The New Zealand accounting profession is one of the world leaders in the adoption of cloud accounting technology. They have been active in the space since 2008 and approximately (at the time of writing) over 45% of New Zealand small businesses use a cloud accounting product.
As a result of technology and market forces, the New Zealand Accounting profession has been negatively affected. In short, it’s going backwards.
All you have to do is take a look at the profit per partner analysis (diagram below) of the last 13 years. According to popular benchmarking report by CCH Businessfitness (The Good, the Bad and the Ugly report) in 2004 the actual median profit per partner was NZ$176,163. In 2016 the actual median profit per partner is NZ$200,608. Not only has the actual profit per partner declined in the past 10 years (from a high of NZ$229,646 in 2007) but when you apply ‘CPI plus a bit’ of just 5% to each year since 2004 then the 2016 comparison results are staggering.
The other numbers of Work in Progress, Receivables, write downs / Realization, Average Hourly Rate and Productivity / Utilization have gone up, down and sideways. At the end of the day it’s the profit per partner that matters.
Every expense in a firm is increasing. Salaries and overheads are increasing and you should be running a better firm each year so applying 5% per year profit growth is a very conservative growth target. Based on 5%, the median profit per partner in 2016 should be NZ$316,363. Alas, it was only NZ$200,608. That’s almost a NZ$120,000 difference per partner!
How can the average partner in New Zealand afford private school education, decent cars, reasonable holidays and still give back to the community? Most can’t.
And to make matters worse, isn’t the Accounting profession supposed to be ‘The Trusted Advisor’ – the ‘Primary Business Adviser?’ Most partners are making less than their clients yet they are advising them about business success! Hmmm.
So why is this happening? Based on my research there are 3 primary reasons:
- Cloud accounting technology is driving efficiencies in the firm and the profession has been forced to reduce prices.
- Savvy clients have more information than ever before and they are asking more ‘price’ and ‘value’ related questions.
- Nimble Accounting firms are promoting bundled and cheaper prices than ever before and thus ‘commoditizing’ compliance.
But it goes deeper. The majority of the New Zealand Accounting profession did not do 3 things to combat the external forces:
- They did not ‘price up front’ all client work. As they became more efficient with cloud accounting (up to 50%) they did not increase their charge rates to make up for the efficiencies gained. If you’re pricing in arrears and getting 50% more efficient then charge rates need to double to keep the same price.
- They did not re-adjust their cost structure to combat the nimble players. They didn’t outsource, off shore or reduce their headcount fast enough.
- They did not add value with the capacity they created. They didn’t deliver additional services to clients or find new clients to fill the capacity gap.
The New Zealand profit per partner has gone backwards because of the slowness to adapt to external forces and the lack of management of cloud accounting. This will happen to you if you do not address the 3 points above.