A small-business barometer for 2019

November 6, 2018 6:01 AM

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Small businesses represent one of the single biggest pools of accounting firm clients, so knowing what they think and how they're doing is critical for accountants.

With that in mind, Accounting Today conducted its inaugural Small Business Accounting Insights Survey, to learn directly from the small firms themselves. That survey of over 1,000 owners and leaders from small businesses yielded countless insights, starting with the fact that they're doing very well -- and that those who work with accountants are, overall, very satisfied with them.

That said, many don't work with accountants at all -- 468 of those responding were rated as having a "low affinity" for the profession, meaning they hadn't bought any services from an accountant in the previous year, and were less likely to buy any in the coming year. (The 549 small businesses that reported buying services from accountants were, conversely, ranked as "high affinity," with their ranking rising depending on how many services they had purchased).

In 2017, more than two-thirds of the small businesses surveyed were profitable (69 percent), and another fifth (18 percent) broke even; only 6 percent lost money.

Interestingly, 7 percent of respondents weren't sure or didn't know -- which would suggest they need an accountant or CPA to clue them in.

Of the more than 500 small-business respondents who worked with accountants or CPAs in the previous year, virtually all were "somewhat" or "very" satisfied with their service (88 percent), which no doubt helps explain the next chart.

With client satisfaction rates high, two-thirds of small businesses that had worked with accountants or CPAs in the previous year were "not very" nor "not at all" likely to switch to another accountants, and another 18 percent were "neither likely nor unlikely," suggesting that clients are fairly sticky.

Less than half of respondents (47 percent) rated being technologically savvy as very important, and 42 percent thought it was important that an accountant or CPA offer a wide range of services.

They were much less interested in their accountant providing referrals for other services (28 percent).

Small Business Survey -- Current Services

The majority of small-business clients are consuming traditional services in tax and bookkeeping. Less than 10 percent were interested in other offerings, like business valuations, HR/benefits services, IT services, CFO services, succession planning or fraud/forensic accounting services.

Going forward, small businesses are primarily interested in the same traditional services they are buying now -- though it's worth noting that a much higher percentage of high-affinity businesses are interested in tax services (84 percent) than are currently buying them (68 percent), and even low-affinity businesses can see a need for them in 2019, as concerns about the Tax Cuts and Jobs Act rise.

Small Business Survey - Financial issues

Widespread concerns about cash flow and low profitability should represent a major opportunity for accountants and CPAs to provide advice.

While a good accountant should be able to help a small company with business growth and improving their cash flow, they might want to brush up on ways their clients can find and develop new business.

Small Biz Survey - High affinity vs. low affinity

Overall, respondents were more likely to have a "high affinity" for accountants than otherwise -- 549 to 468 -- but the big difference came from the larger end of the small-business spectrum, with the smallest of the small (those with 10 or fewer employees) more likely to not use accounting firm services at all.

While all small businesses were more likely to have increased their profits in the past 12 months, high-affinity companies were 11 percentage points more likely to do so than low-affinity ones.

More small businesses expect to increase their profits in the coming 12 months, and once again there's a major gap between companies that work closely with accountants and CPAs, and those that don't.

Revenues followed a similar pattern to profits in the past 12 months, with an even larger spread between high-affinity small businesses and low-affinity ones.

Interestingly, small business are less confident of growing their revenues in the next 12 months than they are of growing their revenues.

The majority of small businesses are holding the line on hiring, which could reflect either caution or the difficulty of finding qualified or affordable employees in a low-unemployment environment, but once again, high-affinity companies were more likely to be expanding.

Small Business Survey - Expect Employees

Small businesses will mostly be continuing the low-hiring policies of the previous 12 months in the next year, though there are fewer that expect to lower their headcounts.