How Are Tax Firms Planning to Promote Growth?

Tax firms don’t prioritize growth over other priorities… but the reality is a bit more nuanced.

According to the Tax Professionals Report, which surveyed more than 500 tax professionals from accounting firms around the world, about 19% of respondents cited business growth as their top priority, down 10 percentage points from last year. Interestingly, a report from Accounting Today found that accounting firms’ revenues fell by a third compared to last year.

For context, tax and accounting firms achieved record revenue growth of 19% in 2023, the highest in decades. It is therefore worth taking a closer look at these two data points to determine whether there is a correlation and, if so, whether there are any potential trends.

Not surprisingly, accounting firm executives are very interested in growth. Although it was ranked as the fourth top priority by respondents to the Tax Professional Report, that doesn’t mean that firm leaders are no longer interested in increasing profits or growing the business. Rather, accounting firm executives appear to be taking a more strategic approach to growth, emphasizing efficiency, automation, talent acquisition, and client service as key areas of focus.

Efficiency Supports Growth

Improving efficiency and expanding automation has become a top priority for many accounting firms. This trend is likely due to tax regulations becoming more complex and companies needing to streamline operations to stay competitive. By investing in automation technologies, companies reduce the time employees spend on manual processes, minimize errors, and improve overall productivity. This shift not only improves operational efficiency, but also allows companies to more effectively allocate resources to higher-value activities such as customer advisory services.

Cost reduction is a key element when it comes to efficiency. Management should frequently review current business strategy processes, technology and workforce deployments to determine where efficiencies and cost savings can be achieved. Who will do what, with what? How long will it take? Is current technology being used to its full potential or should it be improved or replaced?

Streamlining and scalability are often the basis for efficiency. Leaders must determine which tasks can be systematized and whether automation should be incorporated to manage and improve accuracy and speed.

Talent: Re-skilling and Retaining

With an increasing demand for qualified tax professionals, companies are investing in strategies to recruit, develop and retain employees. This includes providing ongoing training and development opportunities and fostering a positive work environment that promotes employee happiness and job satisfaction. In fact, Accounting Today reports that many companies report that their talent strategies are a central part of their growth.

Talent is now crucial for firms to address industry challenges such as a decline in the number of students entering the accounting profession and a significant number of professionals leaving the profession. And by training current employees while encouraging greater outsourcing, firms could have further invested in talent.

Improved Client Service

As tax and accounting firms of all sizes continue to find that their business models are shifting from purely compliance work to more comprehensive advisory services, many firms have come to recognize the high-value services they provide to their clients. In an increasingly customer-centric marketplace, firms are focusing on providing superior service to differentiate themselves from competitors. This includes understanding their clients’ individual needs, providing personalized solutions, and maintaining strong relationships.

For example, firms are increasingly concentrating on specific industries and specific service offerings, from tax planning to management consulting. Over the years, accounting firms have evolved their business from compliance to advisory. As such, while deciding what types of clients to target, they have had to focus on business services that are strategically important to their clients. These could be customers in specific industries such as construction, non-profit, or manufacturing. By prioritizing specific customer services, firms can increase customer satisfaction, foster loyalty, and achieve long-term business growth through referrals and repeat business.

Further Growth Considerations

The trend toward inorganic growth continues. Mergers with competitors and investments from private equity firms remain a steady growth path for many tax and accounting firms. For many businesses, mergers and acquisitions can be an idyllic solution that allows the company to grow in many ways, including acquiring much-needed talent, expanding into desired markets and industries, and, of course, gaining access to a broader and larger client base.

Investments by private equity firms once seemed controversial among accounting firms because of their potential to transform corporate structures, but they are now becoming increasingly accepted. Firms recognize the opportunities such financing brings, including the ability to scale quickly and acquire the technology they need to operate more efficiently and become more competitive.

Overall, tax and accounting firms today appear to be approaching growth strategies like a hawk. Their approach is to consider every aspect of their business, from efficiency to talent to client service, to determine what growth should be driven and how. Implementing this holistic and strategic growth approach will enable firm leaders to stay competitive and navigate the evolving tax industry landscape.