. So it’s a very limiting business model.
But back to the report. Comparing 2023 to 2024, we see efficiency still dominates the list, talent is once again a headache (note: retention is now the word of the day when we talk talent which should not be confused with the pipeline problems that get all the headlines), and growth has slipped a bit.
“Growth may have slipped down the priority list; but then again, lack of growth hasn’t been a problem for most firms either,” says the report. “Indeed, a majority of firms reported an average revenue increase of 24% over the past 12 months. So whatever firms are doing, it’s still working.” Mid-size firms interpret growth as expanding their client base while the larger firms see implementation of automation as the best way to grow. In other words, “growth” means different things to different-sized firms.
We’ll do a deeper dive into the report later, hopefully this has whet your appetite.
Survey Methodology:
Surveys for the 2024 State of Tax Professionals Report were conducted in the first quarter of 2024.* The survey involved 500 respondents from tax & accounting firms of all sizes, although a bit more than half (51%) of respondents were from midsize firms (4-29 people), and 38% were from small firms (1-3 people). By region, slightly more than half (51%) of respondents were from firms in the United States; the rest were from firms in the United Kingdom, Canada, Australia, Brazil, and Argentina. Also, 60% of the respondents were male, and the age range of all respondents was represented relatively equally by decade, from under 40 years old to over 60 years old. The vast majority (85%) of respondents reported having leadership roles in their organization, and almost half (48%) were either partners or principals.
