The 20 biggest problems for firms in 2023

March 14, 2023 9:00 AM

There are all sorts of exciting opportunities in accounting these days, from skyrocketing demand for services and the burgeoning capabilities created by new technologies, to highly profitable new service areas like CAS, cannabis, ESG and more.

But that doesn't mean everything's perfect — far from it.

Accounting firms face a host of challenges in just about every aspect of their practices that require changes in their business models and their everyday workflows, what services they offer clients, their approaches to recruiting and retention, how they integrate technology into their practices, and more.

In a recent survey for Accounting Today's Top 100 Firms and Regional leaders report, the leading firms in the country identified 20 major problems they'll be dealing with in the future, and while staffing is by far the most serious concern (so massive, in fact, that it has fragmented into a handful of major issues and takes up five spots on our list), there are plenty of others to keep firm leaders up at night.

1. The war for talent

"The current shortage of accounting talent is a major concern," explained Suzanne Forbes, managing partner of Florida-based James Moore & Co. "There is a significant drop in the number of people entering the field, which makes it difficult to recruit and retain team members."

"The first issue, obviously, is people," agreed Sam North, managing principal at Washington-based Sweeney Conrad. "The current recruiting landscape in the accounting world is highly competitive, and it can be a challenge to find the right people."

A long-term decline in accounting graduates, a similar drop in accounting grads becoming CPAs, and serious competition from other careers in areas like technology and finance all have accounting firms struggling to staff engagements and find their next generation of leaders. That is having a host of knock-on effects.

2. Rising salaries

Scarce supply and high demand can only mean one thing: higher prices.

"Rapidly rising compensation rates in our industry — and poaching from large, national firms" are serious problems for firms, according to Erica Ishida, president and COO of Ohio's Apple Growth Partners.

Firms have to pay talent so much more, in fact, that many of them share the concern of Glen Swanson, CFO at MHCS in Iowa, about "maintaining profitability while having to significantly increase salaries."

3. A capacity crunch

Office lady being scared because of too much paperwork to do

Regardless of how many people a firm has (or doesn't have), its clients' needs don't change.

As Glen Weyenberg, president of SVA CPAs in Wisconsin, put it, "Finding work is not an issue; finding people to do the work is a critical issue."

The work doesn't go away because firms can't staff engagements, and that can lead to the kind of rationing described by Kristine Latchaw, director of administration at Michigan-based Maner Costerisan: "Working on the clients that make the most sense and utilizing the limited resources we have effectively."

4. Burned out

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If firms can't bring on new staff, that means that those who are already there get more and more work piled on them — after three years of pandemic that stressed everyone both at work and at home, and as the calendar fills up with more and more demands.

"Our team has been at capacity and there are no longer 'slow' periods," said SVA CPAs' Weyenberg.

The resulting burnout drives down engagement and productivity — and, in a vicious circle, drives even more people away from the profession.

5. Making them want to stay

To keep staff engaged — and build the next generation of leaders — firms need to work on moving them up the ladder more quickly, and in more ways.

"Onboarding, training and professional development of team members" is a major concern for Jeff Wright, managing partner of Draffin Tucker in Georgia. "We must increase the opportunity for more rapid advancement in our firm."

"Attracting, developing and retaining qualified team members is No. 1," agreed J. Del Walker, chief growth officer at Houston-based PKF Texas. "This includes providing fluid and alternative career paths for our team members. The days of a single career path approach are no more."

6. Losing knowledge

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Another, less-heralded aspect of the staff crunch is the loss of institutional expertise — to say nothing of the succession issues caused by a declining bench of talent.

"Valuable knowledge is leaving (both with retiring boomers and staff leaving the firm/industry), and ranks are running thin," warned Mark Bober, a partner and member of the executive committee at Ohio-based Bober Markey Fedorovich.

And Mark Duren, managing shareholder of Nebraska's Lutz, is concerned about "delivery of client service as seasoned shareholders offering outstanding client service retire."

7. Keeping up with tech

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Like staffing (though not to the same extent), the constant influx and impact of new technologies presents multiple challenges to accountants — starting with just keeping up.

"Staying up to date on technology changes and disruptors impacting our industry is a challenge," said Mary Elliott, CEO of Alabama-based Warren Averett. "With digitalization rapidly increasing and swift moves to automation and AI, accounting firms need to be looking ahead and finding ways to adapt."

"Trying to fully understand how we can best wrap our arms around automation and AI" is a concern, agreed BMF's Bober, "as is keeping up with larger firms who are already grasping the concept."

8. The price of IT

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As technology becomes more of a differentiator, it is becoming an increasingly important line item in firms' budgets.

"Technology spend will continue to increase as a percent of revenue as we adapt to more AI, innovation and a remote workforce," explained James Cordova, the president, managing partner and CEO of California-based Windes.

And just as important as how much money firms spend is what they spend that money on.

"With constant technology innovation, it can be challenging for firms our size to determine which solutions to invest in," said Dave Hinnenkamp, CEO of Minnesota-based BerganKDV. "Having a solid strategy in place that outlines the innovations and digital transformation our firm is hoping to achieve is crucial."

9. Is IT safe?

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"A big challenge will be staying aware of and defending against the threat of cyber incidents," warned Avani Desai, CEO of Florida's Schellman. "Firms in the accounting profession have always been the gatekeeper of sensitive client information, and that means we'll continue to be prime targets for malicious events. Keeping this information secure is of the utmost importance, but with the growing digital footprint of many organizations — and the expansion of the attack surface due to hybrid working — this will continue to be difficult to mitigate."

As firms' workforces gets more and more widely distributed, security concerns only increase.

"Adaption to remote work brings cybersecurity risks," noted Ashlyn Ballard, marketing coordinator at Abacus CPAs in Missouri. "The pandemic made everyone learn to work remotely, and that is largely the way of the future. … At Abacus, we have remote employees nationwide and have elite cybersecurity defense to protect secure information."

10. Giving clients what they need

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Besides handling their own problems, accounting firms need to be able to handle their clients' problems, too.

"[After staffing, the top issue] is ensuring all the service needs of our clients and prospects are being met, including historical audit and tax compliance services," said PKF Texas' Walker. "If not by us directly, then through strategic professional relationships in our local market or through affiliated organizational memberships on a national and/or international level."

"Our clients are growing and becoming more complex, and we must ensure that we invest in new services, locations and people to meet their needs," agreed Tom Watson, CEO of Forvis.

11. Firing the right ones

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Capacity constraints can be eased by hiring staff — or rethinking your client roster.

"Right-sizing clients" is an issue, according to Michael McCarthy, MP of Georgia-based Hancock Askew & Co.: "Culling clients that are no longer a fit and maximizing the relationship with those clients that are."

Right after the challenge of finding the right staff, according to Sweeney Conrad's North, "it's finding the right clients. Targeting great fits for our firm is a core issue that we're putting a lot of work into."

12. Pressure building

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Rising salaries aren't the only pressures having an impact on firms' bottom lines.

"One of the most critical issues facing firms of our size is pricing pressure," said Schellman's Desai. "As the economy goes through a period of recession, clients will be looking for ways to cut costs, which could lead to pressure for lower prices. This can be a significant challenge for firms seeking to maintain profitability while still providing high-quality services, and may even lead to a race to the bottom that sees firms forced to cut corners or lower standards in order to stay competitive on price."

13. Moving to advisory

Refocusing their practices to emphasize higher-value advisory services is another major issue facing firms.

"The public accounting profession has traditionally been a compliance-oriented business, one that is now facing the ongoing threat of continuing commoditization by technology," explained Seth Siegel, CEO of Grant Thornton. "As a result, accounting firms should focus on three things: people, competition and the offerings needed to serve our clients and help them solve their business problems."

The goal, according to Mark Thomson, managing director of Chicago-based ORBA, is "being a key business advisor and the go-to person for client advisory services and strategic planning."

14. Embracing change

The relentless and widespread nature of the challenges firms face requires them to make constant adjustments, both large and small — and that often means disrupting time-honored practices.

"Getting outside of our comfort zone" is a major issue, according to SVA CPAs' Weyenberg. "The opportunities to grow are real, and changing to meet these opportunities requires changes in the way we operate."

15. Staying up to date

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Given the importance of technical expertise in the field, it's no surprise that keeping abreast of the latest in accounting standards and new tax laws is a perennial concern of firms.

"Staying on the forefront of accounting compliance developments is always a challenge," said Forbes of James Moore & Co. "Implementing new standards and laws takes constant vigilance (as well as a consistent effort in communicating these changes to clients)."

"CPAs are constantly playing catch-up to learn all the new rules that seem to change on a daily basis, while meeting important deadlines and trying to reach someone at the IRS to resolve a pending client issue that has been on standby for over six months," said Armando Hernandez, CEO of H&CO in Florida.

16. Regulatory pressure

Courtesy of PCAOB

Keeping up with rapidly changing regulations, standards and laws is a big enough problem — but firms also have growing issues with regulators themselves.

"Rapidly increasing complexity with tax compliance and dealing with the IRS," was a problem cited by Jon Segal, managing partner at Illinois-based KRD. "It is getting increasingly difficult to practice in this environment. With all of the changes over the past five years, the IRS is doing their best to make sure young people will not want to work in this profession!"

More than a few also mentioned what Nishta Sharma, the MP of Atlanta-based KNAV, described as "the hawkish posture" of the Public Company Accounting Oversight Board, which has taken a more aggressive approach to regulating auditors over the past year.

"Oversight from the PCAOB is creating challenges in serving clients in that space," said Laura Sprouse, a partner and COO at Virginia-based Brown, Edwards & Co.

17. How remote?

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Overall, firms did an amazing job launching themselves into the remote environment at the start of the pandemic — but they're having some trouble sticking the landing, trying to figure out the proper balance between remote, hybrid and in-office work that will satisfy staff, while also allowing the firm to build the culture it wants.

As PKF Texas' Walker put it, "What is the right 'secret sauce' mix between remote work versus in-office work? How does your approach integrate with your approach to attracting, developing and retaining qualified team members?

18. The M&A question

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The profession has been gripped by merger mania for almost two decades, but the M&A landscape is changing rapidly.

"M&A is markedly different," said Jacqueline Wiggins, principal and chief strategy officer at Baker Tilly US. "Financial structures are getting more complex, and deals are happening faster. Specialty advisory companies who are acquisition targets have high valuations and expect to monetize their investment rather than swap retirement obligations."

And with so many acquirers on the prowl, and practices everywhere concerned about succession issues and their ability to invest for the future, firm leaders everywhere are asking themselves the question posed by John Whybrew, MP of Tennessee-based Alexander Thompson Arnold: "Do you maintain your independence, merge up, merge with like-sized firms, or take private equity money?"

19. The war of each against all

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Competition is only getting fiercer, as national and regional firms push down into smaller markets, and companies from outside the profession leverage technology to make inroads in some areas.

"EEPB is one of the largest independent accounting firms in Houston," said director Greg Crochet. "While we take pride in our history and the competitive advantage we have created through our personalized service to clients and focus on the success of our employees, there are now many more national and regional firms in the Houston market than in the past."

It isn't just small or local firms that are concerned, either.

"The competitive landscape itself is shifting," said Grant Thornton's Siegel. "New market entrants, digital-native players and other nontraditional providers are entering our space. Firms must continue to refine their offerings and approaches to doing business."

20. Economic risks

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Most often when accountants express concerns about the economy, it's on behalf of their clients.

"While the outlook for 2023 isn't clear, we know that our clients still face a myriad of challenges ranging from ongoing geopolitical conflict to supply chain disruption to concerns around new and evolving regulation," said Wayne Berson, CEO of BDO USA.

Still, while accountants perform better than most of the rest of the economy during difficult times — the Top 100 Firms grew 18.55% last year, for instance —that doesn't mean they are entirely unaffected.

"A looming economic slowdown, high interest rates and inflationary pressure continue to be concerning," said Tom Sulewski, president and CEO of Washington-based Clark Nuber. "We keep an eye on the impacts on our clients, but also watch the increasing cost structure for operating our own firms. Wage inflation, technology costs, hybrid work models, increasing regulations and other indirect costs push up the cost of providing quality service to the market at reasonable prices."