For 75 years, from 1911 until 1986, miners used to carry caged canaries while at work. If there was any methane or carbon monoxide in the mine, the canary would die before the concentration of gas reached levels that are hazardous to humans.
This is the origin of the metaphor ‘a canary in a coal mine’ which is now used as an advance warning of danger. A wake-up call if you like.
For some time many commentators on the accountancy world have been predicting the end of traditional accountancy firms.
Most such predictions misunderstand the marketplace and mistakenly suggest there will be a revolution rather than continued evolution. This same misconception has been evident in almost every prediction I can recall of developments and changes in the accountancy profession.
Having said that, the speed of change we are now seeing is faster than ever. This means that many forward thinking firms and new entrants to the marketplace are doing things very differently to traditional firms.
However, unlike most other commentators I believe that in 3 years time most accountants in the UK will still be operating in much the same way as they do now.
That’s not to say that all of the emerging new developments are fads, but the speed with which they will impact firms across the profession is likely to be slower than many people suggest. And this will not result in the ‘slower’ firms failing (in the short-term anyway).
The real impact of recent changes within the accounting profession will probably start to have a major impact in 3-5 years.
The question is when will these changes start to impact firms’ profits? When will the owners of such firms be forced to make more radical changes than has been required by the simple, slow evolution that has been going on for years.
What are the signs that they should look out for? What will be your wake-up call? What will be the canary in the accountancy coal mine?
Different forms of canary
As I keep pointing out there is a huge difference between big and small firms of accountants. Thus different parts of the profession will face different canaries and at different times.
Plenty of other commentators, software and app vendors would have you believe that, unless accountants stop focusing on compliance-led work, you won’t still have a practice in 3 years time.
In my view, anyone predicting this really doesn’t understand how the average client thinks, let alone how quickly the average accountant can adapt.
My view is that, whilst there will be a move away from compliance-led services over time, nothing ever changes as quickly as many others predict.
And I say this despite being more aware than most as to the longer term impact of many of the tech changes and developments now impacting the profession.
Cloud accounting started in the early years of this century. Then, as far back as 2009 there were already some commentators predicting the imminent demise of accountancy firms that didn’t move into the cloud. This is no more true in 2019 than it was in 2009.
MTD is now proving to be a further incentive to embrace cloud accounting, but it will still be another few years, at least, before most accountants maintain all of their clients’ accounting records in the cloud.
So, you don’t have to listen to all those commentators saying you MUST become an advisory led practice if you want to have a profitable future.
How many of your clients will be interested and willing to do their own bookkeeping using a cloud based platform? How many will do it sufficiently well to reduce your workload? And how many will only stay with you if you reduce your fees to reflect the change in your workload?
They used to say that if you carry on doing what you’ve always done, you’ll carry on getting what you’ve always got. That makes sense, UNTIL you think about it. The world is changing and many things won’t be staying the same, even if you keep doing the same things.
Here are my suggestions as regards 4 canaries to keep your eyes out for. Which one will be your wake-up call?
1 The automation canary
As you introduce new tech, systems and processes so you may find that you can reduce your reliance on junior staff to do the same work as before. You may find that you can reallocate or release them. Failing to do this could lead to them being less productive and a drain on your resources.
Chance are that this canary will lead to increased costs without a commensurate increase in income unless you pro-active.
2 The referrals canary
This will come about when you notice a significant reduction in the referrals you receive. Newer business start-ups will have been attracted by the cloud messages and existing businesses seeking a new adviser will generally move to someone offering them more valuable and relevant services than their old accountant offered.
In the same way, some of your clients will be tempted away by other accountants offering more than you do. They may be offering similar services for lower fees, they may be offering more client-focused financial and business advisory services. Or their promotional skills may simply be more effective than yours.
So this canary will be represented by a reduction in clients numbers and profits.
3 The simplicity canary
This will become apparent when you notice a change in the help that clients require from their accountant.
At the moment most clients need the help of an accountant to fulfil their annual legal compliance obligations.
They need you to help them comply with the law. To prepare and file annual accounts for their business and to prepare and file annual tax returns. And possibly quarterly vat returns, payroll returns and so on.
People go looking for accountants who will help them stay legally compliant.
The input required from you here is going to reduce over time. Most of the data that HMRC requires on tax returns is already collected in their systems. How long before this is automatically fed through to taxpayers’ tax accounts?
Clients may want you to check their tax account with HMRC but that’s quite different to what you do at the moment. And there will be no legal obligation involved here.
Cloud bookkeeping systems are evolving quickly. How long before they automatically generate the key data that HMRC requires – without your input?
So, again, this canary will result in a reduction in your fees and profits.
4 The competition canary
In the near future you won’t just be competing with other accountants like you. You’ll also be competing with business coaches, consultants and better prepared accountants.
Such people, unlike most accountants, have already had years of experience of networking, building relationships and of pitching for work in a competitive environment, pricing their consultancy and advisory work and negotiating deals to win the work and then to do it.
I know some accountants who are already noticing this canary. One has, for example, been asked to produce financial reports for his client as the information has been requested by her business coach. The accountant had previously been unsuccessful when trying to encourage his client to meet with him to go through such reports. The business coach’s fees are about 3 times what the accountant would have charged for what he thinks would be a more informed and valuable service. But the client has engaged the coach instead.
The accountant is now investing in training to enhance his skills to promote and deliver related services – rather than just hoping he would be able to ‘wing it’ any more.
This canary will become apparent as you find you struggle to win more of the work and clients you want to be focusing on.
Which canary do you think will provide your wake-up call?