A new report reveals that more than half (52%) of accounting professionals expect their firms’ headcounts will be at least 20% smaller in the next five years, with fewer entry-level employees expected to be needed in the future. But at the same time, 75% of accountants believe their firms will need the same amount or more staff to meet client demand.
As the report “Transforming Your Firm’s Business Model: Workforce Transformation and Talent Management Strategies” states, “The math just doesn’t add up.”
“This prediction alone seems to be enough to consider restructuring accounting firms now to prepare for the future. No longer can accounting firms expect to succeed with the traditional pyramid-shaped accounting practice structure that has helped firms grow for over 100 years. This structure relies on a large volume of entry-level staff,” said CPA Crossings, a provider of technology-based learning for CPAs, which was commissioned to conduct the research study on behalf of the Indiana CPA Society.
“With less headcount in the future, firms will have to focus on hiring staff with technology and business skills who can start at the experienced staff level and provide more value faster to clients,” CPA Crossings added. “Getting to the experienced staff or manager level will take too long with the pyramid structure. It is not designed to retain or accelerate staff. It actually does the opposite.”
The report—which highlights the results of a survey of 205 full-time professionals working in public accounting firms, with representation from every level, from staff accountant to partner—found that 60% of respondents anticipate reductions due to automation, with entry-level roles being most at risk.
“Accounting firms need to start looking at talent acquisition, talent retention, and workforce transformation in terms of ‘What kind of skills do we really need?’ instead of ‘How many people do we need?'” the report says. “Firms expect to need more senior- to partner-level professionals, especially in tax and advisory. These staffing shift changes from traditional skills to specialized skills and from expansion to efficiency are why accounting firms need to rethink how they are structured.”
Introducing the inverted pentagon framework
This rethinking of the accounting firm structure should include a framework that retains and rewards the best performers. The report recommends an “inverted pentagon framework,” which unlike the pyramid, is skinnier at the bottom layer with fewer entry-level employees; wider in the middle layers for experienced staff and managers and highly compensated nonequity consultants, advisors, and experts; and a top layer that is expanded a bit to allow for broader ownership and evolving practice structures.
“[T]he inverted pentagon-shaped accounting practice structure is designed to accelerate people to high-value work quicker so accounting firms can expand by providing more specialized skills and expertise. It is also designed to retain the best performers. The inverted pentagon structure is purpose-built to accommodate the ongoing technological advances and implications, as well as a talent deficit and its impact,” the report states. “Of course, entry-level staff are still needed, albeit fewer of them. Many of the tedious or repetitive tasks once assigned to entry-level staff are handled by technology (automation and artificial intelligence) or outsourced. This approach frees up entry-level staff to be trained in specialized areas—and more quickly apply their new skills. This enables them to stay engaged with clients and move to the next pentagon layer faster.”
The top specialized skills most critical for entry-level staff to develop, according to the report, include (ranked in order of importance):
- Data analytics and visualization
- Strategic advisory and consulting skills
- Technology proficiency
- Regulatory and compliance expertise
- Soft skills
- Industry-specific expertise
- Client relationship management
- Business development skills
“A key difference between the pyramid and pentagon frameworks when it comes to talent retention lies in its focus on specialized skills,” the report says. “The pentagon structure has wider middle layers specifically designed to acquire and retain technologists, corporate finance experts, business developers, consultants, client success managers, as well as lateral hires from other firms. These layers do not exist in the pyramid framework and requires recruiting people who already have expertise from professions other than accounting. The pentagon framework also relies on more senior staff delivering the client work. The fastest-growing firms are often the ones that do not provide every service but provide some services exceptionally well.”
The ‘6 Ps’ of business model transformation
For accounting firms to be successful in the future, the report says they will need a new practice structure that accommodates and focuses on the “6 Ps” of business model transformation.
The 6 Ps are:
- Precision hiring
- Proactive retention
- Practical technology implementation
- Pricing expertise
- Practice area expansion or focus
- People acceleration
“If a firm is going to drastically reduce its hiring, it needs to be certain that those they do hire are exceptionally strong candidates who fit well with the firm. Firms need to conduct more critical assessments of candidate competencies—not necessarily technical accounting skills, but the ability to learn, technological aptitude, curiosity, adaptability, emotional intelligence, problem solving, critical thinking,” the report says. “These might be more important success factors than legacy measures. Smaller onboarding classes should also equate to higher starting salaries, which will enable forward-looking firms to attract higher-caliber talent.”
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